• by Laurie Sullivan  @lauriesullivan, June 22, 2023

The stock price for Pinterest, which gets most of its revenue from advertisers, closed up about 14.20% on Thursday year-to-date.

The jump is attracting investment firms to take a closer look.

RBC Capital Markets raised estimates on Pinterest based on the firm’s analysis of advertising-load rates today compared with April 2023.

Based on the analysis, the investment firm found an increase of 305 basis points in top categories from 27% to 30% in the past two months, which provides "greater confidence in the company hitting Street numbers" in the future. 

"This could drive revenue to the degree it drives better engagement via improving relevancy (or at least doesn't negatively impact it) -- and makes Street estimates look more achievable, in our view," the investment firm wrote in a research note published Thursday.

The analysis points to the need for Pinterest's shoppable content to drive engagement and whether or not it can structurally improve return on investments (ROAS).

"We remain open to getting more constructive but continue seeking more definitive data points to support the bull case before doing so," the note stated. 

The firm points to six key factors that could drive increases. For example, third-party media deals like the one with Amazon enable Pinterest to place disproportionately more ads in categories where it lacks first-party advertisers. The real unknown is under-monetized categories because of the lack of content or certain categories struggling to compel interest no matter what the content.

In April, Pinterest inked a multiyear ad partnership with Amazon to bring more brands and relevant products to its platform. The deal made Pinterest the ecommerce giant’s first partner on third-party ads.

Two opposing forces are at play: positively, more ads + AMZN means rising auction density that should drive CPMs higher platform-wide, analysts wrote. The adoption of conversion tools will also become a factor.

Management told RBC Capital analysts that about 10% of enterprise customers who adopted its conversion API (CAPI) have seen a 14% reduction in cost-per-action, a 28% uplift in attributable conversions and have grown ad spend 30% in the most recent quarter vs. 5% overall.

“We believe the conversion-to-getting-paid cycle is slower & not as complete as it might intuitively appear. With that said, there are cleartailwinds -- we lay out sensitivities on what it could mean to the model,” an analyst wrote.