US stock Pinterest (NYSE: PINS) is enjoying a surge in popularity. As a result, the Pinterest share price is skyrocketing and has risen 272% year-to-date. The image sharing phenomenon launched 10 years ago but only floated on the New York Stock Exchange in April 2019. After a volatile start, it’s enjoying a moment in the sun.
Why do people use Pinterest?
Pinterest is a great place to organise ideas, dreams, and thoughts. For instance, if I’m thinking of revamping a room in my house, I can create a pinboard filled with pictures of my dream room, its contents, and colour scheme. Or I can create a board of tattoo designs, cute animals, outfit planning, birthday cake ideas, or pretty much anything that piques my interest. This may seem a funny concept to monetize, but it’s surprisingly simple and smart.
It has its roots in pinboards and scrapbooking, but has taken on a life of its own. Users can keep their boards private or share them publicly share; they can follow one another or collaborate. The algorithm shows users things that interest them, there’s a private messaging option, and a business setting. This means companies can showcase their wares and consumers can easily click through to buy what they want. This feature has helped propel the Pinterest share price this year, making it a US stock to watch.
The Pinterest share price surged in 2020
2020 has been an outstanding year for Pinterest in more ways than one. The pandemic drastically altered people’s lives, turning them online for answers. Pinterest became the perfect point of reference to find social distancing tips, ideas for indoor fun, recipes, and home schooling ideas.
Its monthly active user count now exceeds 442 million and a quarter of those have arrived in the past year. 2020 has also seen its male visitor count surge. It recently developed an app for use with Shopify merchants, ensuring the transition from consumer-browsing to consumer-buying is much more efficient.
Q3 results for this US stock far exceeded expectations, and the November rally boosted the Pinterest share price by 20%. Revenue for this quarter grew 58% year-on-year to $443m and new users grew 37%. Net loss for Q3 was down $30m year-on-year.
How does Pinterest make money?
Pinterest uses subtle advertising to make money. Its promoted pins concept showcases pins that fall in line with users’ tastes thanks to the efficiency of its algorithm. They look much like ordinary pins. When a user clicks through a promoted pin, they’re taken to the advertiser’s website and these clicks generate revenue for Pinterest.
Nearly 80% of Pinterest’s users will shop based on their pinned items. This turns users into revenue. The US stock currently earns around 70 cents per international user but has only just begun monetising and has huge potential to grow. I think it has highly lucrative potential that could further boost the Pinterest share price.
Its price-to-earnings ratio is very high at 211, but that’s because it’s not yet profitable. Nevertheless, it’s having so much success in 2020, analysts believe its financial position will be more stable next year. I really like Pinterest both as a user and potential investor. I think it’s got growth opportunities ahead and would absolutely consider buying Pinterest shares. It’s good to diversify away from solely focusing on UK shares, and I think this looks like an excellent long-term US holding for my portfolio.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Pinterest and Shopify. 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.