AI Personalization And Global Partnerships Will Appeal To Gen Z Users

Key Takeaways

• Pinterest's AI-driven personalization enhances ad relevancy, boosting engagement and monetization, supporting strong potential for revenue growth without hurting user experience.
  
• Global expansion and strategic partnerships drive revenue by tapping new advertiser bases and leveraging lower-funnel features to enhance ad ROI.
  
• Challenges in ad model shifts, AI innovations, and international expansion may hinder Pinterest's revenue growth and require careful execution and partnership development.

Catalysts

Operates as a visual search and discovery platform in the United States and internationally.

• Pinterest is leveraging AI to personalize user experiences and improve ad relevancy, leading to higher engagement and potential for increased ad load without compromising user experience. This can enhance revenue growth through better monetization of user intent.
  
• The company is expanding its international presence and demand through partnerships with platforms like Amazon and Google, and resellers in under-monetized markets. This global strategy could drive revenue growth by tapping into new advertiser bases and filling auction gaps.
  
• Pinterest is focusing on lower-funnel revenue opportunities with the rollout of features such as mobile deep linking, direct links, and Performance+, which simplify campaign setup and improve ad ROI. This could increase advertising budgets from large and midsize advertisers, boosting earnings and revenue.
  
• New automation tools like Performance+ are designed to streamline ad creation and optimize campaigns, which is expected to attract more advertisers and improve conversion rates, potentially driving revenue growth into the mid
• to high-teens over the next few years.
  
• Continuous growth in engagement and user base, particularly among Gen Z who increasingly use Pinterest for shopping, suggests potential for sustained revenue growth as Pinterest strengthens its full-funnel advertising strategy and capitalizes on enhanced user actionability for shopping.

Pinterest Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pinterest's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.2% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $814.6 million (and earnings per share of $1.18) by about December 2027, up from $215.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $458.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 41.1x on those 2027 earnings, down from 100.0x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 0.63% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Pinterest Future Earnings Per Share Growth

Risks

• Pinterest faces ongoing challenges in the food and beverage advertising sector, which could continue to impact revenue growth in this category due to broader industry headwinds.
  
• The shift to a model that partners with retailers for advertising rather than competing for transactions requires significant execution and successful adoption of evolving ad tools, potentially impacting lower-funnel revenue growth if not executed effectively.
  
• Ad load and engagement must be balanced carefully; an increase in ad load without enhancing relevance could hinder user engagement and affect the long-term growth of advertising revenue.
  
• Performance+ and other AI-driven advertising innovations are in early stages, with potential multi-quarter adoption cycles. Slow adoption could delay anticipated improvements in monetization and revenue growth.
  
• Revenue growth is impacted by international expansion challenges; if advancements in partnerships with third-party platforms like Google and Amazon do not reach full potential, international revenue contribution could remain subdued.

Valuation

• The analysts have a consensus price target of $39.79 for Pinterest based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $51.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.3 billion, earnings will come to $814.6 million, and it would be trading on a PE ratio of 41.1x, assuming you use a discount rate of 6.9%.
• Given the current share price of $31.93, the analyst's price target of $39.79 is 19.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.