Like many other tech companies that fall into the internet / social media/e-commerce industry buckets, Pinterest (NYSE: PINS) has done well
out of the coronavirus. It wasn’t always like this though and the company had a shaky start. They only IPO’d in April of last year but by March of this year, shares were already down 70% from their all-time high.
While some may have been dismissing it as another overvalued tech stock that has no business commanding a $20 billion market cap on quarterly revenues of sub $500 million, Wall Street has been watching it favorably in recent months. And when we take a look under the hood, it makes sense.
Pinterest’s Q4 earnings report from February showed revenues increasing more than 46% year on year which suggested that things were moving well in the right direction and that 2020 was shaping up to be a banner year. Q1’s report in May showed a jump of 34% in revenue year on year and seemed to confirm the take-off trend. Even though Q2’s report at the end of July had revenue increasing only 4%, the company still crossed the important milestone of 400 million monthly users.
This was almost a 40% jump compared to the same number last year and represents a massive box checked off. Unsurprisingly, the stock jumped 50% on the news and has kept going, closing at an all-time high on Monday. But even with shares up at these heights, they’re still attractive and management is confident that they’re on the winning track.
Todd Morgenfeld, the company’s CFO, summed it up well when he said with July’s release “by all accounts, this was a challenging quarter as COVID-19 continued to spread. I’m pleased with the way we responded and remained engaged with our advertising partners. It has been encouraging to see the recovery in our business over the past few months, but there is still a tremendous amount of uncertainty and work to be done.”
CEO Ben Sillbermann added “in these tough times, we’re seeing more and more people rely on Pinterest to cook at home, plan kids activities and set up a home office. Businesses are helping them turn their ideas into reality as people are increasingly discovering and buying products on Pinterest.”
On Monday, Morgan Stanley bought into the story and upgraded the stock from Equal Weight to Overweight. They cited the strength of social media sites in recent months and believe there’s plenty of upside yet to be priced into shares. Investors have seen this already with the likes of Facebook (NASDAQ: FB) which has seen its stock almost double in price since the lows of Q1.
Analyst Brian Nowak said social media platforms are "becoming even more important touchpoints for retailers, brands and merchants" and Pinterest is the "best pure-play to capitalize on this trend." Strong words indeed for a company that is still defining itself but is doing every right in the meantime.
With the 400 million monthly user mark reached, Nowak addd that "the gears are now in place to drive faster, more durable growth." With a fresh price target of $44, Morgan Stanley see enough room for at least another 25% move north.
Their bullishness echoes that of Pivotal Research who upgraded shares from Hold to a Buy after last month’s report. Analyst Michael Levine said at the time that the numbers were "the inflection point we had been waiting to see," and that the outlook for the second half of the year was particularly strong. At $45.50, his price target is even higher than Morgan Stanley’s and should give investors still on the sidelines more than enough confidence to get involved.
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