Okay, so this is one of those rare moments where I disagree with ARK Invest. I want to
talk about this company now because they recently reported awesome earnings, and like all great
earnings calls, their stock immediately dropped 20% percent. Gotta love the stock market.
In this episode, I'd like to explain why I'm incredibly bullish on the short-, medium-,
and long-term future of Pinterest, ticker symbol P I N S and if you think it's just
a second-rate social media platform, boy is this episode for you. Full disclosure, I own
Pinterest through my position in ARKF and recently started a separate position in Pinterest
based on this research. Let's dive right into it, starting with ARK Invest.
If you go to ark dash invest dot com, which is where they share all of their research,
and you click on articles, you can filter their research by company. If you type in
P I N S, you get a single article from late last year about Microsoft potentially buying
TikTok. If you search for Pinterest in this article, it's mentioned only once, in the
following sentence: Compared to more traditional social media platforms like Instagram, Snapchat,
and Pinterest, TikTok's competitive advantage appears clear - artificial intelligence. If
you go to ARK Invest's newsletter section and search for Pinterest there, it appears
in only one issue as well. In issue number two hundred and forty six, it's listed among
other social media platforms again, like Facebook and Snapchat, in a conversation about the
emerging trend of social commerce, now that almost every online business can accept payments,
access low-cost e-commerce infrastructure, and build a presence on social media. Let's
think about Twitter. As Cathie Wood often points out, real information and insights
get exchanged on Twitter. People share academic papers and breaking news there. When's the
last time someone mentioned Elon Musks' facebook status? There are also a lot of non-traditional
social media interactions happening on Twitter. Selling tickets to Twitter Spaces, tipping
creators for their content, and so on.
If we look at ARK Invest's overall positions, we can see how their research impacts their
investment decisions. By the way, this is one of the reasons I follow ARK Invest so
closely. You can read their research and see exactly how they're putting their money where
their mouthes are, every single trading day. I really respect that about them. Here is
a bar chart of all of ARK Invest's combined holdings. Each bar is one stock and colors
represent how much money is in that stock in each of ARK Invest's funds. Twitter is
the third biggest position in ARKW, their fund themed around the next generation of
internet applications, and the sixteenth biggest position in ARKK, their massive flagship innovation
fund. All together, ARK Invest has almost $900 million dollars in Twitter, making it
their 17th biggest position overall. That's a pretty big position in Twitter, reflecting
Cathie Wood's view that there's more to Twitter than just a traditional social media platform.
Now let's look at Pinterest. Pinterest is the 11th biggest position in ARKF with $100
million dollars in it. It's right above Facebook, which is the 12th biggest position in ARKF
with about the same amount. Overall, Pinterest is ARK Invest's 74th biggest position, sandwiched
neatly between Snapchat and Facebook, clearly reflecting ARK's opinion that Pinterest is
a more traditional social media platform. Here's why I disagree. All my sources can
be found in the description below.
Think about how you use traditional social media. You log in, scroll down through your
feed, add reactions and comments few things here and there. Maybe you update your status,
throw a few photos up there from a recent trip, and tag a few buddies. The traditional
social media experience has two main elements. First, it's not very focused. There's no real
aim to your activity; you just scroll down, see what catches your interests, and maybe
join a conversation or two around something on your feed. Second, it's focused on your
past. I don't mean that in a bad way, I mean the focus of Facebook is on updating your
status and sharing pictures on what HAS HAPPENED and browsing your friends list to see what
has happened to them. The reason for this is obvious; the more of YOUR information Facebook
gets from you and your actions and your friends, the more accurately it can match YOU to advertisers.
That's Facebook's core business when it comes to social media; using tons and tons of data
to build the most up-to-date, profitable groups of people for businesses to advertise to.
Here's what Evan Sharp, the Co-Founder and Chief Design Officer of Pinterest has to say
about the platform. "I would say emphatically Pinterest is not a social network.... You
don't come to Pinterest to share. Pinterest is not about expressing yourself to others,
it's not about sharing with friends. Pinterest is much more like a search engine than it
is a social network, and people who come to Pinterest thinking it's like Facebook or Instagram
don't have a great experience because they upload a photo. They're expecting to get feedback
but that's not what Pinterest is for." Pinterest isn't about what HAS HAPPENED, it's about
what is YET TO HAPPEN.
