The firm raised Pinterest's price target to $35 from $25. The new target is in line with its Friday closing price of $34.19. At last check Pinterest shares were down 4.7% to $32.58.
Analyst Jason Bazinet says Pinterest's valuation doesn't allow "much room for downward estimate revisions (or higher interest rates)."
The firm sees three red flags for investor assumptions about U.S. social media stocks.
Those red flags include: Wall Street estimates for $21 billion of top-line growth in 2021 and 2022, up from $16 billion of growth in 2019 and 2019; Wall Street forecasts for social-media firms to capture a substantial portion of non-search digital-ad growth over the next two years; and estimates for smaller social-media firms to capture 9% to 11% of ad growth in 2021 and 2022, up from 7% to 9% growth expectations.
"As the covid-19 recession unfolded, every form of Internet advertising - search, social, display and video - came under some pressure," Bazinet wrote.
"But if you measure the difference between the growth in second-quarter 2020 versus 2019, it’s not clear that social media is more insulated from the recession than non-social-media platforms."
Bazinet concludes that just because social-media companies can still generate growth during a recession, that does not make them special.
Rather, their ability to generate growth in the second quarter is more of a function of how each platform was growing prior to the recession.