What happened
Shares of image-browsing platform Pinterest (PINS 4.04%) jumped 14.2% in June, according to data provided by S&P Global Market Intelligence. Oddly enough, an announcement from April was a catalyst for Pinterest's market-beating performance during the month, even though nothing new happened.
So what
For most of June, Pinterest stock was simply trending upward along with the S&P 500. But on June 28, the stock jumped because Wells Fargo analyst Ken Gawrelski raised his price target for Pinterest stock to $34 per share, according to MarketWatch. The analyst cited Pinterest's partnership with Amazon as a positive catalyst for the stock price.
Think of Amazon as an e-commerce search engine -- shoppers use the search box to find what they're looking for. But merchants can place higher in search results by running sponsored ads. This is a large, growing source of revenue for Amazon.
According to its press release, Pinterest is allowing third-party ads from Amazon. This is the catalyst that Gawrelski believes the market is overlooking.
Pinterest stock beat the market in June as Gawrelski drew attention to the Amazon partnership. However, the partnership was announced on April 27. So the delayed reaction is unusual.
Now what
It's hard to know exactly how to quantify the benefit of the Amazon partnership for Pinterest. For starters, the partnership won't reach its full potential for a while -- it's not even rolling out until later in the year. Moreover, management isn't divulging financial details. Instead, CEO Bill Ready recently said vaguely, "We feel really good about the economic arrangement that we put in place there."
The specifics of the Amazon partnership regarding timing and financial impact may not be fully known. But I believe it's fair to generally say it's a big deal. Ready has said that Pinterest has historically been undermonetized and the business can grow substantially even without new users. And he has a point.
Pinterest has 463 million active users but the company made less than $0.50 each per month during the first quarter of 2023. Management, however, believes it can increase this substantially by showing more ads and also by demanding higher ad rates as it proves its ability to convert ads into purchases.
If its partnership with Amazon is successful, then it potentially opens the floodgates for more businesses to view Pinterest as a strong option for advertising dollars. And that could boost the stock.
Therefore, I share Gawrelski's optimism. But investors need to realize that this could take a year or more before they have a strong sense of how its partnership with Amazon is really going.
