As Fears of the Delta Variant Subside, Pinterest Looks Unattractive

The U.S. public and the market are belatedly realizing that the Delta variant of the coronavirus is not very dangerous, especially to those who are vaccinated and won’t stay in the U.S. for many months. Consequently, now is not a good time to buy highly valued stocks that thrive when consumers stay at home more. And, by all appearances, Pinterest (NYSE:PINS) stock is one of those names.

Source: Nopparat Khokthong / Shutterstock.com

Not only did its user growth sharply drop in the second quarter, but its guidance calls for a sharp deceleration of revenue growth in Q3 versus Q2. What’s more, common sense strongly suggests that engagement on Pinterest, in contrast to Facebook (NASDAQ:FB), Snap (NYSE:SNAP), and Microsoft’s (NASDAQ:MSFT) LinkedIn, should fall very sharply when consumers spend much more of their time away from home.

And finally, Pinterest’s valuation, even after the recent, sharp pullback of PINS stock, is quite elevated and not very enticing.

The Delta Variant Is Not an Economic Game Changer

The Delta version of the coronavirus cannot credibly be described as very dangerous to those who are fully vaccinated, According to the CDC’s own numbers, released in early August, only 1 in 20,000 of fully vaccinated people have been hospitalized and/or have died.

To put that statistic in perspective, the annual fatality rate from auto accidents in the U.S. is about 2.5 in 20,000, and an additional 4.4 million people, or 1.2% of the entire American population (equal to roughly 240 per 20,000 Americans), must receive medical attention for injuries sustained in automobile accidents annually.

And yet, no is suggesting that we need to stay home much more, avoid highways, drastically lower speed limits or take any other radical steps to prevent ourselves from dying or being seriously injured on the roads.

My own sense, based on the crowds I’ve seen while in stores and restaurants, as well as recent U.S. media coverage, is that many consumers are starting to internalize the idea that Delta is not a meaningful danger to those who are vaccinated. In fact, many news outlets, although avoiding exact statistics, are starting to repeatedly note that almost all of those who have died or been hospitalized have been unvaccinated.

Given these points, I’m convinced that the vast majority of vaccinated people are going out of their homes a great deal.

Indeed, CNBC recently reported that “retail and recreation … mobility trends” were just below pre-pandemic levels as of mid-August.

What’s more, the media is starting to note that Delta is peaking in many parts of the country, making the “going out” trend likely to intensify further.

Pinterest Appears to Be a Classic Stay-at-Home Stock

Pinterest’s monthly active users increased 9% year-over-year last quarter, down from the 30% year-over-year growth that it experienced in Q1 before vaccinations were widespread. Those data points strongly indicate that the company is being hurt by the reopening trend. And in the U.S., where vaccinations have proliferated more than most other nations, the company’s MAUs dropped 5% from last year in the second quarter.

The data suggests that, as more people overseas get vaccinated, Pinterest’s international MAUs are likely to drop meaningfully as well. That decline, in turn, will probably cause Pinterest’s overall revenue growth to meaningfully decelerate as advertisers look for more popular venues.

Indeed, Pinterest expects its Q3 revenue to rise by a “low 40% range,” versus the 125% year-over-year increase that it reported in Q2.

Finally, by its very nature, Pinterest seems to be much more vulnerable to being hurt by the economic reopening than many other social networks. That’s because many of the activities on which Pinterest thrives, especially cooking and decorating, are mostly done at home and are rarely, if ever, done outside one’s home. So, it makes perfect sense that, as individuals spend much less time at home, Pinterest will become much less popular.

Conversely, most of the activities on which Facebook, LinkedIn, and Snap thrive, such as chatting, sending messages, and posting articles and pictures, can be easily carried out on mobile devices.

Valuation and the Bottom Line on PINS Stock

Despite the growth challenges that Pinterest will face as a result of the reopening, its shares are not at all cheap. In fact, trading at an enterprise value/EBITDA ratio of 171 and a trailing price-sales ratio of 16, according to Yahoo Finance, they’re rather expensive.

Given these points, I recommend that investors sell PINS stock at this time and wait for a much better entry point in the name before buying it again.

On the date of publication, Larry Ramer held a long position in SNAP. 

Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

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