Pinterest stock experienced another surge after its impressive second-quarter earnings report, exceeding expectations. However, despite the positive news, the stock failed to maintain its recent rally.
In the second quarter, Pinterest reported adjusted earnings of 21 cents per share and sales of $708 million—both figures surpassing the consensus estimates of 12 cents per share and $696.35 million, respectively, according to FactSet.
Nevertheless, Pinterest stock dropped by 3.1% to $28.07 in Wednesday trading, indicating that Wall Street desired more substantial results following a 34% surge from a six-month low on May 4.
Barton Crockett, an analyst at Rosenblatt Securities, recognized the potential in Pinterest’s performance and decided to upgrade the stock from Neutral to Buy. Additionally, he raised his price target from $27 to $35. Crockett emphasized the positive aspects of the report, including improved revenue trends and better-than-expected margins.
According to Crockett, Pinterest, like its competitors, is focusing on enhancing its advertising tools and implementing advanced AI engines. The company is successfully boosting its margins in the process.
Despite an increase in the number of ads shown to users, Pinterest continues to experience growing user engagement. Crockett also expressed optimism about user growth from Generation Z.
“The coupling of rising engagement with more ads skewed younger is bullish, validating the thought that on Pinterest, where the company says 50% of users come for commerce, ads are content that’s welcomed,” he states. “Ad load has the potential to be grown substantially.”
In April, Crockett expressed favorable sentiments toward Pinterest stock, highlighting the efforts of new CEO Bill Ready in improving monetization strategies.
While acknowledging that Pinterest trades at a premium compared to Alphabet and Meta, Crockett justifies this valuation by pointing to margin expansion and faster cash flow growth. Additionally, during an advertising recovery, Pinterest has the potential to outperform as a higher beta name. The combination of strong positioning and execution safeguards the shares to some extent if the macroeconomic climate were to deteriorate.