Pinterest Files for an IPO; Focuses on Shopping

In a year that seems promising for technology IPOs, Pinterest has filed to go public on the New York Stock Exchange with the ticker”PINS.” The business expects to raise at least $100 million, in April.

Pinterest started as an electronic pin bulletin board for amateurs. It now positions itself as a”visual discovery engine” and a place where customers can find inspiration. Significantly, it doesn’t consider itself a social network, downplaying analysts’ trends to consider Facebook as a significant competitor.

The Offering

Pinterest filed its IPO independently in February and publicly on March 22. As with other technology companies, Pinterest is issuing dual-class stocks . Class A common stock will be offered at its IPO with a single vote per share. Class B common stock — currently possessed by business co-founder and CEO Ben Silbermann and many other executives and early investors — will have 20 votes per share.

But, Pinterest is structuring the stocks in a more democratic form of dual-class stock, offering a sunset provision for Class B stock that will convert into Class A shares seven years following the IPO. The sole exception to the conversion is Class B shares owned by anybody who possesses at least 50 percent of Class B, probably Ben Silbermann. Normally dual class stocks give a couple of company founders complete control of their businesses in perpetuity.

Financials

Founded in 2010, the San Francisco-based company recorded earnings of $756 million in the year ending December 31, 2018, up 60 percent from $473 million in 2017. The business has nearly doubled its monthly active user count because ancient 2016, hitting 265 million at the end of 2018. While not yet rewarding, Pinterest substantially cut its net loss, from $130 million in 2017 to $63 million in 2018. The business has 1,600 employees.

Pinterest garnered the majority of its 2018 earnings — $700 million — from advertising sales. The company didn’t sell advertisements until 2014 and consequently had almost no revenue until afterward. The sale of advertising is concentrated in one industry. In its IPO, Pinterest shown:

While no advertiser accounted for over 10 percent of earnings during 2018, a significant portion of our revenue comes from a few of advertisers, and is presently concentrated in certain verticals, especially CPG [consumer packaged goods] and retail.

Demographics

In its registration filing, Pinterest explained that two-thirds of its users are girls. Additionally, it shared that from the U.S. it attracts 43 percent of Internet users, which comprises approximately 80 percent of women aged 18-64 with kids, based on an independent analysis from Comscore. Roughly 70 percent of Pinterest’s monthly active users is situated outside america.

A Red Flag

The majority of Pinterest’s user growth is overseas, while almost all of its revenue is from U.S. users. That means the business must either work out how to jump-start increase in its U.S. user base or better leverage its overseas users for earnings.

The amount of Pinterest’s international monthly active users has tripled since the first quarter of 2016. Yet during the same period, U.S. users just grew 20 percent. In the fourth quarter of 2018 Pinterest had 82 million monthly active users in the U.S. and 184 million international monthly active users.

Pinterest’s collected, normally, $3.16 in earnings from each one of its 82 million active U.S. users but just nine cents from its international users.

Pinterest could also expand its marketing base beyond CPG brands. In its IPO filing, the company said that it intends to”increase our presence in verticals such as automotive, technology, financial services, media and entertainment, and travel.”

This may be difficult due to the smaller proportion of male Pinterest users that advertisers in these verticals are targeting.

Pinterest also stated,”We’re in the early phases of our monetization efforts. We’re focused on progressively serving more mid-market and unmanaged advertisers and expanding our sales efforts to reach advertisers in additional international markets, with an initial focus on Western Europe and other select markets to follow.” Additionally, it intends to focus on digitally native brands.

Sales and marketing costs increased 60 percent over 2017, representing the corporation’s efforts to sell more ads. To keep advertisers happy, Pinterest must continually increase the amount of users and the action of its Pinners. Additionally, it must make certain that its consumer demographics are appealing to advertisers. 1 barrier that the company acknowledges is that the lack of maturity in the international digital marketing industry.

Going Forward

Therefore an alternative the company is researching is supplementing ad revenue with an ecommerce capacity that would add a new revenue source in both geographies.

In its filing, Pinterest said it wanted to,”enhance the usefulness of our service by making it easier for Pinners to go from inspiration to action — specifically, we wish to create Pinterest more shoppable.”

It plans to accomplish it by making it much easier for users to get products. That would include using Lens, its visual recognition instrument, to urge more products to users. Presently, Pinterest provides links to the checkout page of merchants’ websites. Additionally, it needs to”bring additional high quality commercial content on the platform by deepening our partnerships with retailers, brands, and content creators.”

To be more appealing to investors, Pinterest doesn’t wish to rely solely on one source of revenue. Ecommerce is a natural development. It’s seeking to emulate Instagram, which lets users purchase goods directly from additional Instagram users through shoppable posts and shoppable stories.

Earlier this month, Pinterest hired a new head of technology, Jeremy King, who held the chief technology officer job at Walmart where he was credited with ramping up the provider’s ecommerce efforts. Another indicator that Pinterest is targeting ecommerce is that this month it allowed brands to upload their whole product catalogue to the platform and qualify them as lively Product Pins.

Pinterest has cut its losses substantially between 2017 and 2018, unlike some other companies that intend to go public within the next few months, such as Lyft and Uber. Pinterest is well positioned to go public but have to diversify its revenue stream to keep fresh investors happy.

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