Google Is Logical Media Network Partner For Pinterest, Analyst Says While Boosting Price Target By 15%

  • RBC Capital analyst Brad Erickson maintains Pinterest Inc PINS with a Sector Perform and raises the price target from $26 to $30.
  • PINS could plug in several media network partners, the largest and most logical one, which investors expect to be Alphabet Inc GOOG GOOGL Google
  • The analyst believes such a partnership could be a significant catalyst for the stock, boosting the price target.
  • However, his ad load analysis suggests PINS is potentially more well-backed than investors may appreciate. The analyst had reservations about user experience degradation and engagement necessary to fill incremental category supply. 
  • Ultimately, evidence of broad-based, organic ROAS improvement signaling accelerating CPMs is likely for a more sustainable re-rate
  • With category expansion (i.e., supply growth), the company would create new real estate to monetize. A 3P partnership could fill that incremental supply with demand vs. slower-ramping 1P relationships. 
  • Raising auction density could drive incremental CPM inflation. 
  • It would give access to a broader advertiser base, particularly Small and Medium Businesses. 
  • In the event of broadly improving conversion, the company would have access to meaningful new scale within existing advertiser demand.
  • However, a 3P partnership could more fully bake Pinterest's ad load and deteriorate the user experience driving incremental engagement headwinds. 
  • Given the limited scope of PINS' user habits, the category expansion could prove slow. 
  • While providing an initial bump to revenue, bringing in a 3P partner could fail to drive the appeal to the broader advertiser customer base. 
  • Bringing on a partner like this is a quick fix and, given a likely dilutive revenue share arrangement, reduces the odds of maximizing revenue over the long term.
  • Price Action: PINS shares traded higher by 1.01% at $27.55 on the last check Monday.
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