Pinterest (PINS 4.76% ) isn’t having a good year in 2021. It started decently, but engagement on the platform waned more than expected as economies started to reopen. Due to the decline in users, the stock is down about 40% since the start of the year.
Yet the long-term potential of the company remains intact. Sure, it has lost a few users in the previous two quarters, but it was after the surge in new registrations it experienced at the start of the pandemic. And its under-monetization, as evidenced by the gap between what Pinterest generates in average revenue per user (ARPU) compared to Meta-platformFacebook from (FB 2.40% ), highlights the enormous potential of Pinterest stock.
Pinterest makes money by showing ads
In its most recent quarter, ended September 30, Pinterest reported a worldwide average revenue per user of $ 1.47. That was up 37% from the same quarter last year, where it earned an ARPU of $ 1.03. Interestingly, the ARPU varies widely depending on the geographic location of users. US users generate more ARPUs than international users.
Like other social media companies, including the Facebook family of apps, Pinterest is free to join and use. Businesses make money by showing ads to people who sign up and start using the app or website. It’s no surprise that marketers are willing to spend more to serve ads to users in the United States, where the average personal income is higher than in other parts of the world. Higher personal income means more purchasing power, which advertisers are looking to use – getting people to buy their products or services.
Indeed, Pinterest’s ARPU in the US was $ 5.55 in the third quarter of 2021, up 44% from a year ago. Meanwhile, its international ARPU was $ 0.38 in the third quarter, up 81% from a year ago. The international ARPU is growing faster than the domestic, but it is more than 10 times lower than the domestic.
Facebook is experiencing a similar trend. Its global ARPU was $ 10 in its most recent quarter, up from $ 7.89 in the same period last year. However, his ARPU for the United States and Canada alone was $ 52.34. Facebook divides its international segment into several regions, and no region comes close to what it earns from the United States and Canada.
Pinterest makes much less money than Facebook for each user
The big gap between Facebook and Pinterest in the global ARPU could be an opportunity for Pinterest. At $ 10 to $ 1.47, Pinterest has a lot of room that it can save. One of the ways that management aims to increase ARPU is by boosting monetization efforts internationally.
As shown by the extremely weak ARPU of its previously highlighted international segment, the initiative is still in its infancy. Management is growing their sales force, recruiting more advertisers to use Pinterest, making their platform more deliverable, and better aligning ads with people’s interests.
Of Pinterest’s 444 million monthly active users, 356 million are from international regions. If Pinterest can successfully increase international ARPU, it can have a significant impact on revenue and profit.
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