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Pinterest Rating Reinstated to Neutral by BofA After PayPal Walks

'We remain cautious on tough comparisons. We are lowering our Q4 and 2022 estimates for sector headwinds,' BofA said of Pinterest.
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Bank of America reinstated coverage of Pinterest  (PINS) - Get Pinterest, Inc. Class A Report with a neutral rating and a $57 price target, now that PayPal has abandoned its idea of buying the social media platform.

Pinterest is scheduled to report earnings Thursday, and results from peers suggest pressure on third- and fourth-quarter sales, BofA analyst Justin Post wrote in a commentary.

“We remain cautious on tough comparisons. We are lowering our Q4 and 2022 estimates for sector headwinds. We expect less quarter-on-quarter impact … than Snap  (SNAP) - Get Snap, Inc. Class A Report, more than Facebook  (FB) - Get Meta Platforms Inc. Class A Report.”

Post said he’s “constructive on long-term shopping potential [for Pinterest], but reinstating the neutral rating, as we prefer Google  (GOOGL) - Get Alphabet Inc. Class A Report (search) and Twitter  (TWTR) - Get Twitter, Inc. Report (brand).”

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Pinterest on Monday closed at $45.26, up 1.4%. It has plunged 27% since Oct. 20, thanks to PayPal walking away.

“There is speculation that PayPal was deterred by stock reaction to deal leaks, or that Pinterest holders wanted a higher bid, but no official details are available,” Post said.

“The read on Q4 online advertising from Snap and Twitter is cautious, and we maintain our view that Pinterest expectations have added risk from difficult comparisons from reopening and product improvements last year.”

Morningstar analyst Ali Mogharabi puts fair value for narrow-moat Pinterest at $70. He explained the rationale for that valuation after Pinterest’s last earnings report in July.

“This represents enterprise value/sales and enterprise value/EBITDA multiples of 15 and 91, respectively, in 2021,” Mogharabi wrote. “We have increased our 2021 revenue growth estimate to 60% from 58%, as ad spending has bounced back faster from the pandemic than we had expected.”