Our Pinterest Stock Pick Hasn't Worked. We're Dropping It. -- Barrons.com

By Jacob Sonenshine

Pinterest is down about 42% since Barron's recommended the stock in June 2025. During that time the S&P 500 has gained 29%. Time to move on.

The problem isn't that Pinterest doesn't have long-term growth potential. It's that it has repeatedly failed to sustain a super high growth rate, creating uncertainty.

Our thesis was that revenue growth would hold strong and the company's artificial intelligence usage would enable it to match the right products and advertisements with users. The hope was that Pinterest, with its hundreds of millions of users and more than $4 billion of annual sales, would grow within a global digital ad market worth hundreds of billions, as it would increasingly monetize its users.

It has grown -- but not consistently at a high rate.

Pinterest will continue to grow, but the market's concern doesn't appear likely to subside soon; revenue growth often decelerates by several percentage points, which causes large selloffs in the shares. The root of the problem is that whenever growth slows, the market is left to wonder if the platform is beginning to lose its relevance. Users now have a crowded field of options for finding personal and household trinkets to buy. Maybe the growth story isn't as beautiful as investors had hoped years ago, when the stock was at record highs of close to $90.

Consider second quarter earnings, which management released Aug. 4, and caused the stock to drop. Yes, sales of $1.18 billion beat analyst's expectations and grew about 18% year over year, and yes, adjusted earnings per share of 43 cents beat estimates and grew 30%, as profit margins expanded. But the guidance signaled slowing growth yet again.

Management guided for third quarter revenue of $1.2 billion at the midpoint of the range. That implies 14% year over year growth. Chief Financial Officer Julia Donnelly said on the earnings call that second quarter growth was strong partly due to the combination of brands increasing their ad spend around Amazon Prime Day and "World Cup-related spend that will not repeat in Q3."

Here again, the market must consider the possibility that the steady-state growth rate of sales is lower, and that it could slow even further. Already, "Pinterest faces slowing spending growth, uneven returns and limited category breadth, despite its product improvements," Evercore analyst Mark Mahaney writes in an October note, citing conversations with advertising agency executives.

The other problem for Pinterest is margins. Guidance called for $345 million of adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda), at the midpoint of the range. That implies a 28.8% Ebitda margin, compared with 29.2% in the third quarter last year. Donnelly said the main drivers are the growth of marketing and research and development spending on AI enhancements and other product developments. This highlights that Pinterest must invest aggressively to achieve growth, and causes the market concern about long-term margins.

The takeaway is that visibility into profitable acceleration of growth is limited, and that the stock can't sustain any rallies. Sure, it could rise in the near-term if growth stabilizes or reaccelerates next quarter. The stock touched $25 this summer. But rallies are likely to prove short-lived, while the stock's volatility makes it difficult for us to justify owning it.

The worst case scenario is that growth slows even further. Remember, its 2026 low was roughly $15.

Just avoid this name.

Join us for the next live Q&A: Hear from our stock pickers and technical analyst as we discuss the latest market developments -- and take your questions. Register here

Share your questions and thoughts in the "Conversation" section below to engage directly with the author and our community

Receive alerts about more content from this author by clicking "Follow" next to the author byline at top

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 05, 2026 23:34 ET (03:34 GMT)