Pinterest looks great as online advertising improves

Pinterest‘s (NYSE: PINS) Revenue growth is expected to continue to benefit as online media and advertising spending picks up. He’s already made an impressive comeback since the start of the COVID-19 pandemic, and I think his second quarter earnings report on Friday will show continued strength.

Shares of the image-sharing social media company have more than doubled since reaching their lowest level of coronavirus on March 18, beating the S&P gain by around 35% over the same period. E-commerce spending tends to increase, as do industry players’ CPMs (cost per thousand impressions, a common industry metric). Pinterest shows impressive user engagement and its integrated Buyable Pins through its partnership with Shopify could cause merchants to spend more to advertise with Pinterest. These factors could make the consumer discretionary company a good investment as advertising levels increase.

Image source: Pinterest.

Pinterest has seen strong engagement despite COVID-19

The social media company saw record engagement during the early stages of the COVID-19 pandemic. Pinterest receives revenue when consumers interact with Promoted Pins. The company also makes money from paid advertising on its site. CEO Ben Silbermann noted during the Q1 earnings call in early May that “searches have increased by more than 60% year over year. New table creations, indicating that people use Pinterest for new use cases, increased 60%. year over year. Pinner’s views on their own boards also increased 60%. ”

These encouraging measures of user engagement bode well for the company’s revenue growth. Even with the risks of shrinking ad spend due to the US recession, Pinterest seems well positioned due to its enviable engagement trends.

Pinterest’s user base, which is over 70% female, is a popular demographic for advertisers because this group often makes buying decisions for the household. Frequently, these Pinterest users browse the site with buyer intent, which makes them even more appealing to advertisers. A 2016 study found that about 93% of Pinterest users or “pinners” use the platform to plan or make future purchases.

This helps boost Pinterest as a platform as advertisers want to invest in higher converting campaigns. Silberman said on the first quarter earnings call: “For advertisers who continue to spend, we’ve seen a shift from awareness campaigns towards high-performing ads, an area in which we’ve invested heavily over the past year. the last year.”

Digital advertising outperforms

While total advertising in the United States is expected to decline 13% in 2020 (compared to a 16% drop in the 2009 recession), digital advertising will hold up much better, according to GroupM, the world’s largest company. media investment. The company expects digital advertising to be stable for the year, helped by a boost in political advertising in the United States. In addition, an 11.3% recovery in digital ad spend growth is expected next year.

Pinterest will benefit as ad spend increases in the third quarter, according to research group Advertiser Perceptions. This researcher’s survey of 151 media buyers and advertisers showed an encouraging recovery in advertising spending amid recession and high unemployment rates.

Pinterest’s built-in shoppable pins are good for future income

Pinterest’s recent partnership with the Shopify e-commerce platform allows retailers to add tags to their Pinterest accounts. This means that buyers can search for a product and find out about the brand. Merchants can also create Buyable Pins for their Shopify products, which allows the Pinterest customer to purchase directly from the merchant’s store. It also helps Shopify merchants to easily create content and advertising on Pinterest.

The deal between Shopify and Pinterest will likely help support Pinterest’s revenue growth, as online merchants tend to spend more on online advertising to support their businesses. Now that there is a more integrated way to serve high converting ads, this could lead to additional expenses for Shopify vendors.

Overall, the Pinterest action has a lot of elements that work in its favor. Its desirable user base, combined with recent offers making it easier to advertise for merchants with Pinterest, are all positive winds for the business. As digital advertising continues to rebound, Pinterest seems like a good investment to consider.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.