Given the massive declines in some stocks in 2022, the idea of “not to worry” might seem like a fool. Huge losses signal a huge loss of confidence in a stock, and the market does not guarantee that any of those stocks will come back.
Yet, upon closer examination of a company’s operations and finances, certain stocks show the potential to not only return, but to further reward their long-term investors. Due to robust ecosystems and lower prices, stocks like pinterest (PINS) and Airbnb (ABNB) could orchestrate such recoveries.
Pinterest has attracted a massive user base by capitalizing on people’s passions. Users can “pin” information or images based on what they like. The company uses this information to display promoted pins or advertisements that may generate revenue.
As with many e-commerce related businesses, usage has plummeted as consumers emerge from lockdowns. Third-quarter revenue rose 8% to $685 million, well below the 43% growth in the year-ago quarter. And the quarterly loss of $65 million in the third quarter contrasts with the profit of $94 million in the previous 12 months.
Consequently, the stock crashed. Pinterest has fallen around 50% in the past year and more than 70% from its all-time high in early 2021.
However, during this time, co-founder Ben Silbermann handed over the reins to Bill Ready, who once led the commerce, payments and next billion user segment at Alphabetit’s Google.
Management hired Ready in June to expand its user base and transform Pinterest into a more e-commerce focused site. Q3 average revenue per user (ARPU) so far, which held steady as the shutdowns ended, was up 1% from the prior quarter to $1.56. Management hopes that e-commerce can increase ARPU over time.
Ready may also have helped reverse the monthly decline in active users (MAUs). In the first quarter, MAUs had fallen 9% over the previous 12 months. In the third quarter, MAUs increased 1% year-over-year to 445 million.
Due to the aforementioned losses, the Price/Earnings (P/E) ratio does not apply. But the price-to-sales (P/S) ratio now sits at 6, thanks to the falling stock. If the company can continue to increase MAUs and especially ARPU, this multiple can help investors see Pinterest as a shout buy.
Airbnb
Airbnb isn’t the only short-term vacation rental site. Nevertheless, he thrived using his competitive advantage. First, it has developed a high level of name recognition, almost to the point that many people refer to any vacation rental as an “Airbnb”.
Such recognition tends to attract new properties to the platform. Unlike a hotel, it doesn’t have to spend on construction to attract new properties, which means it can generate revenue faster when demand increases.
Additionally, it has made considerable investments in artificial intelligence and machine learning. This means it can improve product customization and design through data science, a factor that improves user experiences. Using this technology, Airbnb booked approximately 100 million nights and experiences on the site during the third quarter, a 25% year-over-year increase.
That pushed revenue up 29% over the period to $2.9 billion. Additionally, net income rose 46% to just over $1.2 billion. The company maintained the line on cost and expense growth and increased interest income and unrealized gains on investments and currencies.
But despite this increase, the internet stock and direct marketing continued to fall. It has lost about half of its value in the last 12 months.
Also, his P/S ratio dropped to 8. That’s still well above Expediais at just over once sales. Moreover, its P/E ratio of 42 indicates that it is an expensive stock.
However, since it generates a profit and continues to grow at a steady rate, this could limit the downside. As the company continues to attract more properties and tenants, it should reinforce the perception that inventory declines are buying opportunities rather than signs of a compromised business model.
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. will heal has positions in Pinterest. The Motley Fool owns and recommends Airbnb, Inc., Alphabet (A shares), Alphabet (C shares) and Pinterest. The Motley Fool has a disclosure policy.
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