Analyst Note| Ali Mogharabi |
Pinterest's second-quarter results beat our projections and the FactSet consensus estimates as strong user growth during the pandemic more than offset softer user monetization. The stay-at-home trend brought on by the COVID-19 pandemic continues to benefit Pinterest and its peers as more consumers are spending more time online. In addition, user engagement has remained above pre-pandemic levels even after some of the lockdowns were eased. Plus, most of the users on Pinterest are shopping, which helps the firm’s direct-response ads generate attractive returns on investment and brings more advertisers on board. All of this clearly displays Pinterest’s network effect moat source. Management guided for third-quarter top-line growth in the mid-30s (significantly above consensus estimates) as it expects user growth and monetization to strengthen. We increased our projections for this year and next and continue to expect GAAP profitability in 2023. Adjustments to our model resulted in a $31 fair value estimate, up from $27. The stock now appears fairly valued as it spiked more than 30% in reaction to the strong second quarter and guidance.