Pinterest Posts Q2 Miss But Rallies On Elliott Management Stake: The Pattern The Stock Is Following

An unusual phenomenon is taking place this earnings season: some companies are actually being rewarded for poor earnings reports.

The trend continues Tuesday with Pinterest Inc PINS, the PreMarket Prep Stock of the Day.

Pinterest's Volatile 12 Days: On July 15, Pinterest soared from $17.56 to $20.40 on heavy volume.

The catalyst for the explosive rally was the disclosure by Elliott Management that it had taken over a 9% stake in the social media company. 

The issue was able to hover at the closing price over the next four sessions, ending the July 21 session at $20.94.

The issue was shellacked on July 22, when its peer Snap Inc SNAP posted a second-quarter miss and withdrew its third-quarter guidance.

As a result, Pinterest nearly revisited its recent low for the move when it bottomed on July 26 at $16.78. A resilient rally in the broad market took the issue along for the ride, as it ended Monday’s session at $19.99.

Pinterest's Q2 Miss: After the close on Monday, the company reported quarterly earnings of 11 cents per share, which missed the analyst consensus estimate of 18 cents by 38.89%.

This is a 56% decrease over earnings of 25 cents per share from the same period last year. The company reported quarterly sales of $666 million, which missed the analyst consensus estimate of $673.66 million by 1.14%. This is an 8.61% increase over sales of $613.21 million in the same period last year.

Pinterest reported that second-quarter 2022 global monthly active users were down 5% year-over-year to 433 million.

Coming off the poor report, the issue spiked down to $17.90, but found a catalyst on which to build a rally. 

Elliott To The Rescue: The poor report was overshadowed by the announcement by Elliott Management that it is now the largest shareholder in the company. Shortly after the report, the activist investor named the reason for its large stake.

"Pinterest is a highly strategic business with significant potential for growth, and our conviction in the value-creation opportunity at Pinterest today has led us to become the company's largest investor," Elliott Management said. 

"As the market-leading platform at the intersection of social media, search and commerce, Pinterest occupies a unique position in the advertising and shopping ecosystems, and CEO Bill Ready is the right leader to oversee Pinterest's next phase of growth. We commend Ben Silbermann and the board on the leadership transition, and we look forward to continuing our collaborative work with Ben, Bill, and the Board as they drive toward realizing Pinterest's full potential.”

PreMarket Prep's Take: When the issue was being discussed on the show Tuesday, it had already established its after-hours high ($24.68) and was trading just under $24.

"This is not a good report and it is similar to the Snap Inc. report," said co-host Dennis Dick. ” "If I owned this, I would sell the pop."

The author of this article noted the prior price action pattern in Pinterest and other companies in which Elliott has disclosed a large stake: a sharp rise in the after-hours and premarket and a fade during the regular session.

Investors were alerted that if the issue did not revisit or take out the after-hours high, it could likely fade. For investors looking to exit the issue, $24 was mentioned as a potential resistance level.

PINS Price Action: After a much higher open ($23.62 vs. $19.99), Pinterest went another 15 cents higher to $23.77 and sharply reversed course.

As of 12:15 p.m. EST, the ensuing decline found support ahead of the top of Monday’s range ($20.26) at $21.90 and rebounded back into the mid-$22 handle.

The discussion on the issue from Tuesday’s show can be found here:

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