Prediction: these 2 actions will take off in 2022
The stock market performed very well in 2021. SPDR S&P 500 ETF reached or near an all-year high, with its sharpest decline in October, when it fell 5%. But not all stocks have followed a similar trajectory. Some have fallen as much as 70% from their all-time highs. Two of the biggest names that were crushed in 2021 were Pinterest (NYSE: PINS) and Lemonade (NYSE: LMND) – down 52% and 72% of their highs, respectively.
Despite their falls, both companies have great potential and made substantial business progress as their shares were pounded. This progress could bear fruit in 2022, which could send their actions to historic highs.
Image source: Getty Images.
1. Pinterest is not a MAU story
Shares of the social media company were hammered in 2021, falling slowly from highs reached in the first few months of the year. The company faced difficult comparables for 2020 in its earnings reporting. Pinterest usage increased dramatically during the COVID-19 pandemic, but as the world moved slowly, the business experienced slower growth internationally and even a decrease in user numbers in the United States. United.
In the third quarter of 2020, for example, Pinterest has 98 million monthly active users (MAU) in the United States, but that figure rose to 89 million in the third quarter of 2021. In the fourth quarter of 2020, Pinterest saw its international MAU increase. 46%, compared to growth of just 4 in the third quarter of 2021.%.
While many investors worry about this declining growth, it is not the main key to success for Pinterest. The real opportunity for Pinterest lies in the increased monetization of its MAUs. Pinterest has plenty of room for expanding its Average Income Per User (ARPU), especially when its $ 1.41 ARPU is compared to other social media stocks. Snapchat (NYSE: SNAP) has an ARPU of $ 3.49, and Meta-platforms‘ (NASDAQ: FB) The ARPU is a whopping $ 10.
The company made significant progress in 2021 to increase this monetization. One of them was Pinterest TV – where creators can sell products from a video – as well as efforts to make it easier for users to add items to a cart to purchase later.
This increased effort makes advertising on Pinterest more valuable to advertisers, and if these efforts are effective in increasing its ARPU in 2022, investors could see revenue growth accelerate. Currently, the company is increasing its ARPU by 37% year over year, but the company has the potential to accelerate that growth. If improvement efforts are successful, Pinterest could experience significant revenue growth, which could finally make Pinterest a favorable investment again in 2022 and cause stocks to skyrocket.
2. The future of Lemonade is bright despite the current losses
Like Pinterest, the AI-based insurance company’s shares were hammered in 2021. Almost six months after its initial public offering (IPO) in July 2020, the company has seen its shares soar, surging by over 120% in early 2021. However, the IPO hype has faded and a difficult first quarter due to the Texas freeze (failures in the natural gas infrastructure system that nearly halved the state gas production) triggered a slowdown that saw stocks fall 71% from their all-time high.
The Texas freeze affected Lemonade’s net loss ratio, which shows how much the company has to pay in claims for how much it earns in premiums. In the first quarter, Lemonade’s loss ratio hit 121%, meaning the company paid significantly more than the money it earned in claims (not the best business model). Since the first quarter, its net loss has declined, but it is still higher than the company is targeting. In the third quarter, the company’s loss ratio was 77%, but the company says its loss ratio is expected to be less than 75% in the long run.
Part of the reason the third quarter loss ratio was above 75% was due to the rollout of its new products, like auto and pet insurance. The AI of new Lemonade products is still being tuned, which currently results in a higher net wastage rate for these products. However, despite high loss rates, they are improving rapidly. The pet loss ratio improved 4 percentage points sequentially, while the owner loss ratio improved 52 percentage points year over year.
Obviously, there are trends showing that Lemonade’s AI is getting more accurate with its new products. And as these products mature and AI becomes more accurate, investors are likely to see these loss ratios improve dramatically. The loss ratio has the potential to fall below the 75% threshold, which could help Lemonade rise again and positively transform investor sentiment towards the company.
The bottom line for both companies is that investors have fallen in love with them. Since the reasons they lost the hype do not fully represent the company’s success, the tide could turn in 2022. If every company’s investments in their business in 2021 pay off, today could be a great buying opportunity to reap profits before the new year.
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Jamie Louko owns shares of Lemonade, Inc. and Pinterest. The Motley Fool owns shares and recommends Lemonade, Inc. and Pinterest. 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.