Pinterest Is a Good Company in an Unfortunate Situation

Stocks to sell

The good news is that Pinterest (NYSE:PINS) stock finally bounced off its lowest point in nearly two years. Pinterest is trading up since it issued a better-than-expected earnings report. The bad news is what happens next. As much as I like Pinterest as a company and I appreciate what PINS stock brings to the table, I’ve got some serious reservations about what kind of profits Pinterest will be able to generate over the next few quarters.

The problem is the economy. We’re dealing with huge inflation rates that haven’t been seen in decades. The Federal Reserve is raising interest rates to limit the supply of money and help bring prices down, but that in turn will also cut into a lot of household discretionary spending. And discretionary spending is where PINS stock thrives.

Pinterest is a social media platform that lets users create online pinboards about fashion, photos, videos, or anything else they desire. Users scroll through Pinterest and put digital “pins” on things that they like. People can also buy products directly from the platform. Pinterest shows targeted ads that promote products that most closely match users’ interests.

During the thick of the Covid-19 pandemic, PINS stock was a huge winner. People were stuck at home with pretty much nothing to do. And they had government stimulus checks and enhanced unemployment benefits to give them discretionary income. So, it’s no wonder that Pinterest stock jumped from less than $13 in March 2020 to top $85 less than a year later. But those stimulus checks are gone now and instead we have huge inflation numbers. It’s going to be harder for Pinterest to extend its winning streak.

Earnings in the first quarter included revenue of $575 million, beating analysts’ expectations of $573 million. Earnings per share was 10 cents, which beat analysts’ expectations of 4 cents per share. However, monthly active users dropped by 9% from a year ago to 433 million. Pinterest blamed the drop on pandemic inflated comparables in 2021, as well as lower search traffic caused by an algorithm change put into effect by Alphabet’s Google (NASDAQ:GOOG,NASDAQ:GOOGL).

I would love to see Pinterest flourish for the next few quarters, but I don’t see it happening. And there are plenty of analysts who are dropping their price targets for PINS stock because they apparently feel the same way.

There are plenty of opportunities for investors to make money even in a challenging economy with rising interest rates, but PINS stock isn’t one of them. I’m going to root for this company from the sidelines and find better places to put my money.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.

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