Is Google Really Trying to Buy Pinterest?
Google’s parent company Alphabet (GOOG -1.39%) (GOOGL -1.40%) can consider acquiring an image browsing platform pinterest (PINS -2.67%). And that’s because Pinterest has something extremely valuable that Alphabet would certainly like to have in a changing ad economy.
Don’t be fooled by a stock price down more than 70% from its all-time high. Here is the case of Pinterest and its potential suitor.
Where does this crazy rumor come from?
Alphabet CEO Sundar Pichai spoke at the Code conference earlier this month. He talked about a lot of things happening with the company, including developments in the advertising market and concerns about artificial intelligence. Towards the end of the interview, however, the interviewer turned the conversation to mergers and acquisitions (M&A).
When asked if Pinterest was an acquisition target, Pichai stammered, “Look, I can’t comment on a few, on any M&A deal.” He then smiled shyly at the interviewer’s suggestion that he could comment if he wanted.
Maybe Pichai was just uncomfortable with the whole interview and had a hard time getting a response regarding Pinterest for that reason. However, the interviewer had just asked Pichai the same question regarding Twitter, which he apparently answered with ease. Alphabet is not looking to buy Twitter, he said. The unfolding drama with Elon Musk has Pichai just watching with “popcorn.”
Pichai answered the question about the Twitter acquisition. He didn’t do it with Pinterest. And that leads some to believe that Alphabet has indeed reached out to Pinterest about a possible acquisition.
Why Pinterest is a Valuable Acquisition Target
Pichai’s comments at the code conference are only circumstantial evidence. However, this wouldn’t be the first time a major tech company has been interested in buying Pinterest. PayPal Credits reportedly tried to buy Pinterest for $45 billion last year. PayPal’s market cap was around $300 billion at the time compared to Pinterest’s market cap of around $35 billion.
Both market caps fell sharply – PayPal fell to around $105 billion while Pinterest is worth around $16 billion. And when it comes to Pinterest, its stock has been crushed due to plummeting user metrics. It was once believed that Pinterest could potentially attract billions of users like Metaplatforms. However, the company peaked at 478 million monthly active users in the first quarter of 2021 and has since steadily declined to its current level of just 433 million monthly active users.
At first glance, Pinterest’s relevance is waning, which hardly looks like a platform worthy of PayPal and Alphabet’s attention. However, Pinterest has been steadily increasing its monetization, from $1.04 average revenue per active user (ARPU) in Q1 2021 to $1.54 in Q2 2022. That’s substantial.
Here’s what Alphabet and PayPal probably care about: Pinterest has been steadily increasing its monetization thanks to its truly unique insights and insights into consumer behaviors. Year after year, the company proves it knows what people want with its annual Pinterest Predicts report – the report was found to be 80% correct in 2021.
For its part, Alphabet generates most of its revenue through advertising. But the situation is changing for advertising values. Consumers are increasingly concerned about privacy and governments are regulating more. For this reason, Alphabet intends to phase out third-party cookies in 2024. But doing so risks making its ads less effective, and would therefore lead to lower advertising rates.
Acquiring Pinterest and its consumer insights could significantly help it remain more effective at advertising while eliminating tracking.
For PayPal, investors often forget that it has a merchant side of its business – 35 million active merchant accounts in Q2 2022, up from 32 million in the same quarter of 2021. Part of the company’s strategy is to provide consumer intent data to merchants so they know better what to prioritize. That’s exactly what Pinterest could have provided if the deal had gone through.
Pinterest is still a valuable business
Ultimately, we don’t know for sure if Alphabet really intends to acquire Pinterest or if we’ll never hear from this rumor again. However, I believe we have seen that Pinterest’s business has value even though it has struggled to create shareholder value since its IPO in 2019.
That said, I think Pinterest is still a stock worth buying today despite the struggles of its users. Its ARPU growth demonstrates its value to advertisers, likely due to its insight into consumer trends. This could make Pinterest an even more attractive platform if the global economy enters a recession; advertisers would likely reduce their overall spend and focus their spend on the platforms where the returns are the best. And Pinterest would be a top contender for those concentrated dollars.
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Jon Quast has positions in PayPal Holdings and Pinterest. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Meta Platforms, Inc., PayPal Holdings, Pinterest and Twitter. The Motley Fool has a disclosure policy.