The start of a new year is as good a time as any to start investing in stocks, and a relatively modest sum such as $1,000 can go a long way, provided it is invested in solid companies.
Let’s look at two excellent prospects: Pinterest (NYSE: PINS) and Chegg (NYSE: CHGG). Investors can acquire 38 shares of Pinterest, a social media company, with $1,000 at current levels, while that same amount will buy 47 shares of the education technology company Chegg. Here’s why either move could pay off handsomely down the line.
Last year wasn’t a great one for Pinterest. The company’s user growth was nonexistent, which affected its business since it makes money through advertising. Many companies that rely on advertising struggled last year as ad spending dropped amid the economy’s problems.
But there is still much to like about Pinterest’s business, namely that it is increasing monetization while shifting its focus to profit from the unstoppable growth of the e-commerce industry. In the third quarter of 2022, the company grew its revenue by 8% year over year to $684.6 million. That was on the back of the company’s average revenue per user jumping by 11% year over year to $1.56.
It ended the quarter with 445 million monthly active users, which is more or less flat compared to the year-ago period. The advertising industry won’t stay down forever, and once it recovers, Pinterest will benefit.
Meanwhile, management is increasingly turning the platform into a shopping center, led by new CEO Bill Ready, who took over last year. According to the company, more than half of its users view the website as a place to shop.
In my view, this is hardly surprising. Pinterest has a more-visual approach than most other social media companies. Constantly looking at carefully crafted pictures of saleable items can ignite the desire to acquire them. That may be what’s happening with these Pinterest users who see the platform as a place to shop.
And the company is happy to oblige. Management is looking to turn every item on the platform into a purchasable item. In the third quarter, Pinterest said it released its application programming interface for shopping across its largest markets. Both the e-commerce and online advertising markets are projected to continue growing rapidly.
Although Pinterest hasn’t been in the best shape in the past year (what business has?), riding the wave of both industries will enable it to continue delivering solid financial results and stock market performance, allowing it to reward those who get in today.
Chegg seeks to improve students’ lives by providing various tools that make learning much easier. It has solutions to thousands of textbook problems.
Or students can post homework exercises on the platform for experts to explain. Once the answers to these homework problems are published, they stay on the platform forever, and others can access them.
This provides students with plenty of study and review material. Chegg also offers a writing tool that helps detect potential plagiarism and checks for grammatical errors, and it has a math-focused problem-solving tool.
It offers these through Chegg Services, a subscription product. In the third quarter, its revenue increased by 8% year over year to $159.3 million.
However, the company’s total net revenue dropped by 4% year over year to $164.7 million, mainly because in April 2022, it divested its required-materials segment. It offered a range of services through this segment, including textbook rentals. This business came with high costs, including publisher fees (among others) that hurt the company’s margins.
Focusing on its Chegg Services segment could help improve margins. Management estimates that there are 100 million students worldwide who could benefit from its services. The company ended the third quarter with just a small fraction of that: 4.8 million subscribers for Chegg Services, a 9% year-over-year increase.
Perhaps the company won’t grab this entire market by itself, but acquiring even an additional 15% would substantially help grow its revenue and earnings.
Students are attracted to the platform because of what it offers, and the more textbook and homework solutions it has, the more attractive it is to students. Chegg also plans to start non-academic services such as job skills preparation, which could help attract even more users to the platform.
Given the overall range of the services Chegg provides and the massive worldwide opportunities at its disposal, I’d highly recommend this stock today.
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