Pinterest forecasted first-quarter revenue, which fell largely below Wall Street estimates on Thursday, signalling tough competition from larger social media players despite the stabilisation of the digital advertising market.

Shares of the San Francisco, California-based company initially dropped over 9 per cent but recovered some losses in extended trading following CEO Bill Ready's announcement of an ad integration deal with Google. This deal will enable Pinterest to serve ads via Google's Ad Manager, aiding in monetising several previously unmonetised international markets, Ready noted.

Last year, Pinterest partnered with e-commerce giant Amazon.com, a move analysts believed would significantly increase advertising spend on its platform this year.

"Third-party ad demand is scaling as we anticipated ... and we are now seeing it contribute to our growth this quarter," Ready commented.

Despite its efforts, Pinterest faces stiff competition from platforms like TikTok and Meta Platforms-owned Facebook and Instagram, which are preferred by advertisers due to their larger user base and higher engagement for targeted ads.

Jeremy Goldman, an analyst at Insider Intelligence, remarked, "Pinterest’s solid but unspectacular Q4 numbers should see some scrutiny from the market, which saw Meta blow out expectations just last week."

According to market intelligence firm Sensor Tower, ad spending in the shopping category, usually robust in the holiday quarter, saw minimal growth of less than 1 per cent sequentially. However, ad spending from software and gaming categories in the US experienced sequential increases of 34 per cent and 22 per cent, respectively, in the fourth quarter for Pinterest.

Despite these challenges, Pinterest's global monthly active users (MAUs) rose by 11 per cent to 498 million in the fourth quarter, exceeding estimates of 484.5 million.

For the fourth quarter ended December 31, Pinterest posted revenue of $981.3 million, slightly missing estimates of $990.6 million. Excluding items, the company earned 53 cents per share, surpassing estimates of 51 cents.

(With Reuters inputs)