👋Welcome!
What is up Cruisers? We are back for Newsletter #31!
What is Inside?
🔍On The Radar: $PINS| 💸Portfolio Update
📰Portfolio News |😂Meme of the Week
🎮Trivia Night! | 📕 Chart of The Week
🔍On The Radar: $PINS
👋Introduction:
Lebron James, Magic Johnson, and Alan Soclof (me). Three of the greatest passers that the basketball world has ever seen. Many are familiar with the accomplishments of Lebron and Magic, but not many (oddly) know about the illustrious D3 High School Basketball career that I had. Part of what made my basketball skillset unique was that I emphasized viewing the game through a unique lens- often the unexpected, different perspective. I realized at a young age that if I trained myself to look at basketball scenarios through the lens that others usually did not, it would give me a significant advantage on the court.
I learned to fall in love with my peripheral vision and would make passes that took the breath away of the crowd and led to my team getting some easy buckets- and yes, my name ultimately became synonymous with Lebron and Magic (in my own eyes).
I have tried to take the value of “thinking differently” from sports and apply it to investing. It is how I have historically uncovered some of my most successful investments like ViacomCBS and Callaway Golf. In no way am I a contrarian, but rather, I recognize that viewing things through a different lens, like on the ball court, can lead to significant opportunity.
Last Thursday, just like everyone else, I read the headlines that said “Pinterest stock drops 20% on 6% decrease in MAUs.” However, after spending hours digging through the earnings materials, quarterly call, as well as reading some phenomenal Twitter threads on Pinterest, it is clear to me that there is a very different way you can look at things that shows that a 20% decrease is a significant overreaction.
Today, I share what I have found.
But first- A highlight from my high school basketball career. (Yes. This is legit.)
👋Background:
What struck me right away when analyzing Pinterest’s earnings was the fact that they had HUGE top line and bottom line beats in Q2. Check it out:
Revenue- $613 million (actual) vs. $562 million (projected)
Earnings Per Share- $0.25 (actual) vs. $0.13 (projected)
ARPU- $1.32 (actual) vs. $1.17 (projected)
(ARPU= Average Revenue Per User)
The financial results are even more impressive when you look at the results from a “year over year” perspective.
Revenue - $613 million (2Q 21) vs. $272 million (2Q 2O)
Earnings Per Share- $0.25 (2Q 21) vs. $0.17 (2Q 2O)
ARPU- $1.32 (2Q 21) vs. $0.70 (2Q 20)
Revenue increased 120% year over year, Earnings per share increased 247% and ARPU increased 89%.
All in all, Pinterest, from a financial perspective seems to absolutely be firing on all cylinders. So the question is, why did we see a 20% drop? The Answer: a big miss on Monthly Active Users (MAUs).
👋MAU’s:
Wall St. was expecting Pinterest’s Global MAU’S to be 482 million while the result was 454 million Global MAU’s- a big miss.
CEO of Pinterest Ben Silbermann shared this in the Q2 earnings call regarding the MAU miss:
“In past earnings calls, we talked about how stay-at-home orders significantly increased usage of Pinterest. And for the past year, we've highlighted how people came to Pinterest for inspiration to reinvent their lives during such a difficult time. Now as the world opens up, we're seeing the similar effect in the opposite direction.”
This makes a lot of sense. After a long period of time when people were not allowed to go outside and were glued to their computers and phones, they are now allowed to go outside and, they are going outside and getting off their technology.
If I could ask the masses that sold $PINS one thing it would be: “Why did we not take the reopening of the world into our prediction and why are we choosing to focus on the MAU miss while we could be focusing on the HUGE top line beat."
I guess that is two things (wink)
The story continues to get more interesting when you look into four key data points from other investors and the earnings report.
👋Overreaction:
The first chart comes from the great Ophir Gottlieb of CML Viz breaking down the $PINS US MAU growth trajectory:
As you can see, COVID was a huge accelerator for $PINS and rapidly increased their growth trajectory. If you take COVID out of the picture (bottom), the company has actually accelerated past its pre-COVID growth rate.
The second chart comes from Invest Quotes on Twitter who shows Snapchat’s historical Daily Active User Growth (DAU)
$SNAP had 4 consecutive quarters in 2018 where there was significant DAU decrease or no growth. This shows that a period of stagnation in social media companies growth is not uncommon and can even inspire the company to improve the product. Pinterest has had just one rough quarter and COVID recovery was a big reason why.
Check out this quote from the earnings call: “In Q2, MAUs on our mobile apps grew in the U.S. year over year, and grew by more than 20% internationally.”
Mobile app downloads actually grew for $PINS in this quarter Year Over Year! So where did the decrease in MAUs come from? Desktop users. Desktop users are known to spend less time on the app (or in this case, website) than mobile users and often spend less money on the platform. Even though the company lost MAU’s, they were not the key consumers.
