The firm also raised its price target on the San Francisco company to $30 a share from $28. The new price target represents 31% potential upside from the stock’s Thursday closing price.
The shares rose nearly 7% on Thursday and at last check were 2.1% higher at $23.42.
Wells Fargo notes that Pinterest shares are down nearly 40% from their highs in August, but have rebounded more than 30% from the low it hit in December.
Pinterest shares "have materially underperformed the broader market since the company's April 2019 IPO, despite our view that the company's fundamentals remain on solid footing,” analyst Brian Fitzgerald wrote.
The company’s “healthy audience and engagement growth, strong revenue growth and solid progress towards profitability” are all reasons to be optimistic about the stock, Fitzgerald said.
As Pinterest adds more video on the platform, Wells Fargo expects greater engagement and improvements in monetization as the company makes ad-technology upgrades. Better international monetization could also be a growth driver for Pinterest.
The firm estimates that Pinterest’s average revenue per user in the U.S. was 22.5 times what it was internationally in the third quarter, compared to 3.6 times for Snap Inc. (SNAP) - Get Report, 4.6 times for Twitter (TWTR) - Get Report and 6.9 times for Facebook (FB) - Get Report.
Pinterest is scheduled to report fourth-quarter results on Feb. 6 after the closing bell.