2 Highflying Social Media Stocks Just Got Downgraded. Why Their Runs Could Be Over.

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Between Pinterest and Snap, only one analyst has a Sell rating.

Chandan Khanna/AFP via Getty Images

Amid Covid-19-related lockdown orders by various governments around the world, social media stocks such as




have enjoyed healthy gains. Pinterest shares have surged nearly 500% in the past year, and Snap has notched a similar advance.

But BofA Securities analyst Justin Post wrote in a client note Monday that there is little upside left in either stock. Post downgraded both Snap (ticker: SNAP) and Pinterest (PINS) to Neutral from a Buy.

Shares of Snap retreated about 2% to $57.21 in afternoon trading and Pinterest stock fell 1.4% to $72.02.

Both stocks are well-liked by Wall Street. Snap has only one Sell rating, while Pinterest has none.

Post says the underlying businesses are healthy and expects growth to accelerate in the second quarter. He cautioned that investors “may [become] increasingly concerned” about the second half of the year as the broader economy accelerates amid the vaccination campaign in Europe and the U.S.

“For Snap and Pinterest, we think multiple expansion in 2020 was aided by unusually low interest rates and outsize growth for both companies in a down economy,” Post wrote. “And as conditions normalize, further multiple expansion is unlikely.”

Accordingly, Post dropped his Pinterest target price to $75 from $94 and lowered Snap to $67 from $78. He added that his team expects growth stocks to be more favorable in 2022 when gross domestic product growth begins to slow.

In the note, Post also wrote so-called stay-at-home stocks such as Pinterest and Snap benefited from the cheap cost of capital in 2020. The rapid rise in the 10-year Treasury yield suggests that may be changing, which could hurt high multiple stocks such as the two social media companies.

Higher interest rates hurt growth stocks that generate most of their cash flow further in the future. Rising rates have less of an impact on companies that grow more slowly and pay dividends to investors.

Of the analysts that cover Snap, 29 rate shares a Buy and 10 rate it a Hold. The average target price is $77.33, which implies an upside of roughly 36%. Pinterest has 18 Buy ratings, 10 Hold calls, and an average target price of $91.62, implying upside of 28%.

Snap stock advanced 467% in the past year. Pinterest shares gained 492% over the same period. The S&P 500 index rose 70% and the

Nasdaq Composite

is nearly 100% higher.

Write to Max A. Cherney at [email protected]

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