Pinterest (PINS) shares surged higher Friday after the Wall Street Journal reported that activist investors Elliott Management have amassed a more than 9% stake in the social media group.
The Journal said Elliot, which is now the company's biggest shareholder, has engaged in talks with its new management over the previous weeks, although details of the overall aim were not immediately known.
Last month, longtime CEO and co-founder Ben Silbermann -- who still controls a 37% voting share -- said he would transition to the role of executive chairman, while keeping a seat on the board, to make way for former Google (GOOGL) executive Bill Ready.
"While it is unclear if M&A is back on the table, we believe it is highly likely that Elliott pushes for a review of the executive team (ex-new CEO Bill Ready) and strategy, and advocates for greater expense discipline and share repurchases," said KeyBanc Capital Markets analyst Justin Patterson, who carries an 'overweight' rating on the stock.
"Like many activist campaigns, we expect the initial share price reaction could moderate as investors await more details on Elliott's plan and balance this against the broader macro environment," he added.
Pinterest shares were marked 13% higher in early Friday trading to indicate an opening bell price of $19.82 each.
KeyBanc's Patterson said Pinterest's high gross margins, cash flow generation and stock price slump -- it's down 45% compared to the Nasdaq's year-to-date decline of 29% -- make the image sharing group an attractive activist target.
However, Ready, who marshalled significant changes at Google in terms of shopping and search, is like to remain in pace and is expected to bring similar improvements to Pinterest as it looks to better monetize its 433 million active users.
"We believe it is difficult for Elliott to advocate for a CEO change given new CEO Bill Ready has precisely the experience we would look for in a new Pinterest CEO," Patterson said. "Rather, we expect Elliott will review the rest of the executive team and strategy (e.g., are video and creator pins truly core to the platform?), and push for greater opex discipline and share repurchases."
