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Pinterest (PINS) shares took a significant tumble, plummeting 21% on Wednesday following the release of its third-quarter earnings report. The results revealed a challenging landscape for advertising revenue, impacted by the ripple effects of tariffs affecting major retailers. The stock experienced its second-worst trading day in history, narrowly avoiding the steep 23.6% decline it saw in May 2022.
While the company reported an adjusted profit of 38 cents per share, it fell short of analyst expectations, which had pegged earnings at 42 cents per share according to LSEG data. However, the platform’s revenue aligned with analyst predictions, reaching $1.05 billion. The discrepancy between earnings per share and revenue forecasts highlights a growing concern over profitability amid increasing operational costs and external economic pressures.
“Tariff-related weakness manifested itself in our digital ads sector, underscoring Pinterest’s vulnerability stemming from limited customer diversification and heightened sensitivity to macroeconomic factors,” noted RBC in an analyst briefing. This assessment points to a need for Pinterest to broaden its customer base and diversify its revenue streams to mitigate risks associated with tariffs and economic downturns.
U.S. and Canadian sales for the third quarter amounted to $786 million, a figure that fell short of StreetAccount’s estimate of $799 million. This underperformance suggests a potential slowdown in domestic markets, which are critical to Pinterest’s overall revenue generation. The shortfall raises questions about the platform’s ability to sustain growth in its core markets amid increasing competition and evolving consumer behavior.
Pinterest’s finance chief, Julia Donnelly, acknowledged the emergence of “some pockets of moderating ad spend” in the U.S. and Canada during the earnings call. She attributed this trend to “larger U.S. retailers” grappling with margin compression due to tariff-related issues. The admission underscores the interconnectedness of the advertising ecosystem and the vulnerability of ad-dependent platforms like Pinterest to external economic shocks.
Donnelly further cautioned that the company anticipates these trends will persist, compounded by the imposition of a new tariff by President Donald Trump impacting the home furnishings category. This statement implies a potential drag on Pinterest’s revenue from home décor and related categories, which are significant drivers of user engagement and monetization.
In response to the earnings report, several financial institutions adjusted their price targets for Pinterest downward. The revisions reflected concerns about intensifying competition from larger social media platforms like Instagram and TikTok, as well as apprehensions regarding prevailing macroeconomic headwinds. The competition for user attention and advertising dollars is fierce, requiring Pinterest to continually innovate and differentiate its offerings to maintain its competitive edge.
Citi analyst Ronald Josey expressed concern that Pinterest’s international monetization efforts might “plateau or decelerate faster than expected.” This projection suggests that Pinterest may encounter challenges in expanding its revenue base in international markets, potentially limiting its overall growth potential. Efficient monetization strategies are crucial for Pinterest to capitalize on its global user base and achieve sustainable profitability.
Despite these challenges, a majority (81%) of analysts maintained an outperform or buy rating on Pinterest, indicating a degree of confidence in Pinterest’s long-term prospects. This bullish sentiment suggests that analysts believe Pinterest possesses certain strengths, such as its unique visual discovery platform and engaged user base, that could enable it to overcome short-term obstacles.
JPMorgan retained its overweight rating on the stock, despite decreasing its price target. This decision reflects the firm’s belief in Pinterest’s potential as it increasingly leverages artificial intelligence (AI) initiatives. The company is betting on AI to enhance user experiences, personalize content recommendations, and optimize advertising targeting, which could drive future growth and monetization.
“We acknowledge that near-term macro pressure & PINS’s outsized exposure to big retailers & home furnishings may keep the shares range-bound near-term, but we remain constructive on PINS’ user growth, deepening engagement, & overall monetization potential,” JPMorgan’s Doug Anmuth wrote in a note to investors. This sentiment underscores the ongoing challenges Pinterest faces in the current economic environment, while also highlighting the platform’s underlying strengths and opportunities for future expansion.
Pinterest’s fourth-quarter forecast also fell short of expectations, with revenue projected to range between $1.31 billion and $1.34 billion. The midpoint of that range, $1.325 billion, missed Wall Street’s projections of $1.34 billion. The conservative guidance raises concerns about Pinterest’s ability to capitalize on the crucial holiday shopping season, which is typically a period of high advertising demand and user engagement.
CNBC’s Jim Cramer offered a nuanced perspective on Pinterest’s outlook, stating on “Squawk on the Street” that “[he] did not think they were nearly as negative on the holiday season as people are making it out.” He added, “[CEO] Bill Ready is not a guy that likes to talk his books up.” Cramer’s assessment suggests that Pinterest’s management may be taking a cautious approach to forecasting, rather than signaling a fundamental weakness in the business.
Rosenblatt analyst Barton Crockett downgraded shares to neutral from buy, citing concerns about Pinterest’s ability to compete against the surging growth of chatbot capabilities. The rise of AI-powered chatbots could disrupt the search and discovery landscape, potentially posing a threat to Pinterest’s core value proposition as a visual search engine.
“Chatbots are not meaningfully in Pinterest’s space today,” Crockett wrote, acknowledging that “Google has a comparable service, Mixboard, that seems more a test than a meaningful push. But it is absolutely likely, we believe, that as chatbots ramp up advertising and content for consumers with commercial intent, that Pinterest’s wheelhouse will become their wheelhouse.” This analysis suggests that the long-term impact of chatbots on Pinterest’s business model remains uncertain, but warrants close monitoring.
Bank of America analyst Justin Post observed that while revenues fell short of expectations, Pinterest is experiencing consistent growth and is in “the early stages of realizing AI-driven gains.” This assessment suggests that Pinterest’s investments in AI are beginning to yield positive results, but the full potential of these initiatives has yet to be realized.
Ready highlighted the company’s ongoing efforts to integrate AI throughout the platform, emphasizing a new feature that will generate personalized boards for users. Pinterest also rolled out an AI-powered personal shopping assistant in late October, further demonstrating its commitment to leveraging AI to enhance user experiences and drive engagement.
“Our investments in AI and product innovation are paying off,” Ready stated. “We’ve become a leader in visual search and have effectively turned our platform into an AI-powered shopping assistant for 600 million consumers.” The CEO’s statement underscores Pinterest’s aspirations to transform itself from a visual discovery platform into an AI-driven commerce hub, a strategic shift that could significantly alter the company’s trajectory in the years to come. The key will be how effectively Pinterest can leverage its AI investments to stay ahead of competitors and drive sustainable growth in a rapidly evolving digital landscape.
