Cathie Wood is the founder and chief investment officer of Ark Invest, an asset management firm focused on disruptive innovation. Ark manages several thematic index funds built around fast-growing technologies such as artificial intelligence (AI), but the firm continues to sell positions. Nvidia (NVDA 4.00%) During February.
This may seem strange to readers considering that Nvidia graphics processing units are synonymous with AI infrastructure. But with the stock price up 236% over the past year, Ark is locking in profits and reinvesting capital in other AI companies.For example, the company purchased shares of pinterest (pin -0.82%) During February. The social media company currently accounts for just over 1% of Ark's $14 billion portfolio.
Here's what investors need to know.
Pinterest failed to impress with fourth-quarter results
Pinterest reported mixed results for the fourth quarter. Global monthly active users (MAU) increased 11% to 498 million, and average revenue per user (ARPU) increased 2% to $2.00. Wall Street analysts had expected MAU growth to slow slightly but ARPU growth to be slightly faster.
As a result, Pinterest missed out on the highest estimate. Revenue rose 12% to $981 million, but Wall Street was looking for $991 million. Despite these shortfalls, the company exceeded its bottom line expectations thanks to effective expense management. His GAAP net income for the fourth quarter hit his $201 million, up from his $17 million a year ago.
Pinterest stock has fallen about 10% since the report was released, and the stock remains 60% below its all-time high reached in early 2021. However, the company is implementing a smart growth strategy with investments in artificial intelligence (AI) and partnerships. with third party advertisers. These moves could create value for patient shareholders in the coming years.
Pinterest is implementing a smart growth strategy
Pinterest operates a social media platform that allows users to explore and curate visual content to discover new products and ideas. Its monthly user base is meta platformFacebook and Instagram, ByteDance's TikTok, and snapSnapchat remains one of the 15 largest ad tech companies in the world. This positioning is a result of the ability to collect consumer data and influence shopping decisions, and continued investment in AI will help make that possible.
In the first quarter, Pinterest CEO Bill Ready said:
Nearly a year ago, we began the transition to next-generation AI capabilities, allowing us to use recommender models that are 100x larger than before. We combine our proprietary data with AI-based computer vision and search technology to improve the perceived relevancy of our recommendations on Related Pins, increasing perceived relevancy by nearly 10 points from a year ago. I made it to 94%.
In Q4, Pinterest added generative AI search guides that help users refine their queries and take action (purchase) more easily. We also debuted an AI-powered organization feature that automates content curation for users. Management says these innovations create a powerful flywheel. Specifically, as user engagement increases, so does Pinterest's ability to make relevant recommendations. This is simply because engagement creates data that the company can feed into its machine learning models.
In addition to AI innovation, Pinterest partners with: Amazon and alphabetGoogle plans to introduce third-party advertising to its platform. Specifically, Amazon's ads will be published in Pinterest Search and Home Feed in the US, and Google's ads will be published in international markets. These partnerships allow Pinterest to leverage advertising demand beyond its own ecosystem, and the partnership with Amazon in particular makes it easier for users to buy the products they see on the platform.
Pinterest stock trades at an affordable price
According to Grand View Research, digital ad spending is expected to grow at a rate of 15% annually through 2030. How quickly Pinterest grows depends on its ability to create demand among advertisers, which in turn depends on its ability to attract users to relevant content and drive desired results for brands.
In that regard, the management is making smart decisions that could lead to increased market share. Wall Street expects Pinterest to grow its revenue by 15% annually over the next five years, so the consensus estimate leaves room for upside if the company actually gains market share. In either case, his current valuation of 8.2 times sales seems reasonable.
As a caveat, Pinterest faces stiff competition from larger, more popular social networks that can siphon ad dollars from the platform. But unlike Pinterest, these competing platforms aren't built for product discovery.
In other words, Pinterest is definitely an underdog, but it also has unique strengths that can help drive social commerce more effectively. If the company can tap into its potential, it could create significant value for patient shareholders. Investors who can tolerate that risk should consider buying a small position on Pinterest today. Personally, I like Ark's decision to allocate about 1% of its portfolio to stocks.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Trevor Jennewine has held positions at Amazon, Nvidia, and Pinterest. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Nvidia, and Pinterest. The Motley Fool has a disclosure policy.
