With the initial public offers of Lyft (NASDAQ 🙂 and Levi Strauss (NYSE 🙂 behind us, 2019 will be the year of the big name IPO. The next time is social media player Pinterest whose S-1 request was announced on Friday a week ago. The company is expected to start trading in late April or early May. This is what we learned from our first look at finance.
Based in San Francisco, Pinterest, a website and application for sharing and discovering ideas about creativity and aesthetics, introduced in 2010. Unlike other image sharing sites such as Facebook (NASDAQ 🙂 Instagram, users come to Pinterest to inspire themselves and others. As one of the company's founders said, they use Pinterest as a & # 39; idea catalog & # 39 ;.
External reports suggest that about 80% of users are women and about a third of US users in the platform are millennials. In our opinion, Pinterest exists in enough to not be considered a threat to any of Facebook & # 39; s companies. This is the key. We've already seen what happens when companies like Snap (NYSE 🙂 strive to compete directly with the Juggernaut's social media platform – they crash helplessly or get completely crushed.
Although the valuation and number of shares offered by Pinterest is still unclear, the company is expected to be valued at around $ 12 billion dollars. We accept this figure for the purposes of this analysis. The pending ticker is PINS.
Users: commendable growth, but slowing down
Any analysis of a fast-growing social media industry must begin with user growth. After all, this is the metric that determines the valuation of the company.
Pinterest: Quarterly Monthly Active Users
Pinterest's user growth over the past three years was commendable, growing from 128 million monthly users (MAU & # 39; s) in Q1 2016 to 265 million MAU & # 39; s in Q4 2018. The past year seems to be the trajectory to be delayed. On an annual basis, user growth fell from 36.5% in Q1 2018 to 22% in Q4 2018. Nevertheless, global growth remains strong. Nevertheless, some pressure on this critical measurement value is always an important point of attention.
Another cause for concern: almost all of user growth from Pinterest comes from outside the US. User growth in the home country was less than stellar and only grew 7.9% last year, from 76 million MAUs in Q4 2017 up to 82 million in Q4 2018. This is no small matter, it is harder to make money with an international user base.
Company: Ideal Targeted Ad Environment; Limited Expansion in the US
Like all other social media companies, the income from Pinterest comes from advertisements. Because users secure interesting products on their inspiration boards, targeting is relatively easy for advertisers.
In 2018, revenues amounted to $ 755 million, compared to $ 472 million in 2017, an impressive jump of 60%. This was made possible through targeted efforts to get US users to generate revenue. Indeed, no less than 95% of Pinterest & # 39; s 2018 revenue – or $ 715 million – came from the US
It is to his credit that Pinterest has benefited from generating income with American users. Over the past three years, it has more than quadrupled its average revenue per user (ARPU) from $ 0.74 to $ 3.16. Unfortunately, as mentioned earlier, US growth is slowing growth, limiting Pinterest's profit potential in the future
The limited revenue that Pinterest gets from its international segment ($ 40 million last year) is not surprising. ARPU per international user is a low $ 0.25. This is partly because Pinterest has not given priority to generating income with its international user base, but also because collecting income from European, Asian and African users is more difficult and less profitable.
For comparison: Facebook sees about $ 35 in revenue from an American user versus just $ 10 from those in Europe, $ 3 from Asia and only $ 2 from users in Africa. Also, the road to international monetization will be even more difficult for a smaller company such as Pinterest, meaning that any user growth from this region is unlikely to make a significant contribution to Pinterest, at least in the short term.
Yet for a technical company on its way to an IPO, Pinterest is not bad at all. The company lost $ 62 million last year, against losses of $ 129 million and $ 181 million in 2017 and 2016 respectively. Lyft, the latest technology IPO, went public with an annual loss of $ 911 million. Indeed, Wall Street is known to be patient towards companies with red ink but with growth potential.
Bottom Line
This is a difficult IPO to evaluate. Pinterest's current fundamentals are relatively good, apart from user and revenue statistics. It will be public with a good chance of achieving $ 1 billion in sales and becoming profitable in 2019, the first year of trading, which is rather rare for corporate IPOs. For that reason, a valuation of $ 12 billion seems appropriate
However, based on its foundations, Pinterest is not a bargain. Nevertheless, it is certainly not as expensive as many IPOs for companies.
Nevertheless, growth prospects are problematic. Although progressing well beyond the United States, domestic expansion will remain one of the main sources of profit in the coming years. Pinterest's biggest challenge for the future will be to find a way to effectively monetize its international user base.
