One challenge that emerging tech companies face is monetizing their ecosystems. To this end, many sites came about explicitly to drive revenue and profits from e-commerce. Amazon and Alibaba rose to prominence through this approach.
However, other companies built ecosystems for different purposes and now seek to utilize e-commerce to revive the fortunes of their stocks. Two of the companies best-positioned to succeed through this strategy are Roku (ROKU 6.58%) and Pinterest (PINS 1.40%).
Consumers know Roku best for its players and televisions that bring all streaming channels onto one platform. However, it has succeeded by integrating advertising into its platform, bringing on product sellers who sponsor programming in exchange for the opportunity to discuss their offerings.
Roku initially drove its stock much higher through such a strategy, but reopenings and an ad slowdown have taken the air out of Roku’s balloon, sending the stock down by more than 90% from its all-time high.
Now, Roku is attempting a comeback by adding more direct e-commerce capabilities to its ecosystem. Last year, the company partnered with Walmart to enable its customers to purchase featured Walmart products on the Roku platform. In addition to driving revenue from sales, it gives companies an added incentive to purchase ads.
This e-commerce-oriented approach should also help boost revenue growth, which has lagged amid reopenings. Its $2.3 billion in revenue for the first nine months of 2022 rose 19% compared with the same period in 2021. That’s well under the 68% revenue growth for the first three quarters of 2021 that the company reported in the year-ago period. Also, Roku predicted a revenue slowdown for the fourth quarter, a factor that has further pressured the stock.
Nonetheless, amid the continuing declines, Roku stock sells for 2 times sales, just above an all-time low. And once the economy improves, more ad sales and more e-commerce could mean you’ll be glad you bought the stock while it was cheaper.
Pinterest allows users to “pin” images based on their passions. The site has taken off with certain groups, particularly women and high-income households in the U.S. The company saw the site’s potential for advertising and sold “promoted pins,” ads that users see based on their interests.
Still, that business did little to help Pinterest stock when lockdowns ended and fewer users logged onto the site. Consequently, the social media stock fell by almost 75% from its all-time high.
Amid the declines, co-founder Ben Silbermann replaced himself as CEO and hired Bill Ready, the former president of commerce, payments, and next billion users at Alphabet‘s Google. Among the changes he has made are applying machine learning and human curation to improve personalization, making all surfaces on Pinterest shoppable, and partnering with retailers directly to drive sales.
It is too early to tell how well these strategies are working. Nonetheless, MAU growth has resumed. Also, revenue for the first nine months of 2022 came in at $1.9 billion, rising 11% compared with the same period in 2021. Massive increases in costs and expenses led to losses of $114 million for that period.
Still, Pinterest’s increased spending on both research and development and sales and marketing could pay off long term. Moreover, the stock has climbed steadily since July, even as the P/S ratio has fallen from about 30 in early 2021 to 6 today. If Pinterest can better fulfill its e-commerce potential, the company’s strategic pivot and lower valuation could lead to further stock gains.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Pinterest and Roku. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Pinterest, Roku, and Walmart. The Motley Fool has a disclosure policy.