Pinterest Investors Should Probably Pin It for Now

Pinterest’s forward-looking commentary was cautious, guiding to just mid-single-digit revenue growth for the third quarter—noting on its conference call the real potential to grow in the low-single-digits—versus analysts’ forecast for low-double-digit growth.

That all earned shares a 22% boost in after-hours trading, as Pinterest still looked decent compared with rivals.

Meta Platforms

last week said its own quarterly revenue declined for the first time ever. Meanwhile, Snap declined to give specific revenue and earnings guidance for the third quarter, describing visibility in the ad space as “incredibly challenging.”

Pinterest said its own revenue increased 9% year on year in the second quarter, despite the fact that it is a relatively niche platform with a stagnating user base. But that was still slower than Snap’s 13% growth in the same period, off a base that was nearly twice as large.

As ad spending has eased, Pinterest’s shares have fallen 45% this year; but they have outperformed Snap and Meta Platforms, which are down 80% and 52%, respectively. From a valuation standpoint, Pinterest shares are trading roughly in-line with those peers, fetching around 3.3 times enterprise value to forward sales.

The bull case on Pinterest is that Mr. Ready, who hails from

Alphabet Inc.’s

Google, can transform Pinterest’s social-media business into an e-commerce powerhouse, leveraging its users’ unique spending intent. Yet that thesis still appears far-fetched. Pinterest said Monday that its shopping revenue is rising at twice the rate of overall revenue, though it didn’t specify what base it was growing from, rendering the information not very meaningful.

Meanwhile, any commerce initiative is going to require users to be such avid fans of the platform that they aren’t only surfing it, but spending on it.

In the first quarter, it seemed like Pinterest had found a way to reignite its user growth after three consecutive quarters of sequential declines. But second quarter users remained unchanged from the prior quarter at 433 million, which was down 5% from a year earlier.

Much like Snap and Meta, Pinterest said Monday that competition for time spent on competing platforms, especially video platforms in its more mature markets—read: TikTok—remained a headwind. The company said monthly users in the U.S. and Canada fell 8% year on year, the largest percentage point decrease by geography. This is particularly worrying because that user base is the most productive in terms of revenue generated.

Morgan Stanley

research indicates that total time spent on Pinterest fell 9% from a year earlier in the second quarter to the lowest levels since early 2017. The firm downgraded Pinterest’s stock earlier this year, citing engagement challenges as well as caution around a shift toward short-form video offerings, which competitor experience shows initially generate less money from ads.

Other than new CEO Mr. Ready and Elliott’s involvement, it isn’t clear what immediate catalysts the company has on the horizon. In a brief statement Monday, Elliott basically just reaffirmed its support of Mr. Ready at the top.

It is possible that, after news that

PayPal

was considering acquiring the company, investors are still holding out hope that a new suitor could swoop in. Certainly, shares are cheaper now than they were in October of last year when The Wall Street Journal reported the payments company was circling. But the underlying business has only deteriorated. Sales increased 43% in the third quarter of last year, while monthly active users were still increasing on an annual basis at that point.

In fairness, Mr. Ready only joined Pinterest about a month ago. With his involvement, you could certainly build a compelling mood board for all the things Pinterest could become. But then again, you could build a good one for Meta’s metaverse ambitions and Snap’s future in augmented reality, too. Investors should resist getting too inspired.

Write to Laura Forman at laura.forman@wsj.com