The advertising partnership that Pinterest struck with Amazon earlier this year is primed to benefit PINS stock, according to an analyst who upgraded the company to buy on Monday.
Stifel analyst Mark Kelley said in a new note that advertisers are more positive on Pinterest as it builds out an advertising deal with the e-commerce giant. Pinterest has "plenty of room for growth" outside the U.S. market, he added.
Kelley upped his target price for PINS stock to 32. On the stock market today, PINS stock gained 2.6% to 26.64.
Pinterest will report third-quarter earnings on Oct. 30.
PINS Stock: Making Moves Under New Leadership
San Francisco-based Pinterest offers a digital pin board for its 465 million users and primarily makes its money selling online advertising.
Former Alphabet commerce executive Bill Ready was named chief executive of Pinterest in June 2022. Ready has sought to expand how often users are shopping through the platform, in part through advertising partnerships with retailers.
In April, Pinterest announced it had agreed to a multiyear partnership to bring ads for Amazon products to Pinterest feeds. Ready said in a blog post that the deal fits Pinterest's "goal of making every Pin shoppable."
In his note, Kelley of Stifel said advertisers are taking notice.
"This time around our conversations indicate to us that the changes the company has made to its native technology, paired with the recent launch of its Amazon partnership, are likely to bear fruit as we enter the holiday spend period," Kelley wrote. "To be clear, not all agencies and brands believe Pinterest is the right platform to advertise their products, but we believe more brands will increasingly look to Pinterest as a place to spend more over time."
Watching Amazon Deal Rollout
The ad partnership with Amazon is in early testing and will require a multi-quarter rollout, Ready said on the company's earnings call in August.
The deal is important for Pinterest because Amazon can offer a much wider breadth of advertising. That means ads can be better targeted to the topics Pinterest users are searching. Amazon's advertising business generated $10.7 billion in revenue in the second quarter alone this year. Meanwhile, Pinterest had $2.8 billion in annual revenue in 2022.
Kelley noted both the company's commentary and advertising channel checks indicate the partnership is already helping Pinterest improve the relevance of ads on the platform.
Potential International Growth Could Boost PINS Stock
Kelley also believes Pinterest has room to grow outside the U.S. The company has been expanding the types of advertising it offers outside the U.S. in recent quarters, the report noted.
"Just under 20% of Pinterest revenue is generated outside of the U.S. and Canada, yet 80% are of (monthly active users) are located internationally," Kelley wrote.
PINS Stock: Up and Down Following Investor Meeting
PINS stock got a temporary boost after the company hosted an investor's day in September. The company projected that revenue would accelerate into the mid- to high teens over the next three years. Growth slowed in 2022 and early 2023.
Shares are up about 7% on the year, slightly trailing the S&P 500.
PINS stock reached a 52-week high of 30.86 on July 18 after an upgrade to buy from Evercore ISI. But PINS stock retreated following a second-quarter earnings report that showed rising expenses.
For the third quarter, analysts expect the company to report a 91% year-over-year earnings increase to an adjusted 21 cents per share, according to FactSet. Further, analysts project revenues will rise 8.7% to $744 million.