Can Pinterest Rally On Support From Big Investor With Conviction?

Social media companies have been hit hard this year, and Pinterest NYSE: PINS is no exception. 

The stock gapped up 11.61% on August 2, following the company’s second-quarter report, which topped revenue expectations. 

Earnings of $0.11 per share came in below Wall Street’s anticipated EPS of $0.1680. That was a 56% decline from the year-earlier quarter. 

For the full year, analysts expect Pinterest to earn $0.55 per share, a 51% decline from last year. In 2023, that’s seen rising by 31% to $0.72 per share. Both those estimates were revised lower recently. 

So what caused the investor enthusiasm? 

In a nutshell, despite the disappointing earnings, and guidance that also fell below analysts’ expectations, Pinterest’s user numbers were better than Wall Street had forecast, and have indeed been growing steadily over the past few years.

Not surprisingly, the company cited a poor advertising market for the earnings miss. Other social media companies, including Snap NYSE: SNAP, Meta NASDAQ: META, and Twitter NYSE: TWTR, made similar remarks in their earnings reports. 

The entire industry is suffering through an era of lower earnings and revenue, as well as diminished expectations for the near term. 

In fact, Meta recently laid off a small number of workers, with insiders saying to expect more layoffs ahead. On Tuesday, Snapchat announced it was laying off 20% of its workforce. 

Elliott Management, an activist investment firm that has stakes in PayPal NASDAQ: PYPL and Cardinal Health NYSE: CAH, among other companies, is Pinterest’s largest owner. It owns 9% of total shares outstanding. 

New CEO At The Helm

In a statement, Elliott said it has “conviction” in Pinterest. The investment company referred to new CEO Bill Ready, who took the helm in late June. Former CEO and Pinterest founder Ben Silbermann moves over to become executive chairman, a role with the board of directors. 

The Elliott statement read: “Pinterest is a highly strategic business with significant potential for growth, and our conviction in the value-creation opportunity at Pinterest today has led us to become the Company's largest investor. As the market-leading platform at the intersection of social media, search and commerce, Pinterest occupies a unique position in the advertising and shopping ecosystems, and CEO Bill Ready is the right leader to oversee Pinterest's next phase of growth. We commend Ben Silbermann and the Board on the leadership transition, and we look forward to continuing our collaborative work with Ben, Bill and the Board as they drive toward realizing Pinterest's full potential.”

That’s significant, as it signals that Elliott is not ready to reduce its stake any time soon. 

While many social media users and observers may think of Pinterest primarily as a place to post fun pictures and create boards to reflect hobbies, travel, home decor or other areas of interest, the company is putting more emphasis on e-commerce. 

In the statement announcing Ready’s hiring, Silbermann said, “In our next chapter, we are focused on helping Pinners buy, try and act on all the great ideas they see.”

Built-In Audience For Advertisers

Pinterest has a big advantage when it comes to monetizing its user base. Because users freely post items that interest them, advertisers can easily target specific categories. And presumably, because users are interested in a topic, they would welcome (or at least not be hostile toward) ads for related products and services. 

According to MarketBeat price-target data, Wall Street has a “hold” rating on Pinterest. The price target is $29.76, an upside of 35.52%.

After the earnings report, six analysts boosted their price targets or upgraded their ratings. 

The stock has been tenuously rallying, and is outpacing the broader market in recent weeks. It’s returned a very healthy 17.61% in the past month, and is getting support nearly 6% above its 50-day moving average. Meanwhile, the S&P 500 is down 2.07% in the past month.

Is Pinterest a buy? It depends. If you already hold Meta, Twitter or some other social media stock, you’re seeing similar issues right now when it comes to declining revenue and layoffs. But if you are looking for a social media stock with perhaps less political and social baggage, and one that has a vocal institutional supporter, Pinterest may be one to consider.