Here is a second quote from the earnings call: “Finally, Gen Z Pinners continued to be highly engaged; US MAUs under 25 grew double-digits year over year”.
GenZers, an integral demographic when discussing social media (obviously), had significant growth Year Over Year. This is obviously a phenomenal development for the company and is yet another reason displaying that the MAU miss, when you look under the hood, is actually a lot less severe than one might have thought. If anything, there were some phenomenal MAU developments this quarter.
👋Idea Pins:
To this point, I have broken down why the MAU reaction is an overreaction, and if I may say so myself, I did a rock solid job (wink)! Before moving on, I wanted to share some thoughts on one of $PINS new main features that I think can be explosive and integral to the company’s growth: Idea Pins
“Idea Pins” is a new feature that allows Creators to share content with their followers using short term video. In its simplest form, the feature is very similar to TikTok which has become wildly popular and familiar to consumers. The feature just launched globablly in May of 2021 and therefore the feature is both in its infancy and will be an important development to track.
The move into Idea Pins is a phenomenal one as consumers absolutely love the connection that video can establish with the creator while also making the content itself more entertaining. Idea Pins has specifically taken off for GenZ consumers who have “showed particularly strong engagement” with the new feature.
It is also important to keep in mind that part of what makes Pinterest unique is that commerce, Creators selling various goods and creations, is an integral part of the company’s mission and goal. Idea Pins has already shown significant value as a driver to commerce on the platform as “Pinners are significantly upwards of 90% more likely to engage on products tag and Idea Pins than on just a picture of a product on a white background.” More interaction with product tags = more sales for Creators and more revenue for $PINS. 90% is a powerful number.
Idea Pins could be a rocketship for $PINS and we at CA will be monitoring the progress of the platform closely.
👋Bottom Line:
After reading this write up, I hope to have put on your radar why the 20% drop was pretty shocking to me and the value of viewing things from a unique perspective. Whether it is overlooking the strong MAU progress outside of the “headline” or the potential of “Idea Pins”, I think people are viewing Pinterest’s Q2 Earnings through the wrong lens.
I hope everyone is continuing to enjoy the summer and staying safe and healthy! I look forward to the next Cruising Altitude which will likely be an earnings breakdown of my favorite stock: ViacomCBS
-Alan
💸Portfolio Update:
Our portfolio started with $11,000 (mock) with $1,000 in each of our Portfolio Picks. Based off of our opinion, we ordered the picks from least risky (top) to most risky (bottom).
📰Portfolio News:
🏈 Barstool Bowl: Barstool Sports, owned by Portfolio Pick $PENN announced that they have received the exclusive rights to a College Football Bowl Game for this year. Founder Dave Portnoy and the Barstool team promise to put together an experience unlike anything that we have seen. If all goes well, this could be the first of many events that Barstool is looking to run and control!
🪑Good (Goed?) Luck: Portfolio Pick $GOED announced the hiring of new CFO Maria Johnson. Maria has over 20 years of experience across various industries including, most recently, CFO of E3 Investment Group. Johnson additionally has executive experience with John Hardy, Pepsico, and Mcgraw Hill. This is a great hire for the company and we at CA are looking forward to seeing what she can build (pun intended) as part of the $GOED team!
🎥 Strong Communication: Portfolio Pick $VIAC and Charter Communications (#2 US Cable Operator) announced a renewal agreement for Charter to carry $VIAC’s cable channels. On top of this, Charter received rights to distribute $VIAC’s streaming services on its “aggregated video store concept.” This is a phenomenal development for $VIAC and Charter’s video store concept sounds like an additional nugget in line with last week’s writeup
📕Chart of The Week:
What a powerful “Chart of The Week” for Portfolio Pick $VIAC. Paramount+ has grown steadily over the past few quarters to now having 8% of the Streaming Video On Demand (SVOD) market.
Additionally, if you add Paramount+ and Showtime (also owned by $VIAC) together, it is more than HBO Max! Finally, a third point to check out is the significant hit Netflix has taken over the past few quarters (from 48% to 29%). Watch out Netflix, competition is here!
🎮Trivia Night!
Question:
Johnny Ivy, the visionary behind Apple’s many designs, in an interview with “Wired” shared that this Pinterest Co-Founder “will change the future”! Which Pinterest Co-Founder was he talking about?
A. Ben Silbermann (CEO) B. Evan Sharp (Chief Design Officer) C. Paul Sciarra (Co-Founder) D. Giannis Antetokounmpo (SF/PF Milwaukee Bucks)
Answer: B
Here is what Ivy had to say about Evan Sharp!
“He understands that complex problems can be simplified and often resolved visually. Nuance and subtlety characterize his work. He doesn’t just address a functional imperative.”
What an endorsement for one of $PINS key executives!
🤣Meme Of The Week:
Honestly, I thought my friends and I were the only one that were doing this. Why is social media so great? Because of memes just like this one: