Pinterest Outperforms Social Media Rivals

Shares of Pinterest (PINS) have recovered by more than +60% since sinking to a 2-year low in May, leaving rivals Facebook and Snapchat in the dust. In the same period, Meta Platforms (META) has tumbled -22%, and Snap Inc (SNAP) has fallen -12%.  Pinterest’s greater reliance on search-driven advertising and increased users on its site have boosted the company’s earnings prospects.

The social media sites of 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 Apple (AAPL) placed changes on its iPhones last year for privacy reasons.  However, Pinterest has been able to serve more ads than other social media companies due to links to searches that users have done on the company’s platform. 

Last week, Goldman Sachs raised its recommendation on Pinterest to buy from neutral, citing improving user growth and engagement trends.  One advantage Pinterest has over rivals is that users often visit the site with shopping in mind, and when a user enters a product or service it is interested in, Pinterest has improved its platform to help advertisers and retailers sell products directly on its site.

Even after Pinterest has rallied sharply off its 2-year low in May, the stock is still down -37% this year.  Pinterest is also the smallest of the social media companies, with a market value of $15.5 billion, which often fuels speculation the company will attract a buyout offer.  Pinterest is no longer cheap relative to other social media companies as it trades at 4.9 times projected sales, compared to 3.3 times at Snap and 2.7 times for Meta Platforms.  Global X said, “the market is convinced that Pinterest cannot exist as a stand-alone business and will be taken out at a premium.”

Companies that rely upon online advertising now face several headwinds to growth.  Apple’s software update has made targeting ads more challenging, competition from new entrants like TikTok has increased, and fears of a looming recession are pressuring companies’ ad budgets.  According to Bloomberg data, the average estimate for Pinterest’s adjusted earnings per share has fallen by 42% over the past six months, and the revenue forecast has dropped by 10%.  Still, the company is forecast to post 9% revenue growth this year and a 17% increase in 2023.

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