Pinterest is about purposeful discovery of visual inspiration. I'm very careful in choosing
those words so let me explain them. When you go to Pinterest, you are specifically browsing
for ideas. Maybe it's a recipe, or an outfit, or ideas for a room layout, or a destination
to travel for, but you're actively searching for inspiration to take action on something
specific. Instead of an outfit, maybe it's a style. Instead of a recipe, maybe it's dinner
party ideas. The starting search can be as focused or as fuzzy as you want. As you find
things you like, you pin them to a board and then Pinterest goes and shows you more new
content that it thinks could also go on that board. Not just images, but videos and soon,
live streams as well. Think about how different a board full of connected ideas is from the
types of things you save on Facebook or Instagram or Snapchat. Likewise, think about how much
more targeted the ads Pinterest be, since users on the platform are by definition actively
looking for something. If you're inspired by a certain idea that you were searching
for, you're much more likely to buy. In fact, 89% percent of users are on Pinterest specifically
for purchase inspiration. According to Sprout Social's 2020 statistics on Pinterest, nearly
9 in 10 users are on Pinterest to plan purchases and find inspiration for what could fit well
in their homes, offices or make great gifts for friends and family and a whopping 85%
of users have made a purchase based on seeing a branded pin. 97% percent of searches on
Pinterest are not brand related, meaning those purchases are from users discovering a brand's
solution to their search on Pinterest, as opposed to already knowing about it beforehand.
That means an individual creator or small business has an equal chance of being discovered
as a big one. Ask yourself as an investor if that's what people are going on Facebook
or Instagram or Snapchat for.
As of 2019, which is the latest update I could find for how many pins and boards there were,
there were 240 billion pins saved across 4 billion boards by 400 million users. That
means each user on average has 10 boards with about 60 pins per board. Anecdotally, I currently
have about 15 boards with 377 pins total, so pretty in line with the average. I have
boards for recipes, inspiration for home projects, engineering infographics, and even different
boards for art that might make it onto my YouTube video thumbnails. I'm not on Pinterest
every day, but when I am, I end up falling down the rabbit hole for hours. This ends
up giving Pinterest a ton of data and as a result, my home feed is pretty personalized.
Tacos, cyberpunk art, industrial furniture, and of course, more tacos. Unlike Google,
you have to log in to use Pinterest, so it's always tying these actions back to a specific
profile. That's important. But this is really the tip of the iceberg. Let me show you the
more advanced features of Pinterest that really separate it from the pack on a technical level.
If I search for home decor and click an image, Pinterest automatically recognizes that the
image has multiple subjects within it. Maybe I really like a coffee table, so I can narrow
down my search based on an object, even if I don't know the name or the brand or even
what I'm looking for in advance. I can keep clicking around the image on the left and
see different versions of the related elements on the right. This is what I mean by purposeful
discovery of visual inspiration. This feature is called Visual Search, and this type of
object recognition is done through computer vision algorithms, meaning Pinterest has a
lot of advanced AI under the hood.
85% percent of Pinterests users search via mobile devices, like phones and tablets. Guess
what those devices also have? Cameras. Cameras take pictures. See? This channel is full of
deep insights. But seriously, Pinterest knows this too, because they have a capability called
Lens, where you use your phone's camera through the Pinterest app and it treats it like any
other photo on Pinterest, giving you ideas and inspiration around whatever is in the
photo. For example, if you Lens an avocado, Pinterest will show you recipes, beauty ideas
and gardening tips, because those are all things that include or are inspired by avocados.
The idea here is to funnel you deeper into whatever you're actively trying to discover
to ultimately get you to to something actionable. This is pretty different than what happens if you
Google the word avocado. You can also show pictures to Lens that contain things you don't
know the name of. If you go to the bar with your buddy and snap a picture together, you
can have Pinterest search for your buddy's jacket without having to ask him, yourself.
But no, go ahead, ask your buddy what he's wearing. Hey pal, what uh, what are you wearing?
What about the exact opposite application? How would you look in a product you haven't
yet purchased? Earlier this year, Pinterest introduced AR Try On for eyeshadow and more
ways to shop products in Pins. With eyeshadow Try On, which is powered by Lens, Pinners
can use AR technology to try on and shop beauty products right inside the iOS or Android app.
