Disappointing Outlook Sends Pinterest Stock Tumbling. It's Not All Bad News, Though.

Wall Street was surprised by Pinterest's weaker sales forecast, which sent its stock sharply lower on Friday.

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After the closing bell on Thursday, Pinterest (ticker: PINS), during an earnings call after the close, said it expects its revenue to grow from the prior year by the same amount as it did in the fourth quarter of 2022 and the first quarter of 2023. Based on that, Wall Street was expecting an increase of less than 6%.

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A macroeconomic environment that has stabilized has continued to cause uncertainty in the advertising market, and even though Q1 growth was marginally better than Q4, Todd Morgenfeld said on the earnings call that there was still no indication of an acceleration in demand.

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PINS 166.37% shares tumbled 13% Friday to $23.78. Shares are down 2% so far this year.

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Pinterest didn't have all the bad news, though. With sales of $602.6 million, the app earned 8 cents per share in the first quarter. According to FactSet, analysts expected $594.2 million in sales but flat earnings. A total of 463 million monthly active users were recorded globally, above FactSet's consensus of 454.6 million.

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A new advertising partnership between the company and Amazon.com (AMZN) was announced on Friday, and it is expected to be implemented later this year. This will allow advertisers to upload their products to Pinterest, giving them the opportunity to advertise on Pinterest. Through a Pinterest link or a "Pin," users will be able to access Amazon's online store through a link pointing to the Amazon site.

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As Amazon Ads has strong growth and overlap with PINS' commercial intent, we like the deal. In a research note, Piper Sandler Analyst Thomas Champion writes that this should also improve shoppable content. However, it will likely take several quarters to implement, so revenue impacts won't be felt until 2024.

The stock is rated Overweight by Champion with a price target of $31.

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The partnership has also been rated Overweight by KeyBanc Capital Markets analyst Justin Patterson with a $32 price target.

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The platform's focus on shoppable ad content makes Amazon a logical first partner given its monetization potential with third-party demand, Patterson explained in the research note.

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