Risk/reward looks interesting, but does it beat my biggest position
I’ve been watching Pinterest more closely since last quarter, and honestly, I have an urge to buy it at the current levels. The markets seem to underappreciate Pinterest’s strength and ability to deliver. The company just showed another solid quarter: revenue up 17% year-over-year, margins expanding, and free cash flow growing in the mid-20s. They are sitting on nearly $3 billion in cash, no debt, engagement is strong with almost 600 million monthly users, and guidance (slightly below expectation) still implies and impresses with mid-teens growth for the next few years. In any other market situation, this would be considered a great setup.
But, of course, this is 2025 and we’ve collectively decided that every company must be either an AI winner or an AI victim. To an extent, I believe this is justified, just because AI is likely the biggest innovation of at least my generation and will completely reshape how we work, live, and even think. For Pinterest, the supposed consensus narrative is that AI image generation could/will “replace” the platform. I do get where that’s coming from, since the site is flooded with AI-generated images, and it’s fair to ask whether people will still need Pinterest when they can just ask ChatGPT or Midjourney to create the exact thing they want. But here’s my view: the fear is probably overblown.
Frankly, the fear of AI completely destroying certain industries and companies is massively overblown anyway. Model case: Adobe. AI disruption risk is real in some aspects such as Photoshop, but the company shows no sign of slowing business caused by AI, and margins are still sky-high with sticky subscription revenue. Yes, a risk discount on the stock is appropriate, but the levels it is currently trading at seem a little dramatic. The same applies to Salesforce.
Going back to Pinterest: Most people aren’t suddenly turning into digital artists. They are uncreative and lazy by nature (no offense). They’ll prefer scrolling through endless pre-made inspiration boards rather than crafting the perfect prompt. In that sense, AI might actually supercharge Pinterest by making the content universe infinite and engagement deeper.
From a valuation standpoint, things get interesting. The stock trades at a forward EV/Revenue below 4 and a free cash flow yield approaching 8%. That’s more than healthy, especially considering the expanding margins and consistently strong balance sheet management. And still, the stock tanked after earnings, down almost 20% on what was, objectively, a decent report with just a few beauty marks. That feels like an overreaction driven more by macro fear and AI paranoia than by fundamentals.
I won’t lie, I’m very tempted. But I already own Meta, arguably (or certainly) the best social media company in existence, and it’s my largest position for a reason. Meta trades cheaper, has a more diversified revenue base, and benefits from many of the same ad trends that Pinterest does, just at a much larger scale.
So while I find Pinterest’s setup very compelling right now, I’m not pulling the trigger yet. If it drops further, I’ll reconsider and possibly add it as a smaller satellite position.
For now, I might keep scrolling on Pinterest, but not yet on the buy button.
