Pinterest (PINS -1.00%) hasn't exactly been a stellar performer, with shares more than 75% below their highs. However, Elliott Management, a large activist investment firm, just took a big stake in Pinterest and has reportedly been in talks with the company on unspecified matters over the past few weeks.
Here's a rundown of what investors need to know about Elliott Management's investment, why the firm might be willing to put over a billion dollars in capital into the social media company's stock, and what it could mean to investors in the long and the short term.
Pinterest's new largest shareholder
Elliott Management, an activist investor firm with more than $50 billion under management, has built up a stake of more than 9% in Pinterest over the past few months, according to a report by The Wall Street Journal. This makes Elliott the largest Pinterest shareholder, giving it an investment worth about $1.2 billion at the current market price.
In addition, the report indicated that Elliott has been in discussions with Pinterest in recent weeks, although we don't know what has been discussed or what changes Elliott may be pushing for.
It's also worth noting that although Elliott is now Pinterest's largest shareholder, including co-founder and former CEO Ben Silbermann, who owns about 7% of the company, it doesn't have the most voting power. Thanks to Pinterest's dual-class share structure, Silbermann controls 37% of the voting rights, and the other co-founder, Paul Sciarra, controls another 33%, essentially giving the pair full control. This could be a factor when it comes to Elliott's (or any other activist's) ability to force significant changes at the company.
Why did Elliott Management invest?
This development comes on the heels of Pinterest's recent CEO shake-up, as co-founder and longtime CEO Ben Silbermann recently stepped down and Bill Ready, former president of commerce at Alphabet's (GOOGL -1.27%) (GOOG -1.18%), took over the top spot.
Pinterest's business has been rather strong in recent years and was profitable for the full year of 2021. However, its user count has declined a bit as pandemic-era tailwinds have subsided. Monetization growth continues to be quite strong, and there's an especially large opportunity for Pinterest if it can figure out how to monetize its international users, which account for about 80% of the 433 million active users on the social media platform but bring in just a fraction of the platform's revenue.
While we don't know Elliott Management's exact motivation for investing in Pinterest, it could have something to do with the company's rapid shift to an e-commerce focus. In addition to the CEO shake-up, Pinterest acquired shopping technology platform The Yes in June and has established a partnership with Shopify (SHOP 0.45%) by allowing "Product Pins" that link to Shopify merchants' websites. And this could be just the beginning. Pinterest is a platform that hundreds of millions of people use to find ideas -- and they often end up buying things when they find ideas they like. So it's a natural conclusion that Pinterest has the potential to become a bigger part of the sales transaction.
Should you buy Pinterest stock now?
Clearly, the market was happy to hear this news, with the stock soaring by about 20% on Thursday evening when it was announced.
However, it's important to keep in mind that there's a lot we don't know. We have no idea what changes Elliott is pushing for, and there's still a lot of execution risk when it comes to Pinterest's monetization of its e-commerce potential. Even so, this is certainly welcome news, and Elliott has a pretty solid track record when it comes to its tech sector investments. Between this and Pinterest's new e-commerce-focused CEO, the stock could end up being a bargain for patient investors with the risk tolerance to ride out the near-term ups and downs.
