Pinterest outpaces Meta and Snap after bucking ad spend slowdown

While Twitter’s Q3 earnings were on hold as Elon Musk completed his takeover, social media stocks Meta, Pinterest and Snap all reported earnings last week. Meta and Snap both released financial results that showed a further pullback in ad spend. Meanwhile, Pinterest defied the slowdown.  

- Pinterest surprises with 50% growth in shopping ad revenue

- The challenging macro environment has created downside risk for social media stocks

- The slump in Meta’s share price dragged down the Global X Social Media ETF

Despite being the last social media stock to report earnings last week, Pinterest’s [PINS] third-quarter results turned out to be the only bright spot in an otherwise gloomy ad spending drought.

Third-quarter revenue at Pinterest came in 8% higher year-over-year at $684.6m, beating analyst expectations of $666.7m. Earnings per share were $0.11, surpassing forecasts of $0.06. The Pinterest share price soared after hours following the results on Thursday 27 October, and closed up 13.75% higher the following day.

Snap [SNAP] had kicked off the week with reporting revenue of $1.13bn that was 6% above the prior-year quarter but missed analyst expectations of $1.14bn. The company blamed inflation for its slowest revenue growth since publicly listing and forecasted no further growth for the upcoming holiday period, sending its shares down 28% on 21 October.

Meanwhile, Facebook’s parent company Meta [META] reported revenue of $27.71bn, down 4% from $29.01bn year-on-year, but up 1.2% from the $27.38bn expected by analysts according to the Financial Times. This marked the second quarter in a row that revenue had declined year-over-year. Earnings were $1.64 per share versus analysts expectations of $1.89 per share. The Meta share price collapsed by roughly a quarter following its earnings report on Wednesday 26 October.

Pinterest’s ad performance shines bright amid gloom

Pinterest’s third-quarter figures were buoyed by ad numbers that came in stronger than expected. Shopping ad revenue was up 50% year-year-year, an acceleration on the prior quarter.

“Despite the challenging macro environment, we are delivering performance and a distinct value proposition to advertisers, reaching users across the entire funnel,” CEO Bill Ready said in a statement released with the company’s earnings. CFO Todd Morgenfield added that the platform was evolving into “an always-on and trusted advertising partner”.

On the other hand, the challenge for Meta CEO Mark Zuckerberg is ensuring its products remain popular enough to generate the ad sales needed to fund its metaverse ambitions. Daily active user growth was flat sequentially in the US and Europe, the two regions with the highest average revenue per user.

Reality Labs, the company’s metaverse division, is also casting a shadow over the company, with the unit posting a $3.7bn loss in the third quarter, wider than the $2.6bn loss reported for the same quarter last year, and $2.8bn in the three months to the end of June.

Meta’s shrinking ad business raise questions

Meta wasn’t the only to be hit by a slowdown. Ad sales in Alphabet’s [GOOGL] YouTube division dropped 1.9% year-over-year in Q3 to $7.07bn. In contrast, however, Mark Zuckerberg’s company appears to be in a unique position.

“Meta we view as a completely different situation than the rest of larger cap tech as the company is facing Apple iOS privacy issues, massive digital media headwinds, social media share losses, and transforming its [business] model at the worst possible time with Zuckerberg as the pilot,” tweeted Wedbush analyst Dan Ives on last Thursday, a day after the tech giant posted its results.

Zuckerberg doubled down on his commitment to realising his metaverse goals on the earnings call, reiterating his belief that the company is “on the right track with these investments”, and reassured investors it is pushing for greater “discipline and efficiency” within the organisation.

While things look brighter at Pinterest, CFO Morgenfield tempered enthusiasm, cautioning that the challenging macro backdrop and weakening consumer demand has created “downside risk” and this could be reflected in Q4 earnings.

Funds in focus: Global X Social Media ETF

Pinterest and Meta are the second and third biggest holdings in the Global X Social Media ETF [SOCL] with weightings of 8.43% and 7.99% respectively as of 28 October. The fund is down 53.4% year-to-date and down 13% in the past month, reflecting the sell-off spared by Meta’s dismal Q3 earnings.

The two companies are the fourth and fifth biggest holdings in the Fount Metaverse ETF [MTVR] as of 28 October, with a weighting of 2.76% in Pinterest and 2.52% in Meta. The fund is down 40% in the year-to-date and 2.7% down in the past month.