Simply click the Lens camera in search and browse eyeshadows, try on in-stock shades,
and purchase through the retailer. With existing lipstick Try On, toggle between lip and eyeshadow
looks by clicking the eye or lip icon at the top. The virtual eyeshadow experience can
be found across more than 4,000 shoppable shades. Try on makes it easy to try and buy
from the convenience of your home. That sounds like a neat gimmick. Trust me, I understand
I'm talking to an older male audience but hopefully you're understanding how this set
of computer vision techniques can be applied to things that YOU care about too: sunglasses,
watches, jackets, ties, hats, and so on. Features like this are responsible for insane statistics.
Pinners are 3 times more likely to click through to learn about a product or service than they
are on any other social media platform and 5 times more likely to show purchase intent
on Try on-enabled Pins than standard Pins.
In my opinion as an investor, we shouldn't be comparing Pinterest to Facebook any more
than we should be comparing Tesla to Honda or iPhones to desk phones. Sure, on the surface,
it looks like these things are competing, but they're completely different once you
look under the hood. I spend a fair amount of time thinking about augmented reality,
virtual reality, and the metaverse. There's nothing stopping Pinterest from extending
their visual catalog to virtual goods. When it comes to the far-term bull thesis, I think
Pinterest's visual search technology is exactly how shopping will work when it comes to augmented
reality glasses in the real world, identifying objects in virtual reality, and ultimately,
shopping inside virtual worlds.
There's actually one more capability I want to point out before I cover their earnings
because it's important to ARK Invest fans specifically, certainly including me. Cathie
Wood often says that these types of artificial intelligence-heavy applications are winner-take-most
markets, where the winners are the companies with the most data and the highest quality
data. Initially, that makes you think of Google and Amazon and Facebook, right? These are
the companies with MASSIVE amounts of image data. Well, it turns out that Pinterest has
a browser extension for chrome, firefox, safari, and even Microsoft edge for the 6 people that
use it, which allows you to Pin stuff from any website. I installed this thing and it
works on every single domain I've tried except Facebook. It works on Google and Amazon and
even Instagram! You can watch a movie on Netflix and pin it to start a board from it, or start
a board from your Netflix homepage and fill it with your favorite shows to see what else
you discover back in Pinterest. I pinned four movies from Netflix, went back to Pinterest,
and got recommended other things from Netflix and IMDB, which is a website for rating movies
and shows. With this browser button, people can bring images from almost anywhere on the
web back into Pinterest. Now their images are also Pinterest's images, and they get
processed just like any other image on the platform. It's definitely not perfect, but
that's pretty neat, right? Between Lens and this browser button, Pinterest has a lot of
users adding more and more data to their platform.
And of course, Pinterest needs to do something with all of that forward-looking intent data.
Pinterest publishes something called Pinterest Predicts. People use Pinterest to find tomorrow’s
ideas. That means we know what’s next. In fact, 8 out of 10 of our predictions for 2020
came true. Pinterest Predicts isn’t your typical trend report. It’s a not-yet-trending
report. A window into the future from the platform where people go to plan it. So, Pinterest
helps businesses identify shopping trends early, since their data is full of people
planning projects and purchases they haven't yet made. Again, all of these sources are
in the description below and you can check out Pinterest's predictions on everything
from Fashion and Travel to Parenting and Finance. Comment below with your thoughts on Pinterest's
visual search capabilities, augmented reality tools, and predictive data analytics. Do you
still think that Pinterest is more or less traditional social media platform like Facebook
or Snapchat, the two companies it sits between in ARK Invest's portfolios? Do you think visual
search will be a big part of content and commerce when augmented and virtual reality become
mainstream? Can you think of a better data set to monetize? I'm excited to hear your
thoughts.
Speaking of monetizing their data, let's talk about their financials. If I have convinced
you that there's more to Pinterest than meets the eye, then let me also convince you that
it's share price falling by 20% percent since its earnings call a couple weeks ago is a
MASSIVE oversight by the market. Here's what happened. Pinterest reported earnings. Analysts
expected $0.13 cents per share, Pinterest reported $0.25 cents per share, a 92% percent
beat. Revenue came in at $613 million dollars, up 125% percent, which was a 9% percent beat.
