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Pinterest's surge triggers cautious reviews from Wall Street

May 13 2019 21:00
Cristin Flanagan, Bloomberg

Pinterest slid after the social media company’s surge since its initial public offering drew a number of cautious reviews from Wall Street analysts.

The stock fell as much as 6.8% on Monday after the banks that underwrote the company’s IPO started their coverage. While most see room for growth, Pinterest’s unicorn valuations left them hesitant to recommend buying the shares, which had advanced 53% from April’s listing through Friday’s close.

Of the analysts who have weighed in on the shares so far, four recommend buying, while eleven say hold and one recommends selling, according to data compiled by Bloomberg. The average 12-month price target is $28, below Friday’s close of $29.05.

The online bulletin board service is "an early-stage platform investment", said Goldman Sachs’s Heath Terry. But it will take Pinterest five or more years to close its monetisation gap with peers like Facebook, Alphabet's Google and Twitter.

Pinterest is set to report first-quarter results on Thursday.

Goldman Sachs, Heath Terry

Goldman sees Pinterest "as an early-stage platform investment, with its maturity as a service to its users in contrast with the relative immaturity of its business model. While this adds a level of risk as Pinterest scales investment in its monetization engine, we believe Pinterest’s user and data assets will ultimately allow Pinterest to grow engagement and narrow the monetization gap with online advertising peers".

Pinterest can reach 30% adjusted Ebitda margins longer term, "exhibiting profitability elements of scaled online advertising platforms but at a lower level than peers Facebook and Twitter".

Pinterest trades at a "growth-relative premium to peers," even accounting for higher buyside growth expectations. Goldman started coverage with a neutral with a $25 12-month price target.

RBC, Mark Mahaney

The company "is addressing the very large advertising market with powerful secular tailwinds". RBC says Pinterest can sustain double-digit percentage monthly active user (MAU) growth and average revenue per user (ARPU) growth until 2021.

With shares more than 50% above IPO price and at about 16 times EV/Sales to RBC’s 2019 sales estimate, the analyst views Pinterest as "reasonably valued".

Pinterest rated sector perform with a $28 price target.

Citi, Mark May

"The Pinterest app is used every month by millions of people to discover new products, generate new ideas, organize projects and to get stuff done," May wrote, adding that management "rapidly developed its advertising monetisation platform" in the past three to four years.

The early-stage nature of its monetization engine combined with the high-intent nature of its audience use-case "suggests meaningful opportunity for ARPU growth". Citi sees Pinterest producing $5bn in revenue and over $500m in free cash flow by 2024.

Rates new buy with a $34 price target.

Baird, Colin Sebastian

Expects Pinterest to surpass $1bn in revenue this year, "emerging as one of the most compelling consumer Internet platforms, leveraging an engaged and fast-growing audience that is still in the early days of monetisation".

Pinterest is an "inherently commercial platform" with users demonstrating high levels of purchase intent as they plan projects, research products or discover new ideas.

Pinterest is still laying the groundwork for significant revenue growth -- scaling up an enterprise sales force and investing in advanced measurement capabilities.

"Even as more advertisers uncover the value of Pinterest’s action-minded audience, ARPU is still only ~10% of large-scale Internet platforms, illustrating the clear long-term revenue opportunity".

Initiated at outperform with a Street-high price target of $36.

Credit Suisse, Stephen Ju

Pinterest’s valuation keeps Credit Suisse at neutral with a $28 price target, although Ju said the company has an opportunity to close the monetization gap in the U.S.

Pinterest lags Twitter and Yelp in revenue per user, but Credit Suisse expects "a steady ramp over the next decade ~$26, which is comparable to where Facebook was in 2014".

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