Pinterest surges 27%, best weekly gain in over a year

Pinterest Inc. NYSE: PINS stock gapped up on October 31 after the company’s earnings report and just kept rising. The stock rose 27% the week ended November 3, its best weekly gain since 2020.

You don’t hear about Pinterest as much as social media companies like Meta Platforms Inc. NASDAQ: META, Elon Musk’s X, Alphabet Inc.’s NASDAQ: GOOGL YouTube or even Snap Inc. NYSE: SNAP. 

Pinterest serves a unique niche with its focus on images, and doesn’t generate the controversy that word-based social media platforms tend to. It’s harder to pick nasty fights over a picture of apple pie or a cat-themed living room than it is over X’s political screeds.

The Pinterest chart shows the stock clearing a double-bottom base with a buy point at $29. In the recent market volatility, Pinterest stock initially cleared that point on October 10, but broke down as the broad market pulled lower. Pinterest’s recent uptrend has tracked that of the SPDR S&P 500 ETF Trust NYSEARCA: SPY, although Pinterest has gained at a far faster rate. 

Pinterest’s revenue growth accelerated in the past three quarters, while earnings grew 91% and 155% in the past two quarters.

Number of users at all-time high

Pinterest ended the quarter with 482 million global monthly active users, up 8% and reaching a new all-time high.

In the company’s third-quarter report, Pinterest said it expects revenue to grow in the 11% to 13% range in the current quarter. 

In the earnings conference call, Pinterest chief financial officer Julia Donnelly elaborated on those numbers, noting that an increase in the current quarter would continue the trajectory of accelerating year-over-year revenue growth. 

In the quarter, the company launched a new suite of products to help advertisers reach Pinterest users and drive more conversions. 

Donnelly added that the company typically sees higher seasonal revenue in the fourth quarter. 

The platform's business model is built around advertising and e-commerce. Pinterest allows businesses to create pins or visual advertisements that integrate with the user's feed. This advertising model, known as promoted pins, provides businesses with an opportunity to showcase their products or services Pinterest users. 

Forecasts a decline in operating expenses

The company also expects fourth-quarter operating expenses to decline in the range between 9% and 13% year-over-year. 

During the call, CEO William Ready emphasized the company’s way of facilitating user engagement, which entails relevant ads to drive “views, clicks and conversions and customers to our advertising partners, thereby fueling our flywheel for engagement and revenue growth.”

He added that the company’s future financial targets include increasing revenue at a mid to high-teens compound annual growth rate. Pinterest says margins will expand to something to a percentage rate in the low 30s in the next three to five years.

No surprise, there’s an AI angle to the story, as the technology is being used to improve the relevance and personalization of Pinterest’s content recommendations.  

The demographics of the site are also working in the company’s favor. At a recent investors’ day, Pinterest said it’s seeing strength in Gen Z users, the fastest-growing and most engaged group of users.

Analysts boosting price targets

MarketBeat’s Pinterest analysts' forecasts show a consensus view of “moderate buy” with a price target of $33.27, an upside of 7.16%. After the most recent earnings report, nine analysts upgraded their ratings on Pinterest or boosted their price targets. 

In an update on October 31, Morningstar analyst Ali Mogharabi wrote, Pinterest’s network effect strengthened further during the third quarter, demonstrated by strong top and bottom-line results on the back of user growth, better engagement, and higher monetization.”

By network effect, he is referring to the situation where a product or service becomes more valuable as more people use it. That’s very easy to understand with a social media company, which relies on user-generated content.  

Analysts expect Pinterest to earn $1.08 for the full year, up 74%. That’s expected to grow by another 20% next year, to $1.30 per share.