---
title: "Pinterest: two accounting distortions, one direction"
company: Pinterest Inc
ticker: PINS
exchange: NYSE
price_at_publication: 26.01
currency: USD
summary: Pinterest's 2024 net income exceeded its EBITDA, possible only with a positive tax line, in this case a $1.6bn deferred tax asset valuation allowance release. Stock-based compensation, which exceeds free cash flow in most years, flatters the cash flow statement separately. Both of the metrics investors would value PINS on are overstated, and ROIC still fails to clear WACC.
view: Avoid at $26.01. Reported profitability overstates economic profitability on both the earnings and the cash flow line.
thesis: The market is reading Pinterest's 2024 profitability as an operating inflection. It isn't one. Net income exceeded EBITDA, which is only possible when the tax line is positive. The cause was the release of a $1.6bn deferred tax asset valuation allowance, recorded as a loss in 2019 and reversed once sustained profitability made realization probable. It is non-cash, non-recurring, and says nothing about operations. Separately, stock-based compensation runs above free cash flow in most years and is added back as a non-cash expense, inflating both operating and free cash flow. So the earnings line is flattered by a one-off tax event and the cash flow line by compensation the company genuinely bears. Adjust for either and the picture is unchanged from prior years. ROIC does not exceed WACC, and did not even with the tax benefit included. The bull case rests on rest-of-world monetization, where RPU sits at $0.14 against $6.54 in UCAN, but that runway has been available for years while UCAN, which carries the revenue, grows only slightly.
key_assumption: That rest-of-world RPU does not converge toward Europe's $1.00 within the next few years. If it does, revenue growth accelerates enough to make the current returns profile irrelevant.
disproof: Rest-of-world RPU rising materially toward $1.00 while MAU growth holds. ROIC exceeding WACC in a period with no valuation allowance benefit in the tax line. Stock-based compensation falling below free cash flow, indicating cash generation independent of the add-back. Sustained EBITDA growth, given the 3-year rate is negative.
logo: pins.svg
---

- Digital pinboards in the form of a social media service
- Launched in 2010, development started in 2009.
- IPO 2019. In 2021 PayPal reported interested in acquiring PINS for $70 a share ($45 billion). Backed off after PYPL shares slumped following investor disapproval of the valuation.
- Described as a visual search engine. Boards are collections of pins dedicated to a theme.
- Video-focused “idea pins” feature includes the ability to add popular tracks from licensing deals.
- Has a visual search function that uses AI.
- You can buy products on Pinterest, known as product pins.
- In 2022 Google made changes to limit the number of PINS images displayed on the images tab, prompting a large drop in monthly active users.
- Audience 70% female, 30% male. Gen-Z make up 42% of users.
- 2023 announced a partnership with Amazon to show third-party advertisements on the website, which allow users to be redirected to Amazon to make purchases.
- Concerns over copyright infringement. They are however protected by DMCA Safe Harbor, which has been defended in court. Pinterest is banned in China (political reasons).
- Have been sued twice over discrimination (both racial and gender), and were forced to pay large settlements in both cases.
- Biggest direct competitor is Cosmos, which allows photographers to search for inspiration within a large library of images using their automatic AI-generated tags.
- Pinterest employee satisfaction: 66 (3.8/5). Average happiness, below average purpose, average satisfaction and low stress-free. High CEO approval rating. 4.3 work life balance, 3.9 compensation and benefits, 3.6 job security and advancement, 3.6 management, 4.0 culture.
- Most patents cover visual searching, matching algorithms. Design patents like a patent protecting a pinboard are not held.
- AI stock analysis: expected to outperform due to revenue growth, strong international growth, AI-powered features. Negative factors highlighted include challenges in UCAN region, decline in Ad pricing, operational efficiency (margins).
- MAUs have been growing significantly since 2021, with strong growth in Rest of World, moderate growth in Europe, and slight growth in US and Canada (UCAN).
- RPU is significantly higher in the US than anywhere else. RPU is $0.14 in ROW, $1.00 in Europe, and $6.54 in UCAN. RPU is slowly growing with seasonal trends/dips corresponding with ad spending trends. User = MAU in this formula.
- Financial strength (8): strong equity-to-asset and good debt-to-equity. Poor debt-to-EBITDA vs history. 8/9 F-Score. Manipulator on Beneish M-Score, very strong. WACC = ROIC.
- Growth (8): good 3Y revenue growth rate, poor vs history. Negative 3Y EBITDA growth rate. Average EPS and FCF growth rates. Strong book growth rate (could be manipulated). Future estimates good/average.
- Momentum (5): undervalued RSIs, poor price momentum.
- Liquidity: strong liquidity ratios.
- Dividend and buy back: diluting but at a slower pace vs history.
- Good shareholder yield.
- Profitability (4): excellent margins vs history and good vs industry. Misleading however, as 3Y ROIIC is negative. ROC good, ROCE good. 2 years of profitability over last 1, 7 moat score, 8 tariff resilience.
- Value (4): excellent ratios vs history average vs industry to below average. Poor earnings yield. Only positive is FCF yield is good vs industry and history.
- Revenue is growing significantly, but net income was likely manipulated in 2024, through an accounting trick known as DTA valuation allowance, where the government gave Pinterest tax credits for when they are profitable, as they incurred losses in the start-up phase. Now that they demonstrated profitability, they have $1.6 billion in future tax credits, which is added to net income. What is confusing is that this allowance was deducted from net income in 2019, and got released in Q4 2025. It is originally recorded as a loss as it is not guaranteed that these funds get released and so GAAP rules state it must acknowledge it as a future loss of asset value, as DTA is an asset on the balance sheet.
- This explains why EBITDA showed little growth while net income grew significantly. Net income + taxes + interest + depreciation + amortization = EBITDA. In this case taxes is positive and so net income > EBITDA.
- Cash is significant but not growing. Debt is low and stable relative to cash.
- FCF and OCF are growing slightly. Stock based comp is rising and is higher than FCF most years. This is distorting FCF and OCF. OCF adds non-cash expenses like depreciation and stock-based compensation onto net income as they do not involve cash movement. So an increase in SBC (ceteris paribus) results in an increase in OCF, and FCF (ceteris paribus).
- Consistently destroying value. DTA in 2024, did not even cause positive ROIC - WACC.
- Buybacks are insignificant compared with dilutions in prior years.
- Total assets are increasing steadily, apart from a drop in 2023, while total stockholders equity is following a similar trend.
- Within the last few days Pinterest acquired tvScientific, a company focused on performance advertising in connected TV.
- Insiders consistently selling.
- 11.2% reversed DCF growth rate (EPS). With optimistic EPS growth rate of 5%, -50% MOS and $17.31 fair value. FCF also still overvalued despite manipulation of both EPS and FCF with that one-time DTA release adding onto net income through positive taxes (tax rate of -500% due to the release).
- **Summary: value trap, stay away! Requires strong strategic repositioning and deep organizational changes.**