Billionaire Israel Englander is the founder and CEO of Millennium Management, the second-most profitable hedge fund in history as measured by net gains since inception, according to LCH Investments. That makes him a good case study for investors.
Englander sold 4.5 million shares of Palantir (PLTR -3.72%) during the third quarter, reducing his stake by 90%. Meanwhile, he also bought 2.5 million shares of Pinterest (PINS -1.20%), a company that has partnered with Amazon and Alphabet's Google to boost ad demand on its social platform. That increased Millennium's stake in Pinterest by 310%.
Englander's trades align with Wall Street's outlook. Specifically, Palantir has a median target price of $38 per share, which implies 41% downside from its current share price of $64. But Pinterest has a median target of $40 per share, which implies 33% upside from its current share price of $30.
Here's what investors should know about Pinterest.
Pinterest is leaning into artificial intelligence
Pinterest is a social media company focused on inspiration rather than communication. Its platform leans on artificial intelligence (AI) to help users discover new ideas and products that range from recipes and tutorials to food and fashion. Pinterest generates revenue through advertising. And while its user base is much smaller than that of Meta Platforms, it still ranks among the 15 largest ad tech companies worldwide.
Pinterest earlier this year introduced new AI tools for advertisers. One such tool leans on generative AI to enhance product images with backgrounds tailored to users' tastes. Likewise, Performance+ leans on AI to streamline campaign creation and improve outcomes. CEO Bill Ready said, "Our AI investments are driving results by powering better personalized experiences and greater performance for advertisers."
Pinterest reported solid financial results in the third quarter, beating estimates on the top and bottom lines. Monthly active users rose 11% to 537 million, and engagement improved across all three major geographic regions. In turn, revenue increased 18% to $898 million, and non-GAAP net income increased 43% to $0.40 per share.
However, Pinterest's guidance disappointed Wall Street. Revenue is projected to increase 16% in Q4, while analysts had anticipated 17% revenue growth. But management attributed that sequential slow down to softness among food and beverage advertisers that are navigating macroeconomic headwinds, which is ultimately a temporary problem.
Image source: Getty Images.
Pinterest has partnered with Amazon and Google to increase advertising demand
Pinterest has opened its social platform to demand from third-party advertisers, and it has since partnered with two of three largest ad tech companies in the world.
Specifically, Pinterest last year announced a collaboration with Amazon that brought retail ads to its platform in the U.S., and the partnership recently expanded to Canada and Mexico. Likewise, the company earlier this year announced a collaboration with Google in previously unmonetized and under-monetized international markets.
Importantly, both partnerships bring more advertising content to Pinterest, which furthers its ability to surface relevant and shoppable products for users. Management believes that strategy can meaningfully boost sales in the future. Indeed, CEO Bill Ready recently told analysts, "We are still significantly under-monetized as a platform relative to the amount of commercial intent on the platform."
Pinterest stock looks cheap, while Palantir stock seems absurdly expensive
Pinterest looks cheap by historical standards. Shares trade at 5.9 times sales. That is essentially the lowest valuation in the past year, and it falls below the three-year average of 6.7 times sales. Additionally, Wall Street anticipates the company's adjusted earnings will grow at 21% annually through 2025. That makes the current valuation of 21 times adjusted earnings look like a bargain.
Comparatively, Wall Street anticipates Palantir's adjusted earnings will increase at 27% annually through 2025. That makes the current valuation of 190 times adjusted earnings look absurdly expensive. To that end, Israel Englander's decision to slash his stake in Palantir was sensible, as was his decision to increase his position in Pinterest.
