The online-advertising industry is mired in uncertain times, but the shares of Pinterest Inc. merit a buy, according to Goldman Sachs.
After optimism over the company's efforts in commerce and its broader initiatives meant to increase monetization, Goldman analyst Eric Sheridan turned bullish on Pinterest PINS, upgrading the stock to buy from neutral.
Despite some uncertainty around the near-term operating environment, MAU monthly active user growth, macroeconomic impact on industry spend, competition, etc. We see Pinterest as positively positioned to a number of long-term secular growth themes, engagement ad spend shifting online, social commerce, creator economy, etc. Sheridan wrote that the positive risk reward skew at current levels, and that there should be more positive risk reward skew.
He believes that Pinterest can increase its average revenue per user, including through better international monetization, efforts around new ad surfaces such as Catalog Pins, and inflation in the CPM, or the cost for every 1,000 advertising impressions, as the company improves targeting and measuring capabilities.
Opinion: Pinterest was never considered a social network. Sheridan notes that Pinterest's management team seems to be focused on better enabling commerce through the site by leveraging the unique elements of the platform with respect to high shopping intent and utility of both discovery conversion. After speaking with executives at the Goldman conference, he wrote that the company is looking to boost the portion of shoppable inventory on the Pinterest platform.
Opinion: Pinterest's new CEO faces a rough road in getting users to buy instead of just pining.
Sheridan believes that Pinterest is in the later stages of a two-year investment cycle but he believes that it has the potential for margin expansion over the next three to five years as Pinterest increases average revenue per user and causes a significant deceleration in adjusted expense growth.
The shares of Pinterest have gone up 5% in the past three trading sessions. They have gained 32% over the past three months, but they are off 49% over a 12 month basis. The S&P 500 SPX has slipped 2% over the last three months, and is down 13% over the last 12 months.