Pinterest Struggles with Weak Q1 Forecast Amid Heated Competition for Ad Dollars

Pinterest released a disappointing forecast for first-quarter revenue on Thursday that fell mainly below Wall Street expectations. This signals the intense competition Pinterest faces from more prominent social media players as the digital advertising market stabilizes after a rocky 2022.

The San Francisco-based visual discovery platform saw its shares drop over 9% in extended trading following the Q4 earnings release.

Big Partnerships to Drive Future Growth

However, Pinterest managed to pare some of those losses after CEO Bill Ready announced a new integration deal with Google to serve ads via their Ad Manager platform. Ready stated this partnership is expected to help Pinterest monetize its growing user base in several previously unmonetized international markets.

Expanding its global ad business is crucial as competition in the US digital ad market becomes increasingly fierce. Also, in 2022, Pinterest struck a high-profile partnership with e-commerce giant Amazon to integrate shopping capabilities into its platform.

Analysts projected this splashy deal would drive a significant increase in advertising spending growth on Pinterest throughout 2023.

Third-party ad demand from partners like Amazon is scaling as we anticipated, and we are now seeing it contribute to our monetization and revenue growth this quarter,

Ready commented on the Q4 earnings call.

He emphasized the importance of these integrations with commerce platforms and ad networks to Pinterest's future growth prospects. However, Pinterest continues to lag behind larger competitors like Meta's Facebook, Instagram, and TikTok.

These social media giants have become the go-to advertising platforms in the uncertain economic climate. Meta, TikTok, and others boast more extensive user bases and higher engagement levels, enabling more effective ad targeting.

While reacting to the forecast, an analyst at Insider Intelligence, Jeremy Goldman, stated: Pinterest's solid but unspectacular Q4 numbers should see some scrutiny from the market, which saw Facebook parent company Meta blow out expectations just last week with their latest earnings report.""

Ad Spending Shifts

According to data from market research firm Sensor Tower, Pinterest's core shopping advertising vertical saw less than 1% sequential growth in spending during the critical Q4 holiday shopping season. This is likely reflective of retailers tightening budgets.

In contrast, US ad spending on Pinterest from sectors like software, gaming, and CPG saw double-digit quarter-over-quarter growth during Q4.This illustrates where advertisers place their bets as consumer spending softens, but demand remains vital for other goods and services.

Pinterest showed an impressive 11% year-over-year increase in global monthly active users (MAUs) in Q4 2022 to 498 million, handily topping analyst estimates of 484.5 million. However, its revenue of $981.3 million fell short of Wall Street's expectations of $990.6 million.

On a more positive note, Pinterest delivered an adjusted earnings per share of 53 cents in Q4, beating estimates of 51 cents.However, bottom-line improvements may not be enough to satisfy investors unless Pinterest can recapture some of its lost momentum in gaining advertising market share.

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