Loop analyst downgrades Pinterest but sees long-term upside

Pinterest's (PINS) stock plunged nearly 17% on Friday as the social media company said in its latest earnings that its bottom line has taken a hit due to President Trump's tariffs.

The company reported $1.32 billion revenue for the fourth quarter, which narrowly missed analyst expectations of $1.33 billion. It also reported 67 cents earnings per share, which was in line with consensus estimates.

But the company's net income plummeted 85% for the quarter to $277 million from $1.9 billion the prior year.

It reported $541.5 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBIDTA), which fell below Wall Street's expectation of $550 million.

Pinterest is expecting first-quarter sales to be between $951 million and $971 million, below the consensus estimate of $980 million.

Nearly all of Pinterest's revenue is generated through advertising, but the tariff-related drag on the ad business appears to be pushing Pinterest to begin exploring new avenues for growth.

"While we absorbed an exogenous shock this year related to tariffs, which are disproportionately affecting ad spend from our top retail advertisers, this quarter also underscored where we need to move faster," Pinterest CEO Bill Ready said in the company's earnings call. "Most importantly, we need to further broaden our revenue mix and accelerate the next phase of our sales and go-to-market transformation."

Pinterest CFO Julia Donnelly added that "our largest retail advertisers created a more meaningful headwind than we expected as they sought to protect their margins in this dynamic environment and pulled back on ad spend."

"We believe this pullback on ad spend from larger advertisers was felt across the industry, but impacted our platform to a higher degree given our current revenue mix," she said.

Pinterest begins its restructuring

Pinterest announced in an SEC filing last month that it is undertaking a board-approved restructuring plan that will focus on redirecting resources toward artificial intelligence, while also slashing its workforce.

The San Francisco-based company said in its filing that it is planning layoffs that will affect "less than 15%" of its workforce and will also be reducing some of its office space. The company added that the reduction in workforce is being done "to support transformation initiatives."

Central to these initiatives will be "prioritizing AI-powered priorities and capabilities," as well as "accelerating the transformation of its sales and go-to-market approach."

Pinterest brought in Lee Brown as its new chief business officer a few weeks ago to lead the company's new go-to-market operations.

In response to an analyst question on the earnings call about what these changes could entail, Ready noted that the company will be "doubling down on broadening our revenue" that will focus on "mid-market enterprise and SMB advertisers and closing the monetization gap in international markets, including rethinking how we cover some of these areas."

"As with any sales transformation, there can be some modest disruption in the near term as we rebuild and retool the organization to best position the company for the long term," he said.

Meanwhile, Loop Capital analyst Rob Sanderson downgraded Pinterest's shares to Hold from Buy on Friday, while also slashing his price target 60% to $18 from $45.

"Our enthusiasm for Pinterest's unique use case, commercial relevance and strong user growth story is overshadowed by struggles to monetize and outsized exposure to unusual macro conditions," Sanderson said. "We think it will take several quarters at least to get through a sales reorg, absorb escalated spending, and restore investor confidence."

However, despite the near-term headwinds, Sanderson remains confident about the long-term prospects for Pinterest.

"We think the stock price collapse significantly understates the intrinsic value of Pinterest's uniquely commercial engagement and believe that long-term investors will be rewarded at these levels," he said.

Pinterest's stock has crashed over 40% so far this year.