The endless growth opportunity in social media has certainly presented its own set of challenges. If you aren’t the supreme leader in the space (last name Zuckerberg), it has been hard to deliver solid monetization that investors want. Now that companies are finding their own niches and trying to avoid regulatory black holes, Wall Street and investors have been warming up to some of the opportunity.
Two analyst calls stood out on June 18 with upside to the stories. The question is whether there is enough implied upside to keep investors interested or not. As a reminder, traditional Dow and S&P 500 stocks are generally given total return upside of 8% to 10% by analysts with new buy and outperform ratings at this stage of the 10-year-old bull market.
Pinterest Inc. (NYSE: PINS) started with an outperform rating and was assigned a $33 price target at Wedbush Securities. This was versus the $27.85 prior close, which implies upside to the target of about 18.5%.
Wedbush’s Ygal Arounian and Amir Chaudhri see Pinterest as having high commercial intent, and the analysts view Pinterest as fundamentally different from other social media platforms. Rather than users coming to share news and experiences with friends or a global community, Pinterest’s users visit for discovery and idea generation and are often in various stages of the commercial intent funnel.
Wedbush sees plenty of growth ahead, but traditional investors may point out that the current share price (let alone the target price) already implies massive valuations against its earnings per share. The firm expects a 43% revenue growth to $1.08 billion in 2019 and a 37% revenue growth to almost $1.5 billion in 2020 — and $1.963 billion in 2021. With a pro forma loss of $0.14 per share expected in 2019, Pinterest is projected to earn 2 cents per share in 2020 and then $0.34 in earnings per share in 2021.
BTIG’s Rich Greenfield believes that the user growth and revenue/EBITDA current expectations by analysts of Snap Inc. (NYSE: SNAP) are too low versus what may likely come. He has noted that many investors continue to ignore and discount Snap’s recovery, due to the credibility issues that surfaced in its first two years of being public. Helping it along, Greenfield sees both higher daily active users and a more open attitude toward third-party developers and partners.
Snap was down 3% to $13.55 on Monday. Earlier Tuesday, shares hit a one-year high of $14.42. Outside of Snap briefly trading up above $20 after its early 2017 IPO, the high in 2018 was closer to $17.35. However, BTIG had a buy rating for Snap even before the firm raised its target to $20, from $15, during the call.
So far in 2019, Snap shares have already been up close to 150%. That said, investors might want to keep in mind that Snap’s consensus analyst target price from Refinitiv was $11.56 ahead of the call — and that BTIG now has the Street-high target.