Pinterest Inc. Slowly digging itself out of the hole that social media stocks find themselves in.
Pinterest Inc. operates It is slowly digging itself out of the hole that social media stocks find themselves in, leaving behind the owners of Facebook and Snapchat thanks to their greater reliance on search-driven advertising.
Shares in the digital dashboard platform are up 34% from a two-year low in mid-June, as analysts note improved growth in the number of users on the site, as well as how much they interact with content there. In the same period, Meta Platforms Inc. declined. Parent on Facebook by 22% and Snap Inc. by 12%.
Facebook and Snapchat rely more on targeting ads to users based on their activity on the site, a model that has become less effective after changes made by Apple Inc. last year on her iPhones for privacy reasons. Meanwhile, Alphabet Inc’s Google and Pinterest are able to serve more ads related to users’ searches on the platforms.
“Pinterest has been up there with a wonderfully positive cash flow activity, and it is delivering double-digit growth year on year,” said Robert Cantwell, who owns shares in the Compound Kings ETF he manages. “It is a devastated asset with incredibly high profit margins, and when it reached a valuation of $12 billion earlier this year, it started looking incredibly cheap.”
One advantage the site has over competitors is that users often visit it with shopping in mind. Anyone saying, renovating a kitchen and looking for design ideas, can submit ads for wall tiles or cupboards. Pinterest has worked in recent years to help advertisers and retailers sell products directly on the site.
Eric Sheridan, analyst at Goldman Sachs Group Inc. Shopping interest is a unique component of the platform, which raised its stock rating last week, citing improved user growth and better interaction trends.
Even after rising from lows, Pinterest shares are down 37% this year, and it’s still the smallest of the big social media companies, with a market capitalization of $15.5 billion. The stock has rebounded on bouts of occasional speculation that it will attract bidding.
Shares rose in August after the company reported resilient user numbers and activist investor Elliott Investment Management confirmed a large stake. Elliott then said that Pinterest has “great potential for growth” and is backed by new CEO Bill Reddy.
“The market is convinced that Pinterest cannot exist as a stand-alone company and will be offered at a higher price,” said Tejas Desai, an analyst at Global X, Director of the Global X Social Media ETF. “The potential for a deal could get much higher,” he said, if the company reports poor results in the third quarter and gives disappointing guidance for the holiday quarter.
While the stock may look attractive with a market capitalization of $12 billion this year, the San Francisco-based company isn’t cheap anymore compared to other social media companies. It trades at 4.9 times sales forecast, compared to Snap’s 3.3 times and 2.7 times for Meta, according to Bloomberg data.
It hasn’t been an easy year for a sector that relies heavily on online advertising, with a mix of headwinds that have weighed on stocks over the past year: Apple’s software update has made targeting ads more difficult, competition from newcomers like TikTok is on the rise and now fears of a looming recession The horizon squeezes advertising budgets.
The deteriorating environment has prompted analysts to lower their estimates several times this year. Over the past six months, the average estimate for this year’s adjusted earnings per share has fallen 42% and revenue expectations have fallen 10%, according to Bloomberg data. However, the company is expected to post 9% revenue growth this year and a 17% increase in 2023.
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