Pinterest Stock Surges 17% After Strong Q3 Earnings Driven By Younger Users

Pinterest’s stock price surged 17% on Tuesday after the company reported strong third quarter earnings, fueled by increasing engagement from younger users.

The image-sharing and social media platform’s monthly active users hit an all-time high of 482 million, surpassing even pandemic growth levels.

Pinterest attributed this user growth largely to increasing popularity among Generation Z. With younger audiences representing an attractive demographic for advertisers, Pinterest’s ability to gain traction among this group indicates significant potential for continued expansion.

Q3 Earnings Beat Expectations

Pinterest exceeded analyst expectations for both earnings per share and revenue in Q3 2022. EPS came in at $0.11, handily beating estimates of $0.06. Meanwhile, revenue grew 8% year-over-year to $684.6 million, surpassing projections of $666.6 million.

This strong performance comes on the heels of a turbulent year for digital advertising. Like many social media platforms, Pinterest saw declining revenue amidst economic uncertainties in 2022.

However, Q3 results suggest Pinterest may be recovering from that slowdown. Management pointed to a rebound in the advertising market as digital platforms compete aggressively for ad dollars in the lead-up to the holiday season.

Wall Street Reacts Positively

Pinterest’s earnings beat prompted overwhelmingly positive reactions from analysts. At least 19 firms raised their price targets on Pinterest stock, boosting the median target to $35. Bernstein analyst Mark Shmulik noted Pinterest’s success engaging younger users “keeps the flywheel going” in terms of driving further growth.

Other analysts similarly focused on Pinterest’s gains among Generation Z as a major bright spot. This demographic represents an increasingly important audience for advertisers as younger users shift their attention and spending power towards digital platforms.

Focus on Younger Users Paying Off

Pinterest stated over half of its monthly active users are Gen Z, defined as anyone born after 1996. The platform has focused intently on catering to this cohort’s interests in recent years through initiatives like Idea Pins for short-form video and investments in creators.

This strategy aimed at younger users appears to be paying dividends. Pinterest said engagement among teens has increased over 20% year-over-year. Time spent per user also rose, indicating the platform is successfully driving more frequent usage among Gen Z.

With this demographic expected to hold over $330 billion in spending power by 2025, Pinterest’s traction with younger audiences makes it an increasingly compelling partner for advertisers.

‘Shoppable’ Platform Attracts Retail Advertising

In addition to its gains among younger users, Pinterest has doubled down on shopping-related features. Over half of the platform’s monthly active users turn to Pinterest to shop and get inspiration for purchases.

Recognizing this behavior, Pinterest has added functionality to drive greater conversions from product discovery to checkout. For example, Shopify merchants can now easily turn their product catalogs into shoppable Pins.

These efforts to become a more ‘shoppable’ platform appear to be resonating with retailers. Pinterest said retail, its largest ad vertical, experienced strong revenue growth in Q3.

With consumers relying more on social platforms for shopping research and recommendations, Pinterest’s commerce-friendly approach gives it an edge in securing retail ad spend.

Outlook Remains Strong Despite Headwinds

While Pinterest delivered standout Q3 results, management emphasized advertisers remain cautious in the face of rising interest rates, inflation, and the threat of recession.

However, Pinterest expects to weather any ongoing economic challenges by maintaining focus on their core strengths – a highly engaged, shopping-oriented user base with strength among younger demographics.

By catering to the interests and behaviors driving engagement on their platform, Pinterest hopes to sustain momentum even if ad budgets tightened. And early signs point to the effectiveness of this strategy, with conversion rates on promoted pins increasing compared to last quarter.

While macroeconomic factors pose risks, Pinterest’s Q3 earnings and user growth provide encouraging signs for the company’s future. Success attracting and monetizing Gen Z audiences and retail advertisers point towards significant opportunities ahead.

If Pinterest can execute against their strategic priorities, strong performance could continue even in a challenging environment.