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Pinterest: Valuable Potential at a Higher Price, According to Jefferies

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Pinterest: Valuable Potential at a Higher Price, According to Jefferies

The investment firm Jefferies recently initiated coverage of Pinterest (NYSE:PINS) with a Hold rating, citing the stock’s premium valuation compared to other social networks.

Jefferies sees Pinterest as a platform with an “improving position as a commerce-focused ad platform,” expecting an increase in revenue to meet targets over the next few years.

However, Jefferies notes that despite the company’s growth potential, Pinterest already trades at a 10% premium to Meta (NASDAQ:META). The firm has concerns about Pinterest’s ability to diversify its advertiser base and sustainably grow engagement.

Jefferies set a price target of $30, slightly lower than the average analyst estimate of $32.83. As a result of the report, Pinterest’s shares declined 3.4% on Wednesday.

Unlike rivals Meta Platforms (META) and Google’s YouTube (GOOG) (GOOGL), Pinterest is not solely focused on passive consumption of video content. Instead, the San Francisco-based company is defined as a visual discovery and search tool that helps users find inspiration in their lives.

Pinterest generates revenue through digital advertising, which Jefferies estimates to be a $575 billion market, growing 8% per year.

Jefferies is positive about Pinterest’s near-term trajectory, citing factors such as increases in ad load, improvements to the ad tech stack, and new advertiser partnerships (like Amazon) as positive catalysts for the stock. However, they caution that street estimates already reflect Pinterest gaining share of incremental industry ad revenue, despite losing share over the past two years.

Additionally, Jefferies notes that Pinterest’s use of less video content makes it more challenging for advertisers to scale their campaigns on the platform.

In a separate analysis, RBC found that Amazon (NASDAQ:AMZN) is a significant customer for Pinterest, with a large portion of spending allocated to Pinterest’s website.

Analysts generally hold a bullish outlook on Pinterest, with a “BUY” rating from Seeking Alpha authors and Wall Street analysts. However, Seeking Alpha’s quant system, known for consistently beating the market, rates the stock as a “HOLD.”