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Is the Pinterest Stock Rally Just Getting Started?

By Rick Munarriz – Aug 10, 2020 at 11:28AM

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The social discovery platform operator finally hit new highs last week, and it could be ready to live up to last year's hype.

One of last month's biggest winners was Pinterest (PINS -0.18%). Shares of the visual search platform soared 55% in July, and the lion's share of that came on the final trading day of the month, after Pinterest served up blowout financial results

Pinterest stock has more than tripled since its pandemic low in mid-March. Bears may dismiss the rally. The stock is essentially where it was a year ago, making this a wild and winding round-trip to nowhere for folks that bought in shortly after last springtime's IPO. However, today's Pinterest is a superior company to the one it was a year earlier. It's on track again, and this new rally could be only the beginning. 

A woman on her laptop and phone, taking notes with a globe on a window sill in the background

Image source: Getty Images.

We live in Pinteresting times

The new trading week kicks off with Brian Nowak at Morgan Stanley upgrading Pinterest from equal weight to overweight. He feels that the pandemic has helped accelerate e-commerce and social shopping trends, a movement benefiting the major players in that space. Pinterest's growing users might not view the platform that they are on as a "social online mall" the way that Nowak sees it, but the visual search leader is improving its ability to cash in on social shopping.  

Nowak is also lifting his price goal on the shares from $34 to $44. He's the latest of at least 10 analysts that have either upgraded the stock or boosted their price targets following its blowout second-quarter report on July 31.

Pinterest has always had a firm grip on a strong demographics group. Its core lifestyle verticals of food, home, beauty, and fashion attracts folks with the means to spend. At the time of its IPO last year, Pinterest was reaching 43% of U.S. internet users but closer to 80% of online moms earning and spending more than the country average. However, it took the shelter-in-place phase of the pandemic to inspire even more folks to turn to Pinterest, for recipes, interior decorating tips, and even looking ahead to destination wedding ideas when the COVID-19 crisis passes. 

At first glance, the rally following its latest report may seem unjustified. Revenue has decelerated sharply for five consecutive quarters, going from 62% in the first quarter of last year down to a mere 4% ascent last time out. However, the market was bracing for worse. Pinterest warned in early May that revenue declined 8% in April, as advertisers eased back on their marketing missives. Analysts were modeling a 4% dip on the top line. 

Pinterest was able to turn things around a lot sooner and better than expected, and the current quarter should spell the end of the problematic string of decelerating growth. Revenue on a preliminary basis soared 50% in July through July 29.

Monthly active users have risen 39% to 416 million over the past year, and the lion's share of those net adds are international users. Monetization overseas is still a lot earlier in the development cycle, but that's also more upside for Pinterest to claim as it ramps up outside of its home market. 

The next few quarters will see monetization improve and spotty profitability stabilize. Pinterest is well positioned for both the new normal and whatever tomorrow brings. It's become an undeniable tastemaker that will influence the fate of countless consumer discretionary stocks. The rally in Pinterest has been strong since mid-March, but things appear to be just getting started.  

Rick Munarriz owns shares of Pinterest. The Motley Fool owns shares of and recommends Pinterest. The Motley Fool has a disclosure policy.

Stocks Mentioned

Pinterest Stock Quote
Pinterest
PINS
$22.68 (-0.18%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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