Pinterest, Inc. (NYSE:PINS)’s primary promise is to make postings shoppable, and the Amazon (NASDAQ:AMZN) Ads partnership moves the company closer to that ambition. Due to the promises of social commerce, the Pinterest stock has already rebounded following the poor Q1 results. My investing thesis remains bullish on the potential features of Pinterest that the new CEO will unleash.
Amazon Collaboration
Along with the poor Q1 statistics, Pinterest announced a collaboration with Amazon Ads to become a third-party ad partner. Bill Ready, a former Google (NASDAQ:GOOG) and PayPal (NASDAQ:PYPL) executive with a history in commerce and payments was hired by the social commerce startup to unlock this portion of the business and iterate quickly.
Along with the release, Pinterest’s CEO made the following crucial 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.”
According to RBC Capital Markets, the ad arrangement appears to be operational. Amazon advertising is now visible to Pinners. According to analyst Brad Erickson, a 300 basis point increase in ad load will assist boost auction density, resulting in CPM inflation.
In other words, Pinterest should see more sales growth as a result of increased ad inventory and higher prices. The trick, of course, is for this collaboration to really improve sales of connected goods on Amazon or any other third-party platforms with adverts added to the platform.
If a Pinner can find an item on Pinterest and immediately link to it or buy it directly from the site, the company has achieved the social commerce holy grail. In fact, all social media businesses have long sought ways to make sales from goods uploaded by users by relieving consumers of the burden of locating the sales origin of the featured good or product.
Expectations Are Low
Prior to Covid, Pinterest grew at a 30% clip, and the market now has very modest expectations for the years ahead. The Amazon advertisements business should offer significant revenue growth potential, with RBC already experiencing a significant rise in ad load.
Analysts now predict 7% sales growth this year, with 15% growth rates in 2024 and 2025. Revenues will increase from $2.8 billion in 2017 to $4.0 billion in 2025.
Meta Platforms (NASDAQ:META) recently launched Threads to compete with Twitter, and some analysts believe this new app could outperform Pinterest’s revenue expectations. With the social commerce playbook in full swing and Amazon advertisements now loading on the site, the above growth rates appear far too feeble, as do the total revenue levels.
The social media firm already has a 7% increase in monthly active users (MAUs), giving some good tailwinds for revenue growth based merely on extra users. Given that Pinterest just resumed sequential user growth in Q3 2022, the business should report a stronger growth rate in Q2 2023, creating a strong tailwind for third-party ads and more social commerce functions to enhance revenue growth beyond the low analyst estimates.
The average revenue per user (ARPU) will be a primary focus of the Q2’23 earnings report, particularly regarding Q3’23 projections. A key investing thesis for Pinterest is that it does not require new users to achieve significant sales growth when user monetization is relatively modest, having only reached $1.32 per MAU in Q1.
The valuation of $19 billion, or 65 times sales estimates for 2024, is market neutral, yet the social media firm has significant growth potential from higher monetization alone. The market would not even blink if Pinterest generated ARPU in the $4 to $5 area.
What About Pinterest Stock?
The main message for investors is that Pinterest stock is approaching yearly highs at almost $28. Pinterest stock remains intriguing at the current price because the Amazon advertisements arrangement has the potential to increase user monetization on the social photography site. The fact that the company exceeded minimal analyst expectations will enhance the stock in the future.
Featured Image: Freepik @ xvector
