Pinterest Has The Opportunity To Create A 'Uniquely Strong Shopping Platform'

Pinterest Inc PINS beat almost all Street estimates in its fourth-quarter earnings report. While monthly active users (MAU) trended in line with forecasts, total revenue grew 46%, conversion optimization revenue popped 150%, and earnings before interest, tax, depreciation and amortization far surpassed forecasts.

“Decelerating revenue growth was the big scare in 3Q and Pinterest silenced doubters by reaccelerating revenue growth closer to the 50% investors had been looking for last quarter,” Wedbush analyst Ygal Arounian wrote in a note.

Q4 Pinterest Analysis

Instinet focused largely on efforts to scale Pinterest’s ad business by capturing mid-size and international customers and to increase platform shoppability.

“The latter of these initiatives has been our main focus since initiating coverage, and the details of the company’s progress this year (+125% growth in advertisers and +100% shopping ads growth in 2H19 vs. 1H19) and upcoming product enhancements (Verified Merchants Program, expanding Try On) speak to continued momentum on that front,” analyst Mark Kelley wrote.

Reflecting on the circumstances of the quarter, analysts were conflicted on their interpretations of seasonal impact.

“While 4Q rebounded nicely following disappointing 3Q results, we suspect the holiday trifecta — Halloween, Thanksgiving and Christmas — produced an abnormally strong 4Q vs. a carry of momentum into ’20,” Rosenblatt analysts Mark Zgutowicz and Bernie McTernan wrote.

Wedbush offered an alternative reading. “While there was some seasonal strength in the quarter, conversion optimization and shopping saw particular strength, which speaks to Pinterest's opportunity to create a uniquely strong shopping platform,” Arounian wrote.

The Pinterest Ratings

Rosenblatt anticipates bumps in the road before a potential inflection in 2021 or later.

“While happy to see PINS rebound nicely in 4Q and instill some confidence back in the stock with a healthy ’20 guide, we remain on the sidelines,” Zgutowicz and McTernan wrote. “We commend management for its methodical approach to building the best contextually relevant platform, while acknowledging we’re in the early phase of its ad tools build schedule, which puts an inflection perhaps a couple years away.”

Fellow analysts professed greater optimism for both near-term and long-term performance. Instinet expects its valuation model to improve with Pinterest’s fundamentals throughout 2020, particularly with anticipated growth in both MAUs and average revenue per user. Wedbush reiterated Pinterest’s shopping opportunity.

“Overall we see Pinterest's continued focus to drive shoppability on its site, and tie together top of funnel consumer behavior with transactability as a unique opportunity,” Arounian wrote. “That should continue to deliver above-average growth for the foreseeable future.”

• Instinet maintained a Buy rating but raised its target from $31 to $32;
• Rosenblatt maintained a Neutral rating but raised its target from $23 to $26;
• Wedbush maintained an Outperform rating but raised its target from $26 to $30; and
• Wells Fargo maintained an Overweight rating but raised its target from $30 to $35.

“We exit the quarter with enhanced conviction in the long-term opportunity,” Wells Fargo analyst Brian Fitzgerald wrote.

PINS Price Action

Pinterest's stock traded higher by 10.4% Friday at $25.40 per share.

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