By Jacob Sonenshine

Being in the middle of the pack isn't easy, especially in the high-stakes world of social media. Don't let that stop you from buying shares of Pinterest, which has what it takes to succeed online.

Pinterest, the $23 billion market-cap platform for exchanging ideas on recipes, fashion, home products, and more, has had a tough time since Covid-19 lockdowns caused its business to boom, its stock dropping 61% from its all-time closing high of $89.15 in February 2021. The concern now isn't about the pandemic-driven excesses but slowing near-term growth. Pinterest has also made changes to its website to try to spur ad spending, but that has raised concerns about whether its users would stick around. In a social-media world dominated by TikTok and Meta Platforms, the worry is that Pinterest will end up an also-ran with a declining audience.

The story doesn't have to unfold that way. Pinterest's changes should help boost advertising spending over time, while concerns about alienating users may be overblown. Even the recent sales slowdown can be blamed on one culprit -- food and beverage advertising. Without it, Pinterest's sales growth was a percentage point higher over the past year and a half, according to Wedbush Securities data. While the stock has begun to recover from its recent drubbing -- it's gained 19% so far this year -- there's still more room.

"While we recognize macro uncertainty and certain vertical challenges, we are encouraged with engagement gains, a greater share of ad budgets, and operating efficiency," writes Citigroup analyst Ron Josey, who has a Buy rating and $41 price target on Pinterest stock, up 19% from Tuesday's close of $34.54.

The bull case for Pinterest starts with the changes the company has made to its site. It already invested hundreds of millions last year in artificial intelligence to show the right products to each user, something BMO Capital Markets analyst Brian Pitz says has increased click-through-rates, the percentage of time users click on an ad, all the way to brands' websites for purchase. The company has also rolled out performance tracking, which enables brands to more precisely calibrate their ad spending, gives them more visibility of their returns -- and keeps them on the platform.

"Management announced that they are 'doubling down' on visual search capabilities, which should begin to scale up the number of ads and increase monetization," writes Pitz, who also has an Outperform rating and a price target of $40 on the stock, up 16% from Tuesday's close.

It already seems to be working. Wedbush analyst Scott Devitt surveyed hundreds of advertisers and found that three-quarters of respondents who advertise with Pinterest intend to up their spending on the platform by at least 10% this year, up from just half in the fourth quarter. "Pinterest has a significant opportunity to unlock incremental wallet share gains," writes Devitt, who also has an Outperform rating and a $40 price target on the stock.

Even incremental wallet share could provide a major boost for Pinterest. The company gets just $6.94 in revenue from its average user -- an industry metric known as ARPU -- a fraction of Meta's $52 and roughly half of Snap's $12 and change. As Pinterest increases the number of ads on its pages, it only needs to grab a few hundred million dollars more of the $500 billion advertising pie each year to grow sales in the low to mid teens, in line with the 15% annual growth analysts expect over the next two years.

A recovery in food and beverage advertising and more spending from other, currently light-spending sectors would also help. The food and beverage vertical has seen ad spend growth stabilize at 7% year over year in Devitt's recent check. Auto makers, financial services, and technology companies, meanwhile, which contributed only about 5% each to Pinterest's 2024 sales, could become a growing source of advertising. They spent just $394 million on Pinterest, or just a fraction of the $95 billion the industries spend on advertising in the U.S., according to Wedbush.

Of course, Pinterest can't grow its ad revenue if it's losing users, but so far, changes to the site don't seem to be causing attrition. After the company tweaked its platform and increased ads, user growth in the first quarter was still 10%. "I adapted pretty quickly," says Brooklyn-based apartment owner, graphic designer, and Pinterest user Emily Rowan. "I'm pretty neutral about the new redesign, but I do like how easy it is to customize the home feed based on specific boards."

If all goes well, adjusted earnings could grow 28% a year over the next two years, reaching $1.47 billion by 2026, as margins get a boost from the fact that sales growth will far outpace spending on marketing and employees.

Pinterest shares seem far too cheap for growth like that. They came into this year extremely cheap, trading at 15 times analysts' expected earnings for the coming 12 months, below their three-year peak of 37 times. They still look like a bargain at the current 17.9 times, which is cheaper than Reddit's 80 times, though the companies have similar market values. Pinterest may never get to those levels, but it doesn't need to for it to be a profitable investment.

Stick a pin in it.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 18, 2025 01:00 ET (05:00 GMT)

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