Pinterest Is Emerging From Selloff as a New Wall Street Favorite

(Bloomberg) -- After a volatile summer, Wall Street is taking another look at Pinterest Inc. So far, analysts like what they see.

The social-media company has received positive commentary from Goldman Sachs and Oppenheimer, among others, with analysts touting its growth potential and ability to better monetize its user base, including through artificial intelligence. A partnership with Amazon.com Inc., announced in August, and the recent Pinterest Presents advertiser summit have solidified the view that the stock could be an underappreciated bargain in the sector.

“The reason Pinterest is getting all this new attention is that it potentially has massive tailwinds, but it’s not really expensive,” said Conrad van Tienhoven, portfolio manager at Riverpark Capital. “Improving ad targeting is a natural use for AI, and the partnership with Amazon is a match made in heaven, as close as a game changer as you can get.”

Shares slipped 0.4% on Tuesday and are still recovering from a steep July selloff after its lackluster third-quarter revenue forecast disappointed investors. While the stock has rallied about 13% over the past month, it’s still down 12% this year, underperforming an exchange-traded fund that tracks social media companies, which is up 12% year-to-date.

But Pinterest analysts are getting more positive. Goldman Sachs added the stock to its Americas Conviction List last week, citing the potential for revenue growth and adjusted Ebitda margin expansion. RBC Capital Markets also added the company to its top 30 global ideas for 2024.

“The company has historically undermonetized its platform, which new management seems to be addressing, and it is growing and ramping margins more quickly relative to the overall space,” the RBC analysts wrote. Pinterest named Google and PayPal Inc. veteran Bill Ready as chief executive officer in 2022.

Those calls followed two initiations at buy-equivalent ratings. Analysts at Oppenheimer cited upside to engagement and an attractive valuation, while peers at Deutsche Bank called Pinterest “increasingly indispensable” for advertisers.

Overall, the stock now has a recommendation consensus — a proxy for the ratio of buy, hold, and sell ratings — of 4.47 out of five. That’s above the highs it saw for that metric during the pandemic, when stay-at-home orders accelerated user growth and engagement.

Pinterest’s average analyst price target points to upside above 30% over the coming 12 months, the strongest return potential among US social media peers. That kind of gain would return Pinterest to near a multi-year high hit in June, erasing the recent selloff.

The summer share-price slump has left Pinterest trading at less than 20 times estimated earnings, below its three-year average multiple and cheaper than peers like Snap Inc. and Reddit Inc. Still, it’s not much less expensive than Meta at around 24.5 times, and the Facebook parent is seen by some as a less risky choice.

“It’s an additional leap of faith to buy Pinterest rather than Meta, and while I’m not saying it won’t work, until it shows that its improvements are sustainable, we just have more comfort in Meta,” said Tom Plumb, chief investment officer of Wisconsin Capital Management.

“Pinterest has a good setup in terms of revenue and margins, but Meta offers similar growth and a similarly attractive multiple, along with market dominance and more diverse revenue sources. When you have that, Pinterest isn’t a play we’re willing to make.”

Still, others are willing to make the leap, especially given that revenue is expected to grow 19% this year and hold near or above a double-digit pace through 2027. Even faster growth trends are seen for the company’s net earnings.

“If it shows that kind of execution, more people will come around to recognizing its potential,” Van Tienhoven said.