Image-browsing platform Pinterest(NYSE: PINS) went public in 2019 and started trading around $24 per share. Investor enthusiasm was riding high and the stock inched closer and closer to $90 in early 2021. But enthusiasm quickly gave way to panic as the price per share collapsed to nearly $17 in 2022.
Pinterest stock trades at about $31 per share, as of this writing. But in 2025, I wouldn't be surprised if it managed to finally hit $50 again at some point. Here's why.
The change that could be a difference-maker for Pinterest
Pinterest's market capitalization is $21.5 billion -- this represents the combined value of all 683 million of its shares. If it traded at $50 per share, its market cap would be over $34 billion. What would cause Pinterest's business to be worth so much?
Pinterest recently decided that forging key partnerships was better than standing off by itself. And this is the change that I believe can carry its business over a $34 billion valuation.
When it comes to users, Pinterest isn't struggling with adoption. The company ended the second quarter of 2024 with 522 million monthly active users around the world. But it generates revenue with advertising. And it has struggled with adoption when it comes to advertisers.
Pinterest's struggle to attract advertisers is illustrated by its monetization rate. Its Q2 average revenue per user in the U.S. and Canada was respectable at $6.85. But that's lower than other advertising platforms. Moreover, when adding in international users, Pinterest's average revenue per user plunges to just $1.64.
Pinterest believes its user data can predict shopping behavior with a high degree of accuracy, which is valuable to advertisers in theory. But it hasn't attracted advertising demand as much as investors had hoped when the company went public in 2019. That's why its shift toward key partnerships could be such a difference-maker.
I'll skip over the details. But in 2023, Pinterest partnered with both Amazon and Alphabet's Google for advertising, shifting from an exclusive first-party model to allow for third-party demand. On the Q2 earnings call, CEO Bill Ready said, "We're still relatively early days in what we're doing with [third party]."
It may be early but the trend so far is promising. Pinterest's revenue growth has accelerated from a single-digit growth rate a year ago. And sales and marketing expenses as a percentage of revenue are coming down, as one would expect when partnering with these two large tech giants. A few more quarters would better establish the trend but Pinterest's business undoubtedly improved after opening it up to third parties.
PINS Operating Revenue (Quarterly YoY Growth) data by YCharts
Pent-up demand rushing in during 2025?
Some platforms are enjoying a boost from political advertising right now. By contrast, Pinterest avoids polarizing politics and it's consequently enjoying no such tailwind right now. Its bread and butter is more discretionary items. And advertising for these things is more muted right now.
It's not unusual for advertising spend to ebb and flow with changing macro-economic winds. While I can't predict when spending will ramp up, I would imagine it would be before the end of 2025. Consider that recessions last only 10 months on average -- any pocket of mere softness in the economy could last even less than this.
Pinterest's user base has continued to grow and now the company has an efficient third-party path to onboard advertisers to its differentiated platform. With any increase in advertising demand in 2025, Pinterest's financial results could consequently soar.
Given all of this, I believe Pinterest stock is set up for a run toward $50 in 2025. But as a closing caveat, 14 months is a short period of time and the stock's valuation will have an outsized impact inside of a time frame such as this. I don't know what the valuation of Pinterest stock will be in 2025. Valuation is largely controlled by investor sentiment and that's something that's truly impossible to predict.
Therefore, Pinterest stock could possibly fail to reach $50 per share in 2025 even if its business results boom as I believe they will. That's OK. Successful long-term investors know that they should patiently hold shares when the business is performing well. Sentiment will eventually reflect the fundamental realities of the business when given enough time.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jon Quast has positions in Pinterest. The Motley Fool has positions in and recommends Alphabet, Amazon, and Pinterest. The Motley Fool has a disclosure policy.
