Pinterest (PINS) is an intriguing social media play to consider right now. It’s a stock that has declined significantly of late, following the company’s recently-released earnings.

Pinterest’s share price has declined from around $90 per share earlier this year to around $55 per share in mid-May. Since then, shares of PINS stock have recovered some of their losses, now trading around $69 per share. (See Pinterest stock chart on TipRanks)

Indeed, it appears many of the bearish factors that investors have been pricing in with this stock, are starting to lose their hold with investors. Concerns about rising interest rates, coupled with economic reopening fears, have driven additional volatility in social media plays of late. Indeed, Pinterest has seen these factors amplify existing concerns about the company’s rate of user growth.

Let’s take a look at what Pinterest reported, and why investors may still want to get into PINS stock at around this level.

Earnings Disappointed Investors in PINS Stock

Pinterest’s recent earnings missed on user growth estimates. That’s the headline that drove PINS stock down by double-digits immediately after the company’s report.

Pinterest reported monthly active users (MAUs) of 478 million this past quarter. This number narrowly missed analyst expectations of 480.5 million by approximately one-half of one percent.

Given such an outsized move for such a small miss, let’s take a look at the company’s other numbers for context.

Pinterest reported revenue growth of 78% this past quarter, on a year-over-year basis. Adjusted EBITDA grew to $84 million, handily beating expectations of $57 million for the quarter. On par, these numbers really don’t look that bad.

However, from a growth perspective, it appears investors will need to put up with EPS losses for a bit longer. Pinterest isn’t yet profitable, and this has become a sticking point among some investors. While PINS GAAP EPS loss of only $0.03 per share indicates the company is essentially operating at break-even, Pinterest did indicate slowing MAU growth may lead to higher losses on the horizon.

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Every growth stock needs to be profitable at some point, and investors seem to have priced in profitability sooner than Pinterest can provide.

Here’s why this may not be such a big deal after all.

Long-Term Investors Likely to Be Rewarded with Patience

As with many long-term social media plays, EPS growth can take a long time. Pinterest is likely to do everything it can to accelerate MAU growth. Indeed, this may result in EPS taking a back seat to top line performance for some time.

Like in the case of Facebook (FB), which took some time to generate rapidly growing profits, investors will likely be valuing PINS stock on the basis of the quality and size of its network. These factors will ultimately drive the company’s pricing power over the long-term in terms of advertising revenues and profitability.

Long-term investors may see the company’s results as relatively strong. User growth still accelerated quite rapidly. The bar is being raised higher each and every quarter by analysts, and PINS appears to need to innovate to capture more eyeballs. That’s not new in this space.

For those who believe in Pinterest’s management team, patience with this stock is likely to pay off. Investors need to remember that the pandemic essentially pulled forward growth that likely would have taken place both this quarter and in the future. Pinterest’s overall outlook remains solid, and there should be little concern with these numbers right now.

What Analysts Are Saying About PINS Stock

According to TipRanks’ analyst rating consensus, PINS stock comes in as a Moderate Buy. Out of 20 analyst ratings, there are 12 Buy recommendations and 8 Hold recommendations.

As for price targets, the average analyst price target is $85.89. Analyst price targets range from a low of $65.00 per share to a high of $102.00 per share.

Bottom Line

Wall Street analysts who have pored over Pinterest’s numbers seem to think that the stock is worth about $85 per share. Any stock with 33% upside is worth taking a look at right now.

It’s easy to make a snap decision on the basis of one quarter of results. However, taken in context, Pinterest’s overall numbers look quite good. As long-term investors, particularly in the social technology space, valuing a company on a backwards-looking basis can be a dangerous feat. Such outlooks would not have served early investors in Facebook (FB) well.

Accordingly, staying the course with this stock and buying on dips appears to be a winning long-term strategy for those interested in PINS stock.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.