What happened

Shares of Pinterest (NYSE:PINS) popped on Wednesday after peer Snap, owner of the popular Snapchat app, reported earnings. Snap's results showed advertising demand was far ahead of expectations and that bodes well for Pinterest's ad-based revenue. Pinterest has yet to confirm the trend with its own results but investors expect good things all the same. As of 11:35 a.m. EDT, Pinterest stock was up 10%.

So what

Snap stock also soared on after its Tuesday evening report. User growth was better than expected. But really, investors are cheering the platform's monetization improvements. Average revenue per user was $2.73 in the third quarter, up from the $2.12 in the year-ago quarter and trouncing analyst expectations of $2.27. Advertisers paused spending earlier in 2020, but Snap management said many are advertising again and some are even increasing their budgets.

The Pinterest home screen is displayed on a tablet device.

Image source: Pinterest.

Here's why that could be particularly good for Pinterest. Management said in late July that it expects third-quarter revenue to "grow in the mid-30% range year over year" -- robust revenue growth to be sure. However, this guidance could prove conservative. Management also noted in late July that revenue looked to be up 50% in July and while it wasn't sure if it was sustainable, Snap's results could be an indication that big growth in July carried forward.

Now what

The potential for a surge in Q3 revenue is partly why Pinterest stock is scoring some analyst upgrades today. Bank of America has upgraded this growth stock to a buy, as has Goldman Sachs.The firms have assigned price targets of $58 per share and $61 per share respectively, which would still give shares good upside even after today's pop. Pinterest is expected to report earnings on Oct. 28. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.