Investors should buy Pinterest as improving business trends create an inflection point, Evercore ISI said. Analyst Mark Mahaney upgraded the visual discovery platform to outperform from in line and raised his price target by $11 to $41. Mahaney’s new price target implies the stock could rally 40.7% over the next year. Shares climbed 3.4% in premarket trading. The stock is up about 20% on the year. PINS YTD mountain Pinterest’s 2023 Mahaney’s first reason for the upgrade is stabilizing spending on advertising. Moving away from a trough seen in late 2022, he said there’s an increasing crop of evidence indicating a recovery in the second half of the year. Operational improvements could also help the stock, with Mahaney giving a nod to fixes implemented under new CEO Bill Ready that are now “bearing fruit” on both the user and advertiser ends. Specifically, the analyst pointed to new measurement tools and a partnership with Amazon that can drive growth on the advertiser side. Taken together, the stabilizing spending and operation upgrades “are combining to create something of a fundamental inflection point, with material revenue growth acceleration and substantial margin expansion a distinct probability over the next 2-4 quarters,” he said in a note to clients Monday. The result: “Generating very high double digit EBITDA growth (e.g. 50%+ Y/Y in Q4) which should help lead to a re-rating in PINS shares.” Mahaney said the bar is “reasonably low” for revenue growth this year, with Wall Street expecting modest single-digit percentage growth in the first half of the year to higher single digits in the second half. Low-double digit growth could boost the stock and accompany an EBITDA margin expansion. Those margins should also be helped by the layoffs in February and termination of some office leases in March, Mahaney added. He also called current valuation reasonable, at 27 times and 21 times enterprise value-to-EBITDA for 2024 and 2025, respectively. Investors should look at those figures in the context of a company that can record 30% or greater EBITDA growth and see 20% or greater free cash flow margins by 2025, he noted. The $41 price target is based on a 30-times EBITDA at $833 million in 2025. To be sure, Mahaney said stock performance could be impacted if stronger competitive pressure pushes growth to plateau, or if the company can’t increase its number of use cases among users. It could also be hurt if its social commerce business performs worse than anticipated. — CNBC’s Michael Bloom contributed to this report.
