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Investing, Stocks  | November 5, 2021

Pinterest (NYSE:PINS) lost nearly 13% of its value on Oct. 25 because the rumor that PayPal (NASDAQ:PYPL) was willing to pay $70 per share for PINS stock turned out to be untrue.

According to Bloomberg, PayPal issued a one-sentence denial, stating that it wasn’t pursuing a Pinterest acquisition at this time. Fellow InvestorPlace contributor Joel Baglole suggested investors avoid PINS stock as a result of the takeover debacle. Baglole stated:

“While a potential buyout from PayPal was intriguing, a rumor is never a good reason to buy a stock. That’s evidenced by the fact that the PayPal acquisition failed to materialize.”

That said, I would like to point out that it’s equally silly for long-time Pinterest shareholders to sell the stock just because a rumored transaction didn’t take place. Here’s why.

PINS Stock, PayPal and the False Rumor

The first time I heard the rumor that PayPal was considering paying $45 billion for Pinterest, I immediately questioned why the payments company would make such a move.

Remember, PayPal was separated from Ebay (NASDAQ:EBAY) back in 2015. Shareholders got one share in PYPL for every share of EBAY. Now, PYPL stock has outperformed EBAY almost threefold over the last five years. Clearly, it’s a superior company.

As such, getting back into a relationship that favors one customer (Pinterest) over others doesn’t seem worth it, especially if you have to shell out $45 billion to make it happen. Piper Sandler analyst Christopher Donat was also skeptical of the move.

“We have been skeptical of the strategic merits of the potential PINS acquisition […] We view PYPL’s announcement as a clear positive, but it leaves open the possibility for PYPL to acquire PINS in the future.”

Further, Donat speculated that PayPal was merely waiting for the technology landscape to change and reduce the adverse effects of Apple’s (NASDAQ:AAPL) changes to app tracking transparency (ATT).

While PayPal CEO Dan Schulman is interested in making a transformative acquisition, I don’t see Pinterest being a good fit. However, I’m still bullish about the current business behind PINS stock.

More Than a Failed Acquisition

To be fair, Baglole gives several reasons other than the failed acquisition to be cautious about PINS stock. For example, co-founder Evan Sharp is leaving the company for a new gig. Plus, the company’s user base has shrunk due to the reopening economy. Lastly, its price-earnings (P/E) ratio was “sky-high” at the time of the article.

Let me address each of those points.

First off, although Evan Sharp is Pinterest’s Chief Creative Officer, I don’t think there is any doubt about who is driving the bus: CEO Ben Silbermann. Back in July, InvestorPlace’s Louis Navellier quoted Silbermann on how Pinterest can last in a post-pandemic world. The CEO stated:

“Whether it’s recipe ideas during the pandemic or dream vacation planning for the future, I’m proud that we now help 478 million people every month find inspiration to create a life they love.”

I continue to believe that a social media platform like Pinterest — a positive influence and valuable information source — is welcome in a sea of Facebooks (Meta Platforms (NASDAQ:FB))

As for Baglole’s second point, you can argue that Pinterest lost 24 million monthly active users (MAUs) on a sequential basis from Q1 2021 to Q2 2021 — 478 million to 454 million — but you can also say that it grew MAUs in the second quarter by 9% year-over-year (YOY) and by 56% over 291 million MAUs in Q1 2019. As I’ve said before, Pinterest’s glass is half full, not half empty.

Finally, I think it’s fair to say that the company is still growing its business and focusing on things other than bottom-line earnings. To me, it would be far better to focus on its price-to-sales (P/S) multiple of 12.9 times.

Is it too high? Too low? Or just about right?

According to Morningstar, Meta Platforms — the holding company for Facebook — is trading at 8.5 times sales while Twitter (NYSE:TWTR) and Snap (NYSE:SNAP) trade at 9 times and 21.7 times, respectively.

So, thanks to the adverse reaction of investors for the failed transaction with PayPal, the PINS stock P/S multiple is now just right (or even a little undervalued) relative to SNAP.

The Bottom Line on PINS Stock

Would it be nice to get $70 per share from someone like PayPal? You bet.

On several occasions throughout 2021, PINS stock has crossed above $70, only to find its way back to the $40s, $50s or $60s.

True, the company needs to continue to give investors reasons to stay on the Pinterest bandwagon. It’s not enough to create takeover rumors. Professional investors can see right through that.

Still, back in mid-September, I said that PINS was in the buy zone at $54. At around $44 today, should you take a flyer, I’d be shocked in two to three years if you weren’t thrilled with your decision to buy at current levels. And who knows? Maybe somebody else will come along with a $70 per share offer. The current median analyst estimate is pretty close at $67.

All in all, I continue to think that Pinterest is an excellent long-term buy.

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