By Jacob Sonenshine

Stick a pin in our Pinterest stock pick.

We recommended buying Pinterest stock in June, and our recommendation just hasn't worked. Since then, the stock has dropped 25% to $26 -- including a 22% plunge on Wednesday after the company released third-quarter earnings. Our thesis that sales growth would reaccelerate on the back of new advertising products just hasn't played out.

Instead, growth has been inconsistent. The company reported on Tuesday that sales grew 17% to $1.05 billion in the third quarter, but management guided for fourth-quarter sales of $1.33 billion at the midpoint of the range, implying growth of 14.8%. Management blamed U.S. and Canadian brands, which it said were spending less on marketing due to tariffs.

But the market is also concerned that growth would continue to slow if customers put their marketing spend to work on the thriving ad offerings Meta Platforms and Alphabet sell, which also incorporate advanced AI. That reduces the market's estimates of long-term profits, thus reducing the multiple of expected earnings it will pay to own Pinterest shares.

Still, this drop is rather large, and shares of Pinterest have often found support near current levels. It's also come back from slower growth before. In late 2024, management guided for slowing growth to 16% for that year's fourth quarter, as food and beverage advertisers pulled back on ad spend. Then, the company beat fourth quarter estimates and went on to grow sales by almost 17% year over year for the first three quarters of 2025 as food and beverage spending "normalized."

Such history could repeat. Management, like in 2024, indicated at least some of the growth deceleration would come from a more macroeconomic concern, not its own missteps. At some point, retailers will resume more normal levels of ad spending as they move through tariff issues and become more confident in consumer demand, just as food and beverage marketing spending came back.

Meanwhile, the company's long-term strategy is just getting started. Its "Performance+" platform uses artificial intelligence to better match advertisers with users' desires. It's designed to get users to click through more ads to brand websites, increasing the return on ad spending, and bringing more advertisers to Pinterest. Already, the AI offerings drove 40% growth in user clicks to advertisers in the third quarter. It has also rolled out features that enable users to click on food or beverage ads -- and move straight to the website of Instacart, Pinterest's partner, the company said on its third-quarter earnings call.

As a result, the company is modestly growing users and average revenue per user, even if they remain a fraction of larger ad platforms. This can help boost profit margins, as they did in the third quarter as earnings before interest, tax, depreciation and amortization margins rose despite slowing sales.

The stock also looks cheap. The enterprise value is about 11 times Ebitda estimates for the coming twelve months, below teen multiples for smaller cap advertising companies Trade Desk and Snap. Pinterest's multiple won't drop much more if growth stabilizes. Higher profits would lift the stock.

"Valuation at 11X EV/EBITDA is attractive for an asset that should be able to sustain double digit revenue growth," writes Evercore analyst Mark Mahaney, who maintained his Outperform rating.

For anyone who can stomach the uncertainty, that justifies buying the drop -- even if we got it wrong the first time.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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November 06, 2025 09:30 ET (14:30 GMT)

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