That's a 107% percent increase in U.S. revenue and an insane 227% percent increase in international
revenue, year over year. Average revenue per user is up 89% percent from last year overall,
with the amount of money paying users spent more than DOUBLING across the world. By every
metric, Pinterest absolutely CRUSHED it. Every metric except one. U.S. monthly active users
are down by 5% from last quarter. Surprise surprise, the reason for the drop in monthly
active users is related to the Pandemic. Here's a quote from their shareholder letter: "Since
mid-March, however, we believe engagement on Pinterest was disproportionately lower
as people began spending more time socializing with friends outside their homes, eating in
restaurants, and generally participating in activities that are not our core use cases."
It's the exact same pattern I've been calling out in my previous episodes on Roku, Skillz,
and Draftkings. Just because these companies are sensitive to people choosing other forms
of entertainment, doesn't make them stay-at-home-stocks. You don't need to grow your user base to grow
your revenue; you can focus on increasing your average revenue per user and that's clearly
where Pinterest has been focusing, as I just showed you. Here's the part that makes me
super bullish: "This trend impacted different types of monthly active users differently.
Virtually all of the difference between our Q2 MAU guidance and our actual Q2 MAUs is
attributable to a decline in MAUs who use Pinterest on the web. These users have tended
to be less engaged and generate less revenue than Pinners who visited our mobile apps directly.
In Q2, monthly users on our mobile apps grew in the U.S. year over year, and grew by more
than 20% internationally". So, the low-value and low-engagement users are the ones that
are left while Pinterest actually saw an increase in high-value users. That's going to drive
their average revenue per user up a ton. Remember, users are down 5% percent but average revenue
per user is up over 100% percent in the U.S. and internationally. It's these zero dollar
users that are leaving.
The other thing I want to point out in relation to their financials is that they have an extensive
partnership with Shopify, ticker symbol S H O P, which is ARK Invest's 5th biggest position
overall. The Pinterest app on Shopify includes a suite of shopping features like tag installation,
catalog ingestion, automatic daily updating of products, and an ads buying interface.
For Shopify merchants, this means easy set up and access to distribution across Pinterest
with or without ads, as well as reporting and results tracking to maximize reach. The
app automatically creates a connection between the individual store and Pinterest, so the
merchant doesn’t need to edit code or add development resources, making it seamless
for businesses of all sizes. Earlier this year, they extended that partnership to 27
new countries. And, back to their shareholder letter: In Q2, we saw continued momentum
in our ongoing effort to make Pinterest more shoppable. Our product inventory took a big
leap forward, with catalog uploads growing nearly 50% quarter over quarter in Q2. Not
year over year, QUARTER OVER QUARTER. This momentum was driven by the expansion of our
Shopify integration to international merchants as well as the launch of our multi-feed catalog
tool. We plan to begin testing our integration with Automattic’s WooCommerce in Q3. That's
another e-commerce platform like Shopify. It’s also getting easier to discover and
shop for products on Pinterest. The expansion of our shopping features to Australia, Canada,
France and Germany means that Pinterest users in those markets now have the opportunity
to shop within scene-based Pins, on boards, from search, and from the inspiration they
find in the real world using Lens camera search. We also launched Shopping List (which saves
products Pins in one place for easy shopping) as well as notifications when the price drops
on a saved product Pin. Our early tests suggest that Pinners are more than 7 TIMES more likely
to purchase products they’ve saved. Finally, our plan to pilot seamless on-platform transactions
by the end of the year is on track.
Over the next year, I'm going to be looking at three things: the new tools they bring
online to enable visual search, new partnerships that bring more products and services to their
catalog, and how those things affect their average revenue per user. That's what I think
we should be focused on. Today, Pinterest's market cap is under 40 billion dollars. That's
over 3 times less than Snapchat's market cap of 123 billion dollars. I really think the
market is asleep on this stock so I've started a position in it. I bought 50 shares at $59
dollars per share and am going to keep averaging up for a long time based on the near-term,
mid-term, and long-term vision I've shared with you.
Let me know what you think about Pinterest after this episode. Do you agree with ARK
Invest that it's just another traditional social media platform that should be sandwiched
between Facebook and Snapchat, or do you have a new appreciation for the intent-based visual
search and predictive analytics it brings to the table? Either way, I hope this episode
helped you understand more about Pinterest, its business model, what's in store for its
future, and why I personally am excited to invest in it. If it did, let me know by investing
in the like button and subscribing to the channel with all notifications turned on.
That's a great way to keep up with some of the best growth stocks out there and invest
in the channel that invests in you.
Until next time, this is ticker symbol you. My name is Alex, reminding you, that the best
investment you can make... is in you.