Growing Pains - Bear Flag

11월 10일

Pinterest earnings did not impress investors, a huge sell off ensued and now we are breaking down in a giant bear flag pattern, suggesting the downside risk remains in this asset.

We also rejected from the golden pocket suggesting this uptrend is now over and bears are back in control.

Fundamental Analysis:

1. U.S. Market Saturation

Pinterest derives most of its revenue from the American market, where user growth appears to be plateauing. The U.S. market is more mature, meaning there's limited room for substantial user base expansion. Growth in other regions, like Europe or emerging markets, has been slower and with significantly lower average revenue per user (ARPU), which doesn’t bode well for Pinterest’s overall revenue growth potential.

2. Reliance on Advertisers

Pinterest heavily relies on advertising revenue, which makes it sensitive to broader economic conditions. With a high valuation, Pinterest is exposed to risks if advertisers reduce their spending during economic downturns or shift budgets toward platforms with more robust targeting capabilities, such as Meta and Google. Pinterest’s ad tools, while improving, still lag behind these larger competitors in terms of granularity and effectiveness.

3. Increased Competition in Visual Search and Shopping

As other tech giants like Meta, TikTok, and even Amazon increase their investment in social commerce and visual search, Pinterest’s competitive edge is at risk. These companies have greater resources and already command large user bases, potentially siphoning users and advertisers away from Pinterest. If Pinterest cannot distinguish itself or rapidly improve its shopping and ad-targeting capabilities, it may struggle to justify a high valuation.

4. Monetisation Challenges Internationally

While Pinterest may have a larger user base outside the U.S., its ARPU in these regions is significantly lower. This disparity highlights Pinterest’s challenge in effectively monetizing users internationally, limiting its growth prospects. Without a clear path to raising ARPU internationally, it’s challenging to see how the company will meet revenue expectations implicit in a high valuation.

5. Execution Risks on New Initiatives

Pinterest has been investing in new features like shopping tools and improved ad capabilities, which could drive growth. However, these initiatives require substantial investments and involve execution risks. If Pinterest fails to see rapid adoption or faces technical challenges, these projects may take longer to yield returns, leading to a slower-than-expected revenue growth trajectory that may not justify its high valuation.

Be careful going long here. Not financial advice