Pinterest stock lifted to Buy on strategic initiatives, improving fundamentals

Brokerage firm Monness Crespi Hardt&Co lifted its rating on Pinterest (NYSE:PINS) stock to Buy from Neutral on Friday, a move driven by the company's successful strategic initiatives and improved financial performance.

Despite being left out of the 2024 tech rally, Pinterest has made significant advancements, including a $2 billion stock buyback program, accelerated revenue growth, and expanded operating margins.

Pinterest's stock performance stood in contrast to the broader tech sector in 2024, declining by 22%. However, the social media company’s revenue growth picked up pace, rising to 18% in the third quarter of 2024 from 11% in the same quarter the previous year.

For the full year 2024, Monnes Crespi Hardt&Co projects revenue growth to accelerate to 19%, up from 9% in 2023.

Additionally, Pinterest's operating margin grew to 26.6% in the third quarter of 2024 from 23.8% in the third quarter of 2023. Full-year operating margin is estimated to expand to 26.8% from 21.9% in 2023.

Under new leadership, Pinterest has transformed its platform to better serve advertisers and users. The company has improved its lower-funnel functionality, making the platform more shoppable with a significant increase in outbound clicks to advertisers.

Pinterest has also enhanced its AI capabilities, introducing ad automation with the launch of Performance+ in October 2024 and planning to roll out Performance+ ROAS bidding for all eligible advertisers in the first quarter of 2025.

The company has bolstered its advertising experience by improving ad measurement tools with CAPI and CAPI Connect for smaller advertisers, launched in the third quarter of 2024.

Moreover, Pinterest has expanded its third-party ad partnerships, with Amazon (NASDAQ:AMZN) Ads extending beyond the US to Canada and Mexico, and Google (NASDAQ:GOOGL) leveraging its Ad Manager in several of Pinterest's international markets.

“Plus, Pinterest expanded its reseller partnerships in 2024,” Monness analysts added. “As the platform has become more actionable, Pinterest has captured a higher percentage of ad spend from its largest advertisers and a similar phenomenon is expected with the next cohort of retailers.”

The brokerage firm has set a 12-month price target for Pinterest at $40, based on its 20x CY2025 pro forma EPS estimate.

Over the past three years, sales have risen 22% annually, while operating income has grown 36% per year.

Analysts believe Pinterest could trade at a premium to the market if favorable ad spending trends persist and the company maintains its strong growth momentum.