Pinterest (PINS) stock falls after missing sales estimates in its fourth-quarter earnings. The social media platform saw monthly active users swing higher this past quarter. Morningstar Senior Equity Analyst Ali Mogharabi looks to the company’s user growth and consistent digital advertising transactions as good news as his firm boosts its price target on Pinterest to $43 per share.
“The final thing was that margin expansion,” Mogharabi states. “I think it was pretty impressive which shows what we’ve been saying all along, that these guys, along with Meta, they have a network effect. There is that flywheel, and it’s starting to turn for Pinterest.”
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Editor’s note: This article was written by Luke Carberry Mogan.
SEANA SMITH: We’re taking a look at Pinterest under pressure and pre-market trading, off just about 7% a big sales miss in the fourth quarter, pointing to a slow rebound or struggling digital advertising business. Now, the social media company also providing a softer revenue outlook than the Street expected. Let’s break it all down with Ali Mogharabi. He’s at Morningstar’s senior equity analyst.
Ali, it’s great to have you here. So first, not too much focusing on the stock and share price reaction to this report, but taking into account what we did learn here from Pinterest. And we were drawing comparisons in our morning meeting to some of the weakness that we saw in Snap. So what was your takeaway from this quarter and just the ability of some of these smaller players to compete with their larger rivals?
ALI MOGHARABI: Yes. Actually, my overall takeaway from this quarter was pretty positive. I think in terms of making progress by these smaller players, you saw a few things. One, user growth continued. Two, the monetization of those users continued, partially also because there’s engagement. And three, of course, the ad spending by the advertisers, they showed a little bit more royal– loyalty, I should say– to the platform.
They’re actually utilizing more than one of their ad tools to launch campaigns and to purchase ad inventory. And then the final thing was that margin expansion. I think it was pretty impressive, which shows that what we have been saying all along is that these guys along with Meta, they have a network effect. So there is that flywheel, and it’s starting to turn for Pinterest. So we upped our valuation to $43 a share, and we still think it is currently fairly valued.
BRAD SMITH: Ali, what do you see in terms of the ability for Pinterest to close the gap over time between advertising revenue relative to impression growth? Because it seems like they’re really prioritizing that, trying to make sure that advertisers feel like they’re getting more bang for their buck. But Pinterest on the other side, investors at least want to see that recognized and revenue and flow through to the almighty margin number that you were just mentioning a moment ago. And what steps do they need to take to get that done?
ALI MOGHARABI: Well, I think basically, increase that loyalty of the advertisers to that platform. So take some steps, providing them various types of ad tools in order to, of course, help the advertisers meet their objectives. And their objectives vary, right? You’ve got these guys that started off a few years ago with attracting more broad-based or brand advertising.
And now, of course, most of the advertisers are looking for have that short-term objective, looking for that conversion or direct response type of advertising take place in a short term. And these guys have actually progressed on that front. So I think if they provide that diverse types of ad tools for the advertisers, then over time, you could see advertisers more permanently or for more long term allocate their ad budget towards that platform. And we’re seeing that to start, at least based on the Q4 numbers.