As uncertainty lingers over the stock market due to inflation, high interest rates, and the U.S. presidential election, it’s harder than ever for investors to discern how to best deploy their funds. That is why many investors look to hedge funds’ 13F filings to find out what stocks the big institutions are buying and selling.
Ken Griffin manages Citadel Advisors, one of the top 10 hedge funds, which has $494 billion in assets under management. One of the most notable recent moves for Griffin is his massive selloff of artificial intelligence stock Nvidia, which has begun to lose its luster with investors over fears of an AI bubble.
On the other hand, Citadel just bought 4.4 million shares of social media platform Pinterest (NYSE: PINS).
Pinterest was a hot stock a few years ago when many were homebound and relied on the platform to share their interests. PINS share price rose above $85 in 2021, but the subsequent years led to a sharp price retreat.
Pinterest shares haven’t traded anywhere near those highs since, but it did appear the stock was on the upswing in recent months. That was until the company projected sluggish sales for Q3 2024, and investors responded with a selloff that has PINS down 12.5% year-to-date.
So why did Ken Griffin buy Pinterest stock?
Why Did Pinterest Stock Drop?
After Pinterest reported its earnings for Q2 2024, PINS fell by as much as 23%. However, the company had a strong quarter overall. Pinterest’s revenue of $854 million was a 21% increase from Q2 2023. It also beat analysts’ estimated $848 million by 0.65%.
The company improved from a $35 million net loss last year to a $9 million net income in the second quarter, and diluted earnings per share worked out to $0.29, which was 4.2% better than the $0.28 analysts predicted. Pinterest has beaten EPS estimates in each of the past four quarters.
The company has continued to expand its user base, and the social media platform now has 522 million global monthly active users (MAU), a 12% year-over-year increase, which eclipsed analysts’ estimates of 520.1 million.
That includes 98 million MAU in the U.S. and Canada, 136 million users in Europe, and 288 million MAU in the rest of the world. The company has continued to experience the most growth outside of the U.S., Canada, and Europe.
“Our monetization efforts are paying off,” Pinterest CEO Bill Ready said in the earnings release. “Advertisers are seeing improved performance across key objectives on Pinterest — from brand awareness to conversion — as we continue to roll out AI-powered products and experiences. As a result, we’re gaining share of advertising budgets with some of the world’s largest brands.”
Will Pinterest Stock Go Back Up?
One of those brands is Google, and Pinterest signed a February ad deal with the tech giant to allow ads to be delivered on Pinterest via Google’s ad manager. The goal is to leverage Pinterest’s global base and Google’s advertising power to monetize untapped international markets.
That deal followed a multi-year ad deal with Amazon that was inked in 2023. The Amazon partnership was designed to bring more relevant products to Pinterest users and create a simpler interface for purchases.
In addition to its international audience, Pinterest is a desirable partner for advertising deals because of its younger demographic.
Gen Z accounts for roughly 40% of Pinterest’s MAU, which is quite the feat for a social media platform that is nearly fifteen years old. Gen Z has developed a particular affinity for the platform’s curation and collage creation features.
For all of the positives around Pinterest, the reduced third-quarter guidance weighed on investors. Pinterest’s leadership forecasted Q3 sales to come in between $885 million and $900 million, when analysts had forecast third-quarter revenue would be $907 million.
Even with the reduced guidance, however, the company is still set to report 16%-18% growth year-over-year.
Analysts Ratings For Pinterest Stock
Though many investors sold the stock, Wall Street analysts are largely in Ken Griffin’s corner on PINS.
Of the 38 analysts who have rated the stock, 28 consider it to be a Buy while 3 rate it as an Outperform.
The highest forecast is $52 per share, which would translate to an impressive 64% gain from where the stock currently trades if it comes to fruition. The average price target is $42.81 per share, corresponding to an estimated 35% improvement over the next 12 months.
No Sell ratings exist on PINS but there are 12 Hold ratings. The lowest forecast is $32 per share, which would be a 0.9% improvement over the next year.
Is Pinterest Stock Undervalued?
Ken Griffin and the majority of Wall Street analysts appear to view Pinterest as being substantially undervalued at this time.
A 10 year discounted cash flow forecast appears to verify those views by placing fair value at $46 per share, almost 50% higher than present levels.
But there are reasons to be wary. For example, the company currently has a price-to-sales multiple of 6.6, when its P/S was above 9 just a few months ago.
By comparison, social media competitor Snap, Inc., which operates Snapchat, has a P/S ratio of 3.1, while match.com owner Match Group has a P/S of 2.3. Meta, on the other hand, has a P/S ratio of 8.9.
Why Did Ken Griffin Buy Pinterest?
Ken Griffin appears to have bought Pinterest stock because it is substantially undervalued on a cash flows basis with as much as 50% upside to $46 per share.
While Mr. Griffin didn’t detail his reasoning for his massive Pinterest buy, it isn’t hard to build a bull case for the stock. The company had a solid Q2 in nearly every way, and continues to expand its young, global user base.
Pinterest has ad deals with Google and Amazon in place that will help the social media platform continue to monetize new markets. Despite the disappointing guidance for Q3, the company still has plenty of room to grow and Pinterest only has about 16% of the users Facebook enjoys.
The company has also been able to leverage AI to personalize users’ experiences on the platform, and its models will continue to become more powerful.
PINS share price may not reach its 2021 highs any time soon, but certainly has the potential to get back to the analysts’ average price target of $42.81 per share.
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