UBS says this social media stock can rally more than 25% on plans to improve advertising

Published Mon, Mar 27 20236:39 AM EDTUpdated Mon, Mar 27 20239:26 AM EDT

Pinterest could see big gains ahead as new leadership pushes the platform to unlock untapped advertising opportunities, according to UBS. Analyst Lloyd Walmsley upgraded the stock to buy from neutral. Walmsley raised his price target by $8 to $35. That implies an upside of 27.4% from where the stock closed Friday. "Advertisers tell us Pinterest is taking bolder steps and moving more rapidly under its new CEO, Bill Ready, which gives us more confidence in the likelihood of execution overall," Walmsley said in a Sunday note to clients. Ready took over the role in June. Pinterest gained 4.4% in premarket trading. The stock has advanced 13.1% in 2023. Walmsley said Pinterest's partner monetization strategy began showing "rapid improvement" in the international space. A ramp-up of international advertising could add nearly $500 million to the company's revenue if it has a similar 1% market share in key new markets in 2024, he said. Or, he said, the company could see $681 million in revenue in 2024 if the share of average revenue per user that's international hit Facebook's core levels. The company has also seen an increase in ad loads stemming from improved ad density and relevance. Meanwhile, he said, Pinterest has been able to improve its pure prices. Still, the company could benefit from a large global partner to help, he said, while smaller local partners can provide additional support. Walmsley said the company has the potential to get $2 billion from increases with partners that would allow for further improvement in its ad density and revenue. He said Pinterest selecting tech companies as partners could specifically help its targeting and attribution efforts. "We have heard enough early positive feedback to give us confidence that Pinterest early ad tech partnerships have already improved the perceived return on ad spend (ROAS) among early adopter advertisers, and we think this sets the stage for revenue acceleration even before adding significant new sources of demand, which could drive a step function improvement in monetization," he said. — CNBC's Michael Bloom contributed to this report.