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Evercore ISI Upgrades Pinterest, Citing Improving Business Trends
An Inflection Point for Pinterest
Evercore ISI analyst Mark Mahaney has upgraded Pinterest from in line to outperform, citing improving business trends that create an inflection point for the visual discovery platform. He also raised his price target by $11 to $41, suggesting a potential 40.7% rally over the next year. This comes as Pinterest shares have already climbed 20% year-to-date. Mahaney's upgrade is supported by stabilizing spending on advertising and operational improvements under new CEO Bill Ready, which are expected to drive material revenue growth and margin expansion over the next 2-4 quarters.
Stabilizing Spending on Advertising
According to Mahaney, Pinterest's spending on advertising is stabilizing after a trough in late 2022. There is increasing evidence pointing to a recovery in the second half of the year. Mahaney expects these improved advertising trends to contribute to revenue growth acceleration and substantial margin expansion. Additionally, the company's partnership with Amazon and new measurement tools are expected to drive growth on the advertiser side.
Mahaney acknowledges that operational improvements implemented by new CEO Bill Ready are now "bearing fruit" for both users and advertisers. These improvements include new measurement tools and partnerships that have the potential to drive revenue growth. Mahaney believes that these operational upgrades, combined with stabilizing spending, create a fundamental inflection point for Pinterest, leading to high double-digit EBITDA growth and a potential re-rating in the company's shares.
Reasonable Valuation and Positive Outlook
Mahaney views Pinterest's current valuation as reasonable, with the stock trading at 27 times and 21 times enterprise value-to-EBITDA for 2024 and 2025, respectively. He also points out that the company has the potential to achieve 30% or greater EBITDA growth and see 20% or greater free cash flow margins by 2025. Mahaney's $41 price target is based on a 30-times EBITDA multiple at $833 million in 2025.
In terms of risks, Mahaney notes that stronger competitive pressure or a failure to increase the number of use cases among users could impact Pinterest's performance. Additionally, if the company's social commerce business performs worse than expected, it could also hurt stock performance. However, Mahaney remains optimistic about Pinterest's growth potential and expects the improving business trends to continue driving the stock's rally.
A Hot Take on Pinterest's Upgraded Business Trends
The recent upgrade of Pinterest by Evercore ISI, citing improving business trends, signifies a significant inflection point for the visual discovery platform. This update holds implications for new businesses looking to tap into the potential of Pinterest's growing success.
With stabilizing spending on advertising and operational improvements under new CEO Bill Ready, Pinterest's revenue growth and margin expansion prospects appear promising. Businesses must take note of these positive trends as they signal increased opportunities for advertising and reaching a broader audience on the platform. The partnership with Amazon and the introduction of new measurement tools further fuel growth potential, making Pinterest an attractive avenue for businesses to expand their reach and drive sales.
Moreover, Pinterest's reasonable valuation and positive outlook demonstrate the platform's long-term potential. This offers new businesses an enticing market to invest in, potentially reaping the benefits of high EBITDA growth and strong free cash flow margins in the years to come. However, it is essential to consider the risks associated with increased competition and the need to continually increase use cases among users.
In conclusion, as Pinterest rides the wave of improving business trends, new businesses should take advantage of the platform's growing success. By leveraging its advertising capabilities, operational improvements, and potential for future growth, Pinterest offers an opportunity to connect with a wide audience and drive business results. Embracing this visual discovery platform early on may position new businesses for long-term success in the evolving digital landscape.
Article First Published at: https://www.cnbc.com/2023/07/18/this-social-media-stock-can-rally-40percent-ad-spending-improves-evercore-isi-says.html