Summary: Pinterest, the popular interest-sharing app has filed for its IPO amidst the IPO stampede of 2019 that includes Lyft, Uber, Slack, Zoom, Postmates, PagerDuty and potentially Airbnb. Founded by Ben Silbermann in 2010, the company had over $755 million in revenues in 2018 with over 250 million MAUs (monthly active users). Users saved over 175 billion pins, the most popular feature used to save ideas they find on the Pinterest platform. 80% of Pinterest users are women between 18-64 of age, becoming a prime place for advertisers targeting this demographic. The company is currently valued between $12B - $13B which is roughly a 16x multiple over its last 12 months revenues.
Impressive revenue growth Pinterest has been growing its revenues at a rate of about 60% over the past 3 years. Its revenues more than doubled from about $300M in 2016 to $755M in 2018. We expect the growth to slightly flatten out with increasing competition but still maintain a 50+% growth rate for the next 2-3 years. While the user growth has been significant internationally, domestic users still dominate Pinterest’s revenue per user at $9.04 per user compared to a mere $0.25 for international users.
Significant user growth, especially overseas Pinterest has over 250 million active users with a predominant international user base. Pinterest user base grew by over 65% over past two years from 160M in 2016 to over 265M in 2018. While its domestic user base has grown in single digits, its international users have more than doubled, from 90M in 2016 to over 184M in 2018.
Decreasing Losses Pinterest has been efficient in cutting its losses while maintaining a commendable revenue growth. Its EBITDA losses have decreased from over $130M in 2016 to less than $40M in 2018. The company is likely to become profitable operationally as soon as next year if continues this performance.
Product Focused Pinterest hired a new head of engineering, ex CTO of Walmart, ahead of its IPO signaling its focus on offering compelling products and staying ahead of the competition. The company relies heavily on machine learning and AI to offer pin ideas to its consumers and given the impressive user growth, its strategy seems to be working well.
Growing Competition There has been a growing competition in the interest sharing space from big tech, starting with Facebook’s Instagram and most recently Amazon with Amazon Spark and from smaller players such as Craigslist, Tumblr and Etsy. We also see this from our recent interest-sharing survey with over 4000 consumers.
Stalled domestic user growth Although Pinterest has significant international user base, most of its revenues come from the US market which has gone down to single digits. Although competition from Facebook and Amazon are part of the reason, Pinterest needs to increase domestic users to improve both its top and bottom lines.
Decreasing love for social networks Social Networks as a whole, including Facebook, Twitter, YouTube and Snap, have all taken a hit since the U.S. presidential election in 2016, with increased scrutiny from both law makers and regulators across the globe. The company avoided calling itself a social network platform in its S-1 filing. We would closely watch how investors value Pinterest in such a bearish environment for social media. To provide a context, Facebook went public at a EV/Revenue multiple of 19.3x while Snap at as high as 67.6x. While it is unlikely for Pinterest to get a 67x multiple from investors, it is likely to be closer to the Facebook multiple.
High dependency on tech platforms Pinterest relies on web platforms of Google (Android), Apple (iOS) and Microsoft (Windows) for measuring the effectiveness of advertising on its platform. There has been material impact to Pinterest’s user growth due to recent changes made by Apple to Safari browser and Facebook to its login-authentication. Google is likely to follow suit.
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