2023-07-07 17:08:29 ET
Summary
- Pinterest, Inc. appears to have launched the Amazon Ads partnership only announced back at the end of April.
- The social media company has a huge opportunity to boost user monetization for a platform with a Q1'23 ARPU of only $1.32.
- Pinterest's stock is cheap due to the potential to easily beat meager analyst targets for a stock trading at only 5x '24 sales targets.
The big promise of Pinterest, Inc. ( PINS ) is making posts shoppable, and the Amazon ( AMZN ) Ads deal takes the business closer to this goal. The social imaging stock has already rallied following the disappointing Q1 results due to the promises of social commerce. My investment thesis remains Bullish on these potential aspects of Pinterest being unleashed by the new CEO.
Amazon Partnership
Along with the disappointing Q1 results, Pinterest announced a partnership with Amazon Ads to unleash as a partner for third-party ads. The social commerce company hired Bill Ready from Google ( GOOG ) and PayPal ( PYPL ) with a background in commerce and payments in order to unlock this part of the business and to iterate at a fast pace.
Along with the announcement, the CEO of Pinterest made this key statement:
This aligns with our goal of making every Pin shoppable, so that we can enable as many users as possible to bring their dreams to life.
As RBC Capital Markets pointed out, the ad partnership appears to be live. Pinners can now see Amazon ads. Analyst Brad Erickson suggests a 300 basis point increase in ad load helping increase auction density, leading to CPM inflation.
Said another way, Pinterest should see more sales upside, with a much larger ad inventory and higher prices combining to boost revenues. Of course, the key is for this partnership to actually increase sales of related goods on Amazon or any other third-party platforms with ads added to the platform.
If a Pinner can find an item on Pinterest and immediately link to the item, or buy the item directly from the site, the company has finally hit the holy grail of social commerce. In fact, all of the social media companies have long looked for ways to generate sales from items posted by users by saving consumers the headache of spending considerable amount of time finding the sales origin of the highlighted good or product.
Low Expectations
Pinterest grew at 30% clips prior to Covid, and now the market has very low expectations for the years ahead. The Amazon ads business should provide substantial revenue growth potential, with RBC already seeing a big increase in ad load.
Right now, analysts only forecast 7% revenue growth this year, with ~15% growth rates in 2024 and 2025. Revenues will grow from just $2.8 billion last year to $4.0 billion in 2025.
Meta Platforms ( META ) just launched Threads to compete against Twitter, and some analysts are forecasting this new app could reach revenues above these targets for Pinterest. With the social commerce playbook in full force with Amazon ads now loading on the platform, the above growth rates just appear far too anemic and the total revenue levels very small.
The social media company already has monthly active users (MAUs) growing at a 7% clip providing some solid tailwinds for revenue growth just based solely on additional users. Considering Pinterest only returned to sequential user growth during Q3 2022, the company should post a higher growth rate for Q2 2023 providing a strong tailwind for third-party ads and additional social commerce functions to further boost revenue growth beyond the meager analyst targets.
The average revenue per user ((ARPU)) will be a key focus of the Q2'23 earnings report and especially around guidance for Q3'23. A big investment thesis to Pinterest is not needing additional users for substantial sales growth when the user monetization level is relatively low, having only hit $1.32 per MAU during Q1.
The prime reason the stock is appealing here is the valuation at $19 billion, or 65x sales targets for 2024, is market neutral while the social media company has substantial growth potential from higher monetization alone. The market wouldn't even flinch at the thought of Pinterest generating ARPU in the $4 to $5 range.
Takeaway
The key investor takeaway is that Pinterest stock is back towards yearly highs at nearly $28. The stock remains appealing at this valuation due to the potential for the Amazon ads deal to boost user monetization on the social imaging site. The company beating meager analyst estimates will boost the stock going forward.
For further details see:
Pinterest: Potential Amazon Boost