Pinterest IPO
March 28, 2019 | Blog

Pinterest IPO

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.

What is going well for Pinterest:

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.

Exhibit 1: 50%+ revenue growth since 2017
Exhibit 1: 50%+ revenue growth since 2017
Source: SharesPost Research; Pinterest S-filing

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.

Exhibit 2: Significantly growing user base
Exhibit 2: Significantly growing user base
Source: SharesPost Research; Pinterest S-filing

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.

Exhibit 3: Decreasing EBITDA year over year
Exhibit 3: Decreasing EBITDA year over year
Source: SharesPost Research; Pinterest S-filing

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.

Things to watch out for:

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.

Exhibit 4: Growing threat from existing and new interest sharing platforms
Exhibit 4: Growing threat from existing and new interest sharing platforms
Source: SharesPost Research Proprietrary Survey; 2018 Survey N=1261, 2017 Survey N=1121; Question: Which of the following interest sharing websites or mobile apps do you currently use? Percentages rounded off to the nearest integer

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.

Exhibit 5: Revenue multiples for social networking companies at IPO
Exhibit 5: Revenue multiples for social networking companies at IPO
Source: SharesPost Research; Y-Charts

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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This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

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Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

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This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

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Sridhar Nara

Sridhar Nara

Sridhar is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Product Manager at Verizon and Intel building consumer and video streaming products. Sridhar holds a Master’s degree from Arizona State University and an MBA from UC Berkeley’s Haas School of Business.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation, and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own financial advisors before making any investment decisions. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about the subject matter therein, including all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be during their employ directly or indirectly related to their specific views contained in this report.

Analyst compensation is indirectly based upon the growth and success of SharesPost, Inc., including the overall performance of its subsidiaries, the individualized performance of any such analyst, and the development and progression of the overall research effort. SharesPost, Inc. earns revenue from, among other avenues, brokerage sales, and therefore the analyst may indirectly benefit from research reports that have the ultimate effect of increasing trading activity, either through SharesPost Financial Corporation and/or with SharesPost Investment Management, LLC.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, transaction, or security. The opinions expressed in this report reflect the judgment of the analyst at a specific point in time and are subject to change. The information contained in this report has been obtained from sources the analysts consider to be reliable; however, there is no guarantee the any of the information is accurate.

Securities referenced in this report may be offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.