What Happened:

Shares of social commerce platform Pinterest (NYSE: PINS) jumped 24.1% in the pre-market session after the company reported first-quarter results with revenue exceeding analysts' expectations on higher-than-expected MAUs (monthly active users). Management called out progress with product innovation, including Direct Links, API for Conversions and automated bidding. Pinterest also previewed further product innovation around bidding and dynamic creative optimization solutions to help advertisers on the platform. Contributing to the strong topline performance, next quarter's revenue guidance came in higher than Wall Street's estimates. The big bright spot was actually next quarter's implied operating profit guidance--while Wall Street was expecting a loss, the company guided to a nice profit instead. Overall, we think this was a really good quarter that should please shareholders.

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What is the market telling us:

Pinterest's shares are somewhat volatile and over the last year have had 7 moves greater than 5%. But moves this big are very rare even for Pinterest and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock dropped 21.9% on the news that the company reported fourth-quarter results with revenue missing analysts' expectations, though EPS beat. Revenue guidance for the next quarter also fell below expectations. 

Bernstein's analyst Mark Shmulik highlighted the market's concerns after the results, "Coming out of this earnings season, it's fair to ask whether the smaller platforms (SNAP, PINS) are structurally disadvantaged and sub-scale in what increasingly looks like a winner-take-most digital ad landscape." This refers to the competition from bigger players such as Alphabet and Meta. On the other hand, Pinterest added new users this quarter and beat expectations for MAUs (monthly active users). 

Overall, the results were weak, given the underwhelming guidance and considering the strong results delivered by Meta earlier in the season, which raised the bar for digital ad stocks.

Pinterest is up 12.1% since the beginning of the year, and at $40.64 per share it is trading close to its 52-week high of $41.05 from February 2024. Investors who bought $1,000 worth of Pinterest's shares 5 years ago would now be looking at an investment worth $1,300.

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