On Monday, Deutsche Bank (ETR:DBKGn) shifted its stance on Pinterest Inc (NYSE:PINS), raising its stock rating from Hold to Buy and setting a price target of $43.00. The firm sees Pinterest as an under-monetized platform with significant potential due to its affluent user base with high purchase intent.
The social media company, often described as a "digital catalog," has been recognized for its ability to guide users from inspiration to purchase, which is increasingly valuable to advertisers.
Pinterest's unique position in the advertising market is bolstered by the fact that 90% of product searches on its platform are unbranded, allowing advertisers to capture consumers' attention early in the decision-making process. Deutsche Bank anticipates that Pinterest will continue to grow by expanding into adjacent categories, which is expected to increase user engagement and the platform's global monthly active user base.
The bank's analysis projects a 6% compound annual growth rate (CAGR) for Pinterest's global monthly active users, with a potential upside case of a 9% CAGR from fiscal year 2024 to 2026. Additionally, enhanced product offerings aimed at facilitating purchase activities are predicted to contribute to an increase in average revenue per user (ARPU).
Revenue growth for Pinterest is forecasted at 18% over the next three years, slightly surpassing the consensus estimates. In an optimistic scenario, Deutsche Bank outlines the possibility of a 25% revenue CAGR during the same period. The firm also expects Pinterest to experience favorable international ARPU trends, supported by third-party demand and reseller partnerships.
Deutsche Bank projects an 11-point expansion in Pinterest's adjusted EBITDA margins throughout the forecast period, with an additional 3-point margin increase in the most favorable case. This anticipated improvement in both revenue and margins, coupled with valuation multiples significantly below those of its peers, presents a compelling investment case for Pinterest, according to the bank.
In determining the $43 price target, Deutsche Bank applied a fiscal year 2026 estimated enterprise value to EBITDA multiple of 17x, which is below the average of 20x for Pinterest's peer group. The bank suggests that Pinterest's strong top-line growth and margin expansion could justify a premium valuation in the future.
InvestingPro Insights
Recent data from InvestingPro underscores the potential that Deutsche Bank sees in Pinterest Inc (NYSE:PINS). With a market capitalization of $20.85 billion, Pinterest is trading at a P/E ratio of 106.87. However, looking ahead to the last twelve months as of Q2 2024, the adjusted P/E ratio is expected to improve to 69.23. This aligns with the anticipated net income growth, as one of the InvestingPro Tips highlights that Pinterest is expected to become more profitable this year. The PEG ratio, which stands at 0.65, suggests that Pinterest's earnings growth is potentially not fully reflected in its current share price.
Additionally, Pinterest's revenue growth has been robust, with a 16.22% increase over the last twelve months as of Q2 2024. This is in line with Deutsche Bank's optimistic revenue growth projections for the company. The InvestingPro Tips also point out that Pinterest holds more cash than debt on its balance sheet and that its liquid assets exceed short-term obligations, providing a stable financial foundation for the company's growth strategies.
For investors seeking more detailed analysis, there are additional InvestingPro Tips available, including insights into valuation multiples and profitability metrics. For instance, Pinterest is noted to be trading at high EBIT and EBITDA valuation multiples, which could be a consideration for valuation-sensitive investors. Moreover, the platform's stock price has experienced a significant drop over the last three months, potentially offering an attractive entry point for long-term investors. For those interested in further insights, more tips are available on InvestingPro's dedicated page for Pinterest (https://www.investing.com/pro/PINS).
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