Pinterest's Monetization Strategy Gains Traction: Analyst Predicts Solid Growth and Improved Ad Relevance

RBC analyst Brad Erickson maintained an Outperform rating on Pinterest, Inc. PINS with a price target of $52.

As per Erickson, Pinterest is a solid social media property, perfect for inspiration and discovery within a somewhat narrow set of topics and product categories. The changes the company is making, such as direct links and the Amazon.Com Inc AMZN 3p partnership, could drive ad relevance and conversion higher, hence advertiser ROAS despite higher ad load, per the analyst.

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Erickson’s latest look at Pinterest ad load & traffic offers a mixed read into the print.

Positively, general ad commentary remains relatively strong, in line with the analyst’s recent Small and Midsize Business (SMB) ad checks and Alphabet Inc GOOGL Google search results, and Amazon ad load still appears strong and improving in secondary categories.

Less positively, YouTube’s APAC comments could indicate modest headwinds for Pinterest upticking, particularly in the third quarter. Amazon 3p ad load on primary categories declined somewhat p/p, and mobile & desktop user data looks mixed, Ericson noted.

In the bigger picture, the analyst remains constructive about Pinterest’s structural value creation from the long overdue platform monetization improvement.

Pinterest deserves a premium to the group, given that the company has historically under-monetized its platform, which new management is addressing. Erickson said it is growing and ramping margins more quickly relative to the overall space. The target is attributable to confidence in the 3p ad partnership ramping, higher ad load not negatively impacting engagement, and direct links and better relevance driving ROAS higher. To the degree that the company can reaccelerate MAUs in the U.S., there is likely an upside to the analyst’s valuation.

Erickson projected second-quarter revenue and adjusted EBITDA of $848.5 million and $182.1 million.

Pinterest stock gained 30% in the last 12 months. Investors can gain exposure to the stock through Vanguard Extended Market ETF VXF and iShares Russell Mid-Cap ETF IWR.

Price Action: PINS shares traded higher by 0.83% at $37.86 at last check Monday.

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