The decline is due to volatility on Petrofac: the stock lost 15% last week, but has recovered +17% since Monday. Our position, presented last week, does not change: the current price does not reflect the value of the company.

In the rest of the markets, here's the big picture: companies for which the pandemic had a beneficial effect saw that trend continue into the end of 2020. Yesterday, Apple, Facebook and Microsoft all reported better-than-expected results. But despite these results, the stock prices did not react.

Is this a sign of an end of cycle? I don't know. In any case, the alarming signs are certainly multiplying:
- example 1: the aberrant movements on Gamestop (without any fundamental element)
- example 2: the reaction of the volatility index yesterday, which had one of its strongest rises while the fall of the US markets was substantial but not dramatic.

In any case, in a while this pandemic will be behind us and then the operational results of the moment will have to justify the valuations.

Here is an example with Pinterest. I looked at Pinterest because it is the stock selected for 2021 by the Tech specialists at the Motfley Fool, a market site with a strong retail following (and not the worst). The post will be a bit longer than usual, as the majority of you voted for more in-depth analysis.

The example of Pinterest

Pinterest is valued today at $40 billion, after tripling in one year. In the last quarter, Pinterest had a revenue of $440M and losses of $100M.

The price level is therefore based neither on the absolute level of revenues ($440M last quarter - too low), nor on the results (losses between $50M and $150M every quarter for the past two years) but on the growth of revenues: in 2019, Pinterest posted each quarter sales up by +50% compared to the previous year. In 2020, growth faltered in Q1 with +35%, stalled in Q2 (+4%) and then picked up in Q3 (+58%).

The Motley Fool reporters cited Pinterest as their top pick for 2021 based on this revenue growth rate.

This growth rate has two drivers:
1) the number of users
2) the revenue per user.

For simplicity, I'm focusing on the US which accounts for 90% of the revenue.

Here is the evolution of the number of US users (in millions/month) per quarter :

We see that it wasn't growing much in 2019, the pandemic reboosted it (going from 90M to 96M) and it's leveling off again. With covid and containment, everyone who needs to be on Pinterest is. So my first growth driver is slowing down.

The second driver is revenue per user. The Motley Fool hosts were mentioning this number when comparing it to Facebook's, which is significantly higher - which they believe leaves a lot of room for Pinterest to grow on this second driver. I'm not so sure: Facebook (or Instagram, which is owned by Facebook) are social networks, so users go there every day to read their posts, send posts etc... Except Pinterest is not a social network. The average Pinterest user goes there once in a while to look for ideas. How much is someone who turns on their TV three times a month for twenty minutes worth in terms of ad revenue? Not much.

What's going to happen in the next few quarters? Pinterest releases its results on February 4. They'll probably be good: the pandemic is still with us, people are spending more time on their phones and more time at home so they need ideas to fix up their homes - Pinterest's core business. And then those results will be compared to pre-pandemic, so on a still low base.

On the other hand, in six, nine months, people won't be in their homes anymore. It will then be harder to continue to show impressive growth rates. And the results will still be negative.

So I don't agree with the Motley Fool: it seems like a big deal to me, Pinterest, for 2021.

Have a good week,
Charles