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Pinterest Remains Plagued by Margin Woes: Can it Buck the Trend?
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Key Takeaways
Pinterest is investing heavily to grow its user base, ad reach and global operations.
PINS' Q1 costs rose 12.1% YoY, driven by R&D; June quarter costs are estimated at $937.7 million.
PINS aims to enhance ad efficiency and seller tools, despite near-term margin pressure.
Pinterest, Inc. (PINS - Free Report) generates significant revenues by delivering ads on its website and mobile applications. The company is helping advertisers reach millennials and the Gen Z audience who are more active on immersive mobile platforms. However, despite healthy demand trends, net sales are often affected by seasonality, and despite signs of stabilization, the recovery of the digital ads market remains uneven. The company’s global presence also exposes it to foreign exchange fluctuations.
The company expects operating expenses to increase substantially in the near term as it expands operations both domestically and internationally, enhances its product offerings, broadens its user and advertiser base, expands marketing channels, hires additional staff and develops new technology. Increased infrastructure spending related to user and engagement growth is likely to result in higher costs of revenue. Total costs and expenses increased 12.1% year over year in the first quarter of 2025, owing to higher research and development expenses. Our estimate for total costs and expenses for the June quarter is pegged at $937.7 million, implying year-over-year growth of 7.1%.
Pinterest is prioritizing investments to augment user engagement and monetization (such as improving the visual search capabilities), improve the technology that underpins the ad-serving efficiency (such as whole page optimization and Performance+) and accelerate employee productivity. The company has begun testing productivity tools to automate repetitive tasks and standardize content for the sales force, allowing sellers to spend more time with clients. Although these initiatives are likely to affect near-term profitability, it is expected to help reach its long-term margin goals.
Other Tech Firms Hurt by Margin Issues
Snap Inc. (SNAP - Free Report) is affected by lackluster user growth as it primarily focuses on the younger demographic and fails to attract the older generation (above 35-year-olds). Moreover, lack of revenue diversification is a major concern for Snap. Advertising is its only source of revenues, which is suffering from continuous decline in price per ad impression. Moreover, decelerating growth in advertising revenues following the backlash on redesign remains an overhang on the stock. Snap’s hardware product Spectacles has not yet been able to generate significant revenues.
Meta Platforms, Inc.’s (META - Free Report) focus on Reels, which generates lower revenues than Stories and News Feed, has affected profitability to some extent. As the company continues to ramp up investments in products (Video, AR/VR and AI) as well as security, costs are on the rise, hurting margins. Meta plans to spend $60–65 billion in AI infrastructure investments in 2025 — up nearly 50% year over year — which places significant pressure on gross and operating margins. Moreover, a lion’s share of Meta’s revenues is generated from advertising, making it highly susceptible to economic slowdowns. In addition, tariffs and digital services taxes could reduce ad spending by advertisers who rely heavily on Meta platforms.
PINS’ Price Performance, Valuation and Estimates
Pinterest has declined 24.4% over the past year against the industry’s growth of 35.1%
Image Source: Zacks Investment Research
From a valuation standpoint, Pinterest trades at a forward price-to-sales ratio of 5.2, below the industry.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Pinterest’s earnings for 2025 has increased over the past 60 days.
Image: Bigstock
Pinterest Remains Plagued by Margin Woes: Can it Buck the Trend?
Key Takeaways
Pinterest, Inc. (PINS - Free Report) generates significant revenues by delivering ads on its website and mobile applications. The company is helping advertisers reach millennials and the Gen Z audience who are more active on immersive mobile platforms. However, despite healthy demand trends, net sales are often affected by seasonality, and despite signs of stabilization, the recovery of the digital ads market remains uneven. The company’s global presence also exposes it to foreign exchange fluctuations.
The company expects operating expenses to increase substantially in the near term as it expands operations both domestically and internationally, enhances its product offerings, broadens its user and advertiser base, expands marketing channels, hires additional staff and develops new technology. Increased infrastructure spending related to user and engagement growth is likely to result in higher costs of revenue. Total costs and expenses increased 12.1% year over year in the first quarter of 2025, owing to higher research and development expenses. Our estimate for total costs and expenses for the June quarter is pegged at $937.7 million, implying year-over-year growth of 7.1%.
Pinterest is prioritizing investments to augment user engagement and monetization (such as improving the visual search capabilities), improve the technology that underpins the ad-serving efficiency (such as whole page optimization and Performance+) and accelerate employee productivity. The company has begun testing productivity tools to automate repetitive tasks and standardize content for the sales force, allowing sellers to spend more time with clients. Although these initiatives are likely to affect near-term profitability, it is expected to help reach its long-term margin goals.
Other Tech Firms Hurt by Margin Issues
Snap Inc. (SNAP - Free Report) is affected by lackluster user growth as it primarily focuses on the younger demographic and fails to attract the older generation (above 35-year-olds). Moreover, lack of revenue diversification is a major concern for Snap. Advertising is its only source of revenues, which is suffering from continuous decline in price per ad impression. Moreover, decelerating growth in advertising revenues following the backlash on redesign remains an overhang on the stock. Snap’s hardware product Spectacles has not yet been able to generate significant revenues.
Meta Platforms, Inc.’s (META - Free Report) focus on Reels, which generates lower revenues than Stories and News Feed, has affected profitability to some extent. As the company continues to ramp up investments in products (Video, AR/VR and AI) as well as security, costs are on the rise, hurting margins. Meta plans to spend $60–65 billion in AI infrastructure investments in 2025 — up nearly 50% year over year — which places significant pressure on gross and operating margins. Moreover, a lion’s share of Meta’s revenues is generated from advertising, making it highly susceptible to economic slowdowns. In addition, tariffs and digital services taxes could reduce ad spending by advertisers who rely heavily on Meta platforms.
PINS’ Price Performance, Valuation and Estimates
Pinterest has declined 24.4% over the past year against the industry’s growth of 35.1%
Image Source: Zacks Investment Research
From a valuation standpoint, Pinterest trades at a forward price-to-sales ratio of 5.2, below the industry.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Pinterest’s earnings for 2025 has increased over the past 60 days.
Image Source: Zacks Investment Research
Pinterest currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.