Last week, rumours circulated that PayPal (NASDAQ:PYPL) would acquire Pinterest (NYSE:PINS) for around $45bn. The situation started after Bloomberg published an article claiming the two enterprises were in late-stage talks on an acquisition. The Pinterest share price jumped by double-digits on this news, while PayPal shares fell by around 5%. This is hardly surprising since this sort of volatility is common when these types of deals are announced.
However, this week, the payment processing giant put the rumours to rest. PayPal announced it’s “not pursuing an acquisition of Pinterest at this time”. And the recent gains/losses in the business’s respective share prices have reversed. However, Pinterest is now trading below pre-acquisition rumour prices, despite no other relevant news being released. So does this recent sell-off present a buying opportunity for my portfolio? Let’s take a closer look.
The dwindling Pinterest share price
As a reminder, Pinterest is a social media platform focused on idea generation and item discovery. This has proven to make it quite unique compared to some of its competitors like Facebook from a user’s perspective. And in my experience, it creates a less intrusive advertising environment for businesses.
Since the start of 2021, this technology stock has not been a stellar performer. In fact, it’s down by around 30%, pushing its 12-month performance into the red by 5%. This downward trajectory appears to have been triggered back in July after releasing its latest earnings report. The company grew its active monthly user (MAU) base by around 9% to 454 million. However, this was a significant slowdown compared to historical growth rates and came in below analyst expectations of 482 million.
Given MAUs represent the addressable target size advertisers have access to, a slowdown is obviously bad news. So seeing the Pinterest share price fall as a consequence is hardly surprising to me. But this may not be as big a problem as the market seems to think.
Explosive growth potential on the horizon
Pinterest is still quite a young business that has yet to fully monetise its platform. Currently, monetisation efforts have been almost entirely focused on its US user base. In fact, 78% of revenue generated in the most recent quarter came from American Pinners. But what I find interesting is that Americans only represent around 20% of total MAUs. In other words, the platform has yet to fully monetise its international audience, which is nearly four times larger. To me, that presents an enormous long-term growth opportunity for both Pinterest and its share price.
With that in mind, the recent price drop, while certainly unpleasant for existing shareholders, looks to me like an excellent buying opportunity. There’s no denying Pinterest has a lot of more dominant competition to fend off and marketing budget managers to convince. But so far, from what I’ve seen, the company seems to be faring well. Therefore, I’m considering adding this business to my growth portfolio today.
Zaven Boyrazian owns shares of PayPal Holdings. The Motley Fool UK owns shares of and has recommended PayPal Holdings and Pinterest. The Motley Fool UK has recommended the following options: long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.