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The Ratings Game: Pinterest stock nearly suffers sharpest drop on record as pandemic recovery weighs on user growth

Pinterest Inc. served as a virtual haven for those stuck at home during the worst of the pandemic, but now that the world is reopening, the company is having a harder time keeping users interested in its platform.

The company saw its monthly-active-user, or MAU, count slip sequentially in the second quarter as it reported 454 million such users, coming in far below the 482 million that analysts tracked by FactSet had been projecting. That weighed on Pinterest’s
PINS,
-18.24%

stock Friday, falling 18.2% for their second-worst day on record, behind an 18.7% fall on Mar. 16, 2020.

The latest results, which came out Thursday afternoon, prompted at least two downgrades from Wall Street analysts.

“Yes, Pinterest saw the largest relative boost to its user base from COVID and thus faces the toughest ‘engagement comps,’” wrote Evercore ISI’s Mark Mahaney. “But we had believed that through an improved user experience and an overall strong discovery/achievement value proposition that Pinterest would have been able to more successfully retain the surge in users who came to the platform during the COVID crisis.”

In the U.S., Pinterest had 90 million monthly active users as of its first-quarter 2020 report, before it grew that count to 98 million by the third quarter of 2020. The company dipped down to 91 million U.S. MAUs in the latest quarter.

“There is now something of an open question as to whether Pinterest is experiencing maturation risk in its lead market, the U.S.,” Mahaney wrote. He downgraded Pinterest’s stock to in-line from outperform and cut his price target to $60 from $98 in a note with the email subject line: “In This Business, The User Is (Almost) Always Right.”

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J.P. Morgan analyst Doug Anmuth also became more concerned about the stock’s potential following the report. In addition to pointing out the sharp miss on user numbers, he highlighted the company’s plans to focus the platform more on video and Idea Pins, a type of creator-driven content.

“Idea Pins may be successful over time, but near term we think they carry greater risk as users must pivot from grid format to streaming, and richer video content may not work as well across all categories,” he said in a note to clients. “We believe Pinterest could also lose some of its differentiation as it will compete for creator content with a number of other large platforms.”

Anmuth lowered his rating on the shares to neutral from overweight and reduced his price target to $68 from $95.

Others were more patient. Wedbush analyst Ygal Arounian wrote that most of Pinterest’s MAU declines are coming from the desktop platform, and mobile users “engage better and monetize stronger” than desktop ones.

“While the near-term growth trajectory slows somewhat here, and shares likely need more clarity around users to really begin to work again, with expectations and multiples reset, and our continued positive long-term stance on Pinterest as a differentiated platform, we reiterate our outperform rating,” he wrote, while lowering his price target to $70 from $91.

Shares of Pinterest have declined 12% over the past three months, though they’re up 132% over the past 12 months. The S&P 500
SPX,
-0.54%

has risen 4.5% over three months and 35% over 12.

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