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Why Pinterest stock dropped today

What happened

Shares of Pinterest (NYSE:PINS) were moving lower today after the company posted a wider-than-expected loss in its first-quarter earnings report and warned that revenue had continued to decline in April as advertisers have been impacted by the COVID-19 pandemic. The stock was trading down 12.6% as of 11:32 a.m. EDT.

So what

Pinterest reported strong user growth in the period as global monthly active users rose 26% to 367 million, with nearly all of the growth coming from international markets. Top-line growth was solid, as well, as revenue increased 35% to $271.9 million, which edged out expectations of $270.1 million.

However, the company's loss expanded faster than expected as its advertising business slowed sharply in mid-March as the pandemic set in. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss widened by 39% to $53.3 million and an adjusted per-share loss of $0.10 was $0.01 worse than estimates.  

CFO Todd Morgenfeld acknowledged the impact of COVID-19, saying: "We began 2020 on strong footing. The spread of COVID-19 has certainly had an impact on our business and the businesses of our advertisers, but we remain optimistic about the future."

Now what

The social media company pulled its full-year guidance back in April, but investors were also rattled by news that revenue had fallen 8% in April, a weaker rebound than investors were hoping for. Still, that roughly tracks with impacts that other digital advertisers like Google and Facebook have seen.

Management warned that margins would likely get worse in the second quarter as its cost of revenue tracks with user growth rather than revenue. It also said other operating expenses would grow more slowly.  

While the advertising business may take some time to recover, long-term investors should be encouraged by Pinterest's strong user growth and "record levels of engagement," an important indicator for long-term growth as new and engaged users will help drive advertising growth as the economy improves. 

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