Pinterest stock surges 18% after earnings beat, advertising outlook

Pinterest stock rose more than 18% Tuesday after beating earnings estimates for the third quarter and assuaging concerns over potential ad revenue loss due to the Israel-Hamas war.

The company posted an adjusted earnings per share of 28 cents, beating the LSEG estimate of 20 cents. Pinterest also soundly beat revenue expectations, reporting $763.2 million, versus analysts’ estimates of $743.5 million.

For much of earnings season, the market has been skittish toward companies reliant on ad revenue due to the unclear future effects of the Israel-Hamas war. Meta beat its top and bottom line projections but saw its stock dip due to its wider guidance range for fourth-quarter revenue, after finance chief Susan Li said it “observed softer ads in the beginning of the fourth quarter.”

CEO Bill Ready said Pinterest is not immune to those concerns, but he noted on the earnings call that some of the advertisers that had initially paused spending after the onset of the war have already returned. That, combined with strong engagement numbers, appears to have gone a long way for investors.

Analysts at Barclays were optimistic after the call and raised their price target from $27 to $29.

“It’s rare to see a company in the digital ad space (especially graphical ads) in a position to increase ad load and engagement at the same time, which is driving revenue acceleration (and before the Amazon ad selection enters the fray),” Barclays analysts wrote in a note to clients.

Pinterest’s mobile deep linking ad product was also a highlight, due to its more than 200% increase in the conversion rate, wrote the Barclays analysts.

Pinterest also reported promising numbers on engagement, along with monthly active user growth of 8% year over year.

“As we enter 2024, we believe there are multiple catalysts ahead around engagement growth, ads innovation, the scaling of its Amazon partnership, and consistent margin expansion,” Citi analysts wrote in a note to investors.

Citi raised its price target by $2 as well, to $38 per share.

Another tailwind for Pinterest is the growing number of Gen Z members using the app. Citi analysts noted that as of June 2023, Gen Z accounted for 42% of monthly active users, and younger users saved roughly twice as much content in their first year on Pinterest.

Analysts at Morgan Stanley wrote that they were pleased with the way Pinterest was harnessing artificial intelligence to improve user experience. The company broke down the positive trends in engagement into three areas: More Ideas Tab, the Shop the Look feature and Guided browsing.

“PINS is able to use AI to recommend similar buyable items from merchant catalogues, with 70% of the products that are recommended being rated at exact or highly relevant matches,” Morgan Stanley analysts wrote in a note to investors, referencing the Shop the Look tool.

— CNBC’s Jonathan Vanian contributed reporting.

Don’t miss these CNBC PRO stories: