Has Pinterest Become a FOMO Stock to Buy for the Second Half?

Pinterest (PINS) stock is on a roll in Wednesday trading, up more than 5%. Investors have taken a shine to the visual social media platform recently. 

After hitting a 52-week load of $16.77 in July 2022, Pinterest’s stock has gone on a bit of a run. It’s up 42% over the past year and nearly 15% in the past month. 

It’s been a while since I’ve written about my favorite social media platform. It looks at first glance that investors are reacquainting themselves with its stock. Pinterest could become a FOMO stock in the second half of 2023. 

Here’s why. 

What’s New at Pinterest?

As I said, it’s been some time since I last wrote about Pinterest. Aug. 3, 2022, to be precise. At the time, I said that I liked its chances of returning to $80 within the next 24-36 months. It’s about one-third of the way there.

In my article, I commented that CFO Todd Morgenfeld believed that its EBITDA margin in 2023 would increase by 200 basis points to 16% or higher. So far, it hasn’t come close to those margins. They were just 4% in Q1 2023.  

However, analysts are warming to Pinterest. Wells Fargo’s Ken Gawrelski issued a note to clients on Wednesday -- which explains why it’s up so much today -- that’s optimistic about CEO Bill Ready’s turnaround plan. 

“‘Amazon partnership [that is] live ahead of 2023 holidays, improving engagement trends and higher ad load will allow PINS to deliver accelerating and above-consensus revenue growth,’ Wells Fargo analyst Ken Gawrelski wrote in a client note on Wednesday, adding that he sees a ‘strong catalyst path over next 6-12 months,’” Yahoo Finance’s Brian Sozzi reported. 

The analyst refers to the partnership announced in late April with Amazon (AMZN) that sees it bring on Amazon for third-party ads. Amazon is Pinterest’s third-party partner. You can’t get much bigger than that.  

“The partnership with Amazon will bring more brands and relevant products to the platform combined with a seamless on-Amazon buying experience for consumers and offer advertisers strong performance,” the April 27 press release stated. 

One of the company’s goals is to make every one of its Pins shoppable. Working with Amazon Ads gets it closer to achieving this goal. 

Gawrelski upgraded his rating on PINS to Overweight while raising his price target to $34, up from $21. It currently trades 18% below that target. 

According to Barchart.com analyst data, the 20 analysts that cover PINS rate it a Moderate Buy (3.65 out of 5) with a $27.48 mean target price. That’s not a ringing endorsement, but Gawrelski’s upgrade certainly helps.

In some housekeeping, I mentioned earlier that Todd Morgenfeld was CEO last August. He’s moving on from Pinterest. Julia Brau Donnelly will replace him on July 1. She’s coming over from a significant finance role at Wayfair (W). 

Where to Next?

Yahoo Finance’s Brian Sozzi interviewed Bill Ready on June 23 at the Cannes Lions International Festival in France. The two discussed Pinterest’s focus on making its social media platform a beacon of positivity in an online world full of meanness and negativity. 

It might sound like corporate-speak, but the reality is that social media has to do a better job of controlling the trolls out there, or it’s in danger of being permanently abandoned by millions of users. 

I know Pinterest’s positive vibe is one reason I’m a big fan of its platform. My wife is building a vacation property outside Halifax, where I live. We’ve found at least five or six big items for the property through Pinterest. There’s no better platform for inspiration.

The business is winning business from brands enthusiastic about Pinterest’s positive message.

“We've seen really phenomenal response from advertisers. You know, it pays to be positive on Pinterest. And we see the advertisers really want to be part of that. If you're building a great brand as an advertiser, you also want to build your brand on positivity. And so we're seeing that advertisers and brands want to be part of that,” Ready told Sozzi.

Ready made an interesting point about Pinterest’s growth: "Our personalization model today is 100 times larger than what it was just a year ago.” Much of that growth comes with the artificial intelligence tools it has developed for the platform. As a result of the increases in its personalization model, the recommendations made for users exceed 95%.

As a result, its business is growing users again.

In the first quarter of fiscal 2023, Pinterest’s global monthly active users (MAUs) increased 7% year-over-year to 463 million, with much of the growth outside the U.S. 

With $2.7 billion in cash and marketable securities on its balance sheet, no long-term debt, and positive cash flow generation, it can take its ad business to the next level.

I’m not suggesting that Pinterest should be the largest holding in your portfolio. However, if you’re looking to bet a little “fun money” on a stock that’s been through its fair share of grief in the past 24 months, you could do much worse than Pinterest. 

It’s on the way up.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.