Best Ecommerce Stock: Pinterest vs. Wix.com
Share price pinterest (NYSE: PINS) and Wix.com (NASDAQ: WIX) were both beaten in the first half of 2022. Each company was a high-flying winner from the first pandemic as households and small businesses flocked to the internet during shutdowns and the start of the remote work movement. However, as the global economy gradually reopened, both companies lost some steam.
Pinterest and Wix plan to find their new beats, though. E-commerce remains a sticky industry, and it’s one that’s expected to grow steadily for the foreseeable future. This bodes well for Pinterest and Wix. But one of these e-commerce stocks seems like the best buy right now.
Pinterest: Can a new CEO upgrade the social site as an e-commerce platform?
Visual search and social site Pinterest has amassed 433 million monthly active users worldwide in the roughly 10 years since its inception. It also increases its average revenue per user (ARPU) as it makes it easier for marketers and small businesses to use advertising tools.
The problem is that as the effects of the pandemic subsided, Pinterest began to lose monthly users. ARPU growth has kept revenue up and to the right, but the company needs to increase the utility of its site to maintain long-term user engagement. More advanced shopping tools seem to be the direction the company is going.
In early June, Pinterest acquired THE YES, an AI-powered fashion startup, to bolster its e-commerce tools. Then, at the end of the month, co-founder and CEO Ben Silbermann stepped down (and will become executive chairman) to make way for Bill Ready, former president of Commerce, Payments & Next Billion Users at Alphabetit’s Google. It will take time for Ready to settle in and any new strategy to start yielding results, but with hundreds of millions of monthly users, Pinterest has a lot of potential as a more robust e-commerce app.
After falling 44% so far in 2022, Pinterest shares are trading 20 times after 12 months of free cash flow. The company will likely squeeze profit margins as it pivots, but it has the firepower to adapt. Nearly $2.7 billion in cash and short-term investments and zero debt on the balance sheet will certainly help Pinterest grow as well.
Wix: A Long Road to Healthy Profitability Awaits Us
When it last released its global user count last year, Wix had over 200 million small business and individual users. This set of website building and management tools has also become a leading service for building an internet business. The company has steadily expanded its offerings to encompass creative design, purchases and payments, and marketing.
But what was once a fast and steady engine of growth has also lost a lot of steam this year. Wix’s revenue is now growing in the low teen percentage range, and its focus has shifted to making the business profitable. The problem was that free cash flow was negative in the first quarter of 2022. By 2025, Wix expects to generate a solid free cash flow profit margin of 20%, but that’s three years away.
It has therefore been difficult for shareholders as Wix transitions from a growth company to one focused on managing results. The good news is that these hundreds of millions of users create a lot of potential value as Wix regularly expands the tools available to them. For example, it has integrated its services with Google and Google Cloud to make it easier for Wix customers to have a one-stop-shop to run their business online.
Wix stock has fallen 55% this year, but given that it is currently not generating profits, it is much more difficult to put a meaningful price on it. If it takes a year or two for free cash flow to become positive, it will be much easier to measure the value of that business. Wix has $1.2 billion in cash and short-term investments and $924 million in debt on its books.
The best buy now is…
Wix still has tons of potential if it can get into financial shape, but Pinterest is already very profitable and has tons of money on its books. It will take some time for Pinterest to update its offerings to make it more useful as an e-commerce platform, but it certainly has the wherewithal to do so. And because it’s already profitable, shareholders have a basis from which to value this stock — and by some metrics, it could be considered worth. This is not the case at this point for Wix. Given this situation, I think Pinterest is the best buy right now.
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Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Nicholas Rossolillo and his clients have positions in Alphabet (C shares), Pinterest and Wix.com. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Pinterest and Wix.com. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.