What happened

Shares of Pinterest (NYSE:PINS) have gained today, up by 3% as of 12:50 p.m. EDT, after getting an upgrade from Wall Street. Morgan Stanley boosted its rating on Pinterest stock from equal weight (equivalent to neutral) to overweight (equivalent to buy).

So what

Analyst Brian Nowak increased his price target from $34 to $44, representing over 25% upside compared to Friday's closing price. The COVID-19 pandemic has accelerated the broad consumer shift to e-commerce technology platforms, which should contribute to broader growth in digital ad spending on social media platforms such as Facebook and Pinterest.

Two smartphones displaying Pinterest's app interface

Image source: Pinterest.

Nowak is encouraged by Pinterest's recent boom in user growth. Monthly active users (MAUs) had jumped 39% to 416 million in the second quarter, but Pinterest struggled to monetize that engagement: Revenue only grew 4% due to the contagion's effects on advertiser demand.

Pinterest had noted that new users were remaining engaged even after lockdown restrictions eased, so the company just needs to strengthen monetization. Average revenue per user declined to $0.70 in the second quarter.

Now what

Nowak is confident that Pinterest will be able improve monetization through improvements in ad targeting and streamlined ad bidding. Similar moves by social media peers in the past have done wonders in driving advertising revenue growth, and the analyst argues that Pinterest can do likewise.

"We believe shelter-in-place is driving a structural change in consumer behavior and accelerating e-commerce and social shopping," he wrote in a research note to investors. "Pinterest is the best pure play to capitalize on this trend."

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