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Pinterest is considered 'to be the most positive social network' among users: Analyst

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D.A. Davidson Managing Director and Senior Research Analyst Tom Forte sits down with Yahoo Finance Live to examine Pinterest's second-quarter earnings report, Elliot Management's increased activist investor stake, and competition among other platforms such as TikTok.

Video Transcript

DAVE BRIGGS: All right, there you see it, Pinterest reporting second quarter earnings just moments ago, posting its lowest revenue growth in the last two years. For a deeper dive into the company's financial results, we're joined by Tom Forte, DA Davidson managing director and senior research analyst. Good to see you, sir. Your reaction to the earnings Q2 from Pinterest?

TOM FORTE: Sure, so I think what you're seeing here initially is a relief rally to the extent that Snapchat really lowered the bar as far as expectations-- so did Facebook, for that matter-- for social networking stocks. Sales and earnings were lower than expected for the June quarter. And the initial expectation for the September quarter is lower than expected. But again, to the extent that there was very significant fear or concern about Pinterest for the June quarter and the September quarter, I think what you're seeing here is a rally that it wasn't as bad as feared.

SEANA SMITH: Tom, I'd love to get your thoughts on a statement that Elliott just released. And for people who aren't familiar with it, Elliott has built a 9% stake in Pinterest. Elliott saying that it has become Pinterest's largest investor. He also made some comments about the new CEO Bill Ready, saying that Ready is the right leader to oversee Pinterest's next phase, very supportive of the action that has taken place so far, saying that Pinterest has, quote, "significant potential for growth." What's your reaction to that?

TOM FORTE: Right, so I find interesting about Elliott's involvement in Pinterest, if I was to compare it with their involvement with, say, eBay, is that they chose to get involved in what is a very challenging macroeconomic environment for digital advertising. So I have a lot of respect for Elliott. I think they're clearly thoughtful, value oriented investors. Pinterest has an amazing balance sheet. So what I had expected was that they would have some sort of ask for an accelerated buyback.

I'm not surprised that they're endorsing the new CEO. It isn't clear to me if they got involved before or after they made the decision or Ben made the decision to move himself up to executive chairman. I think he definitely has the right skill set to advance their e-commerce efforts. Not quite sure, though, if he's going to drive renewed engagement, which has really been the challenge for Pinterest, as consumers left their home once again as the pandemic moved on.

RACHELLE AKUFFO: And Tom, picking up on Elliott saying that Pinterest has significant potential for growth, where is that growth going to come from, given the nature of Pinterest's business?

TOM FORTE: So the potential for growth at Pinterest is twofold. One, international. If you look at their average revenue per user, their international average revenue per user is much lower than domestic. And number two, and where the new CEO really should help is, on the e-commerce front. They've been talking about for an extended period of time making Pinterest more shoppable.

So to the extent that it can improve e-commerce sales through Pinterest and then to the extent, over a longer period of time, then they can improve their international monetization. I understand why Elliott's excited on both those opportunities for Pinterest.

DAVE BRIGGS: Are you bullish on that growth?

TOM FORTE: Am I bull-- so I'm neutral in the stock. My neutral rating on the stock, though, is primarily on concerns about their ability to restart engagement. So if you look, I think monthly active users was down 5% on a year over year basis. So they're having a hard time getting consumers to reengage with Pinterest. Some of that may be competitive pressure for TikTok. So to the extent that I'm neutral rated on engagement, I don't know that I see anything in the press release that makes me change my rating at this point in time.

SEANA SMITH: Tom, expand what you just meant by TikTok because we certainly have seen the threat of TikTok and a lot of the other social media companies that have reported so far this season. How material of an impact do you see this potentially having on Pinterest?

TOM FORTE: So I do think it's material. So, going back in time, Netflix was early in identifying the competitive threat of TikTok. And the competitive threat for Netflix was just time spent on TikTok and not time spent on Netflix. But I do think for Facebook, Meta, the TikTok is an existential threat, very significant threat.

Perhaps less so for Pinterest, but I do think that Pinterest last quarter talked about competitive pressure from TikTok, so time spent on TikTok netspend and Pinterest. There's definitely an overlap in some of the consumers, younger consumers on Pinterest, younger consumers on TikTok. So I do think it's a challenge.

RACHELLE AKUFFO: And you do mention that overlap, then. So then what edge do you think Pinterest might have over some of these larger competitors?

TOM FORTE: The advantage that Pinterest has, generally speaking among the social networks, is, I consider them to be kind of the most positive social network, meaning the discourse of the conversation that pinners have with each other is the most positive among social networks. I also think it's a beautiful visual social network.

They're still early in their video efforts. They're still somewhat early relative to their peers and giving their influencers a chance to maximize their own revenue by posting content on Pinterest. But I do think it's, at least, the friendliest of the social networks. And it's a visually beautiful social network.

SEANA SMITH: Tom, we're going to get the earnings call underway here in just a few minutes. What do you want to hear from the new CEO, Bill Ready?

TOM FORTE: It may be too early, given that they announced transition at the end of June. But I would love to hear his strategic vision for Pinterest, how he intends to take what Ben built and take it to the next level, and in particular, what he's going to do on the engagement side. I highly expect he'll do wonderful things to drive e-commerce sales, but would love to hear what he has plans for improving the audience and engagement again.

RACHELLE AKUFFO: Well, Tom Forte, thank you so much for watching that Pinterest stock. Certainly continuing to pop afterhours.