Pinterest Stock Falls Despite an Earnings Beat. Here's Why

Pinterest app ready for download on a smartphone — (Image credit: Jakub Porzycki/NurPhoto via Getty Images)

Pinterest (PINS) stock plunged more than 14% out of the gate Friday after the do-it-yourself (DIY) social media platform beat top- and bottom-line expectations for its third quarter but provided an outlook for its fourth quarter that failed to impress.

In the three months ended September 30, Pinterest's revenue increased 17.7% year over year to $898 million, boosted by a more than 11% rise in global monthly active users to 537 million. Its earnings per share (EPS) were up 48.2% from the year-ago period to 40 cents.

"We delivered another strong quarter with users reaching another all-time high of 537 million and revenue growth at 18%," said Pinterest CEO Bill Ready in a statement. "Our artificial intelligence (AI) investments are driving results by powering better personalized experiences and greater performance for advertisers, with our lower-funnel ad tools being the fastest-growing part of our business. Advertisers are increasingly relying on Pinterest to engage our growing audience who see us as a great place to find inspiration, curate and shop."

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The results beat analysts' expectations. Wall Street was anticipating revenue of $896 million and earnings of 34 cents per share, according to CNBC.

However, sentiment turned negative toward Pinterest when it provided its outlook for the fourth quarter. The company expects to achieve revenue in the range of $1.125 billion to $1.145 billion, representing growth of 15% to 17% from the year-ago period. The midpoint of this range, $1.135 billion, came up short of the $1.143 billion in revenue analysts are anticipating.

Is Pinterest stock a buy, sell or hold?

It's been a volatile year on the price charts for Pinterest. Indeed, shares were up more than 21% for the year to date back in June, but are currently down 20.6% since the start of January. Still, Wall Street remains bullish on the communication services stock.

According to S&P Global Market Intelligence, the average analyst target price for PINS stock is $41.92, representing implied upside of about 45% to current levels. Additionally, the consensus recommendation is Buy.

Not everyone is all in on the large-cap stock, though. Financial services firm Wedbush maintained its Neutral rating (equivalent to a Hold) on Pinterest after earnings, but raised its price target to $38 from $37.

"We think Pinterest is likely to achieve revenue growth closer to the range of its longer-term target (mid-to-high teens CAGR over the next 3–5 years)," says Wedbush analyst Scott Devitt. "That said, management continues to demonstrate strong execution against its user engagement and monetization strategy, with several early initiatives in place to drive growth over the intermediate-term."

For now, though, investors will debate the sustainability of high revenue growth against higher comparisons, the impact of more ads on user engagement, and headwinds from weakness in the food and beverage category, Devitt says.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.