Surprise Winner of iPhone Upgrade: Pinterest

The newest iPhone operating system is hitting millions of devices worldwide and the surprise winner is Pinterest ((PINS) -Get Report), a social media site for collecting interesting images.

The smartphone app on Sunday was downloaded more than 680,000 times. That’s a 32% increase from a week ago, before most iPhones were automatically updated to iOS 14, the newest operating system for Apple  ((AAPL) -Get Report) mobile devices.

People are heading to Pinterest for ideas how to decorate their home screens.

That could be a big deal for shareholders.

I first wrote about Pinterest in 2019 following its initial public offering. Back then I was intrigued by the business model and the persistence of its founder and chief executive, Ben Silbermann. In 2009 he began building a business around the idea of getting people to share their design interests online in a unique way.

The way it works is Pinterest members sign up, then begin to pin collections of interests. These can be images and videos from around the web. The media, usually themed around subjects like food, fashion, music and other hobbies, is pinned to virtual collage boards where other members can comment, post likes and share.

The twist is Silbermann, a Yale-educated Iowan, remained unusually conservative with changes to the user experience, while steadfastly refusing corporate extragances.

For example, it was not until 2014 that the company started selling ads. And more recently, the Pinterest announced a one-time charge of $89.5 million to terminate the lease of 490,000 square feet of office space that was to be built near its San Francisco headquarters.

His business acumen is looking prescient now, especially when so many iPhone users are using Pinterest as a landing spot to look for cool work-from-home design ideas, and talk about ways to change their phone home screen backgrounds, widgets and icons.

It’s amusing. Personalizing the home screen with widgets and icons has been a staple of the Android user experience for years. iPhone users in 2013 joked that the only more thing ridiculous than gigantic Android phones, designed by Google ((GOOGL) -Get Report), was all of the ugly widgets and irregular icons users collected.

It was old tech. It was messy and unnecessary, quipped a writer at iMore, a popular Apple-centric website.

Today iPhones are bigger. Peak iPhone sales occurred in 2014-2015 when the Cupertino, Calif.-based company finally made the jump to devices with screen sizes larger than 4 inches. And now iPhone users have fallen in love with personalizing the software experience on their beloved smartphones, too.

The trend plays into the strengths of Pinterest. The business is about getting members to browse images, then hang around and chat about all of the cool stuff.

Apptopia, an analytics firm that tracks smartphone app downloads, attributes the interest in iPhone home screen design to a big surge in downloads. Analysts believe Pinterest briefly became the most downloaded iPhone app in the country on Sept. 21.

The trend might have staying power. Through Sept. 23, Apptopia notes that 3 of the 4 leading App Store downloads are the widget-making applications: Widgetsmith, Color Widgets and Photo Widget, respectively.

Silbermann in July told analysts that the company ended the second quarter with 416 million monthly active users, a 39% year-over-year bump. At the time, users were involved in searches for recipes and home office setups, in light of the pandemic. In other words, interests remained topical. For Pinterest that flexibility is a good thing.

The company has always been about user engagement. Once members start pinning their interests, whether it be fashion or iPhone home screen setups, they tend to stick around and that’s good for ad sales.

There is a lot to like at Pinterest. Managers are frugal with costs, yet disciplined enough to strike when the time is right. Moving more of the workforce to home-based offices, while increasing headcount for ecommerce and ad sales will be good for the bottom line.

At 185x forward earnings and 19x sales, Pinterest shares are not cheap. However, the company is well positioned to become an important social media player.

That does not mean Pinterest is profitable. The company lost $63 million in 2018, on $753 million in sales, a 60% increase year over year. And at year-end, the company had $628 million in cash on the books.

Growth investors should consider buying the stock on pullback to $37.20. Shares could trade to $60 in 12 months, a potential gain of 61% from that entry point.

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