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The Ratings Game: Pinterest faces ‘even more uncertainty’ amid video transition, analyst says in downgrade

Pinterest Inc., once a prime beneficiary of stay-home trends, has struggled to keep up the pace in the new reality.

The social-media company, which lets users collect and organize inspirational photos and videos online, has seen its U.S. user base decline in recent quarters, and Morgan Stanley’s Brian Nowak is worried about Pinterest’s

ability to keep users engaged. He downgraded the stock to equal weight from overweight late Monday, writing of “too much uncertainty” for the company.

While Pinterest has been trying to expand its content offerings with a recent focus on short-form video, Nowak remains cautious on the transition. The new short-form video content monetizes at a lower rate than other parts of Pinterest, a trend that other social-media companies are seeing as well as they make the same pivot.

“While we see these creator videos monetizing over time across the entire space, we expect the pace of monetization to be relatively slow given still-high competition for engagement, low ad load across the space, and the importance of following a test and learn approach with ad unit formats to ensure the ads are not intrusive to engagement/user experience,” Nowak wrote.

Additionally, he said that larger companies, such as Facebook-parent Meta Platforms Inc.

and Google-parent Alphabet Inc.

will have an advantage over Pinterest when it comes to monetizing this new format, since the tech giants have larger ad-sales and engineering teams.

Pinterest’s transition adds “even more uncertainty to revenue and profitability,” Nowak continued. He lowered his ad-revenue estimate by 9% for 2022 and 8% for 2023.

Further, he expects that Pinterest’s earnings could come over pressure due to the combined effects of a competitive hiring market and the potential for a lower revenue base. Nowak reduced his 2022 estimates for adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) by 48%, and he cut his 2023 estimates on the metric by 42%.

Shares of Pinterest were down as much as 3.7% earlier Tuesday, they’re up 0.3% in midday trading. The stock has lost 26% over the past three months as the S&P 500

has dropped about 4%.

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