Pinterest’s Approaching IPO
Lyft made headlines this past Thursday, going public with a valuation of over $20 billion. Its major competitor, Uber, plans to go public in the coming weeks and has also garnered a lot of attention due to the similarities between the two ride-sharing companies. One imminent company IPO that has received less attention is Pinterest. The social media company is expected to go public at some point in April. Here are some important things to know as their IPO approaches.
In many ways Pinterest is a “unicorn”, a term used to refer to start-ups valued at more than $1 billion before going public. First off, it’s not your typical fast-rising social media company. Its CEO, Ben Silbermann, preaches favoring “quality growth” of a company, rather than rapidly growing at any cost. He also likes to stay out of the spotlight, seen in how Pinterest enforces anti-extremist policies across their site, frequently deleting and heavily moderating discussions that turn political, such as anti-vaccination or presidential debates. It also doesn’t have the feel of a typical social media outlet, as likes and shares aren’t as important to users as their own individual pins on their wall. It also doesn’t have nearly as many losses as other companies in similar situations, like the aforementioned Lyft or Uber. Just last year Lyft lost about $911 million, and Uber lost $842 million in 2018’s final quarter alone. In contrast, Pinterest only lost $63 million in 2018, which should inspire more confidence from investors upon its initial release.
Pinterest is displaying rapid growth in a couple areas. Silbermann’s favoritism for quality growth set the groundwork, and now the product is growing fast. The site’s monthly active users rose 23% this past year to 265 million users, just under a hundred million behind Twitter. Its revenue reached $756 million on the year, a 70% increase from the year before. However, there are some causes for concern. About $700 million of their $756 million in revenue came from advertising sales. The user growth is based mainly in Europe, as about three quarters of the monthly active users are international. Unfortunately, most of the revenue Pinterest generates comes from its American users. Thus, Pinterest must either find a way to drive user growth in the States, or increase the ad revenue generated internationally. Not unsolvable issues, but they are potentially concerning.
Because Pinterest is heavily dependent on advertising sales for revenue, the need to diversify revenue options is critical as it approaches an IPO. Most of those ads push products that are consumer packaged goods or in retail. This heavy dependence of Pinterest on these advertisers in order to generate revenue puts a great deal of pressure on Pinterest to keep driving their user base upwards. Since it is dangerous to rely on just one source of revenue, Pinterest is slowly beginning to explore the e-commerce sector, allowing companies to pin products for sale to their page. This ecommerce potential that Pinterest has lends itself to optimism for the company moving forward.
In general, it can be tricky to evaluate whether or not to buy stock in a company at the IPO, especially since you don’t know what its price will be until the day it goes public. Warren Buffett notably preaches not to invest in IPOs due to their risk. However, Pinterest offers a lot of upside, meaning it will definitely entice eager buyers early. Certainly, Pinterest and the rest of the companies going public in the near future are worth keeping your eye on.