Pinterest Will Need a $5 Billion-Plus Acquisition

Tumblr’s recent billion-dollar acquisition by Yahoo has fueled further interest in other social media companies that could be the next billion-dollar acquisition target. One such player that has also toyed with the idea of an IPO is social scrapbook site, Pinterest.

Pinterest’s Financials
San-Francisco–based Pinterest is known for its apps and services that let users create online scrapbooks. Following the launch of services in 2010, Pinterest had acquired more than 11.7 million subscribers by last year, becoming the site to cross the 10 million visitor milestone the fastest. Growth hasn’t stopped since. A year later, Pinterest boasts of 48.7 million users and is known as the third most popular social media website after Facebook and Twitter.

Despite a huge and fast-growing following, Pinterest still does not earn any money. The company does not disclose financials, but it is widely known that it hardly earns any revenues. While advertising dollars are the easiest revenue model for it, Pinterest does not want to bombard its user base with ads and drive them away. As CEO and co-founder Ben Silbermann quoted, they “don’t want to commodify someone’s passions.”

While it may not launch revenue-generating tools, Pinterest has been testing other revenue models, including analytical offerings and affiliate commission–based revenue models where it directs users to online selling site partners and earns commissions on purchases made through these partners.

Pinterest’s absence of revenues has not deterred investors. To date, it has raised $338 million in funding from several individual investors and funds, including FirstMark Capital, Andreessen Horowitz, Bessemer Venture Partners, Rakuten, and Valiant Capital Partners. The funding includes $200 million raised earlier this year at a valuation of more than $2.5 billion.

Pinterest’s International Expansion
Pinterest is using the latest round of funding to fuel international growth. Earlier this month, it launched a new French site. Before launching the French language site, users had the option of translating the original Pinterest site into several languages, including Spanish, Dutch, and Portuguese. But with the new site, users in France will now be able to see more localized content as Pinterest will push localized site links. The site was launched simultaneously on the web, iOS, and Android. Last month, Pinterest expanded internationally with a UK-focused site as well.

Analysts believe that Tumblr’s $1.1 billion price tag will have increased interest and valuation for Pinterest as well. Pinterest has big e-commerce potential since it has the ability to identify products that are of interest to its nearly 50 million strong user base. Some believe that players like eBay and Amazon could be looking to buy Pinterest. I remain skeptical of Pinterest’s valuation. It may have the potential, but it needs to successfully translate that into a profitable business model for that valuation to be justified.

A site with almost no monetization, valued at $2.5 billion, makes me extremely uncomfortable And this company, having raised the latest round at $2.5 billion valuation, will need an exit north of $5 billion.

The market is getting too frothy for my taste.