2016 IPO Prospects: Pinterest Finally Sees Revenues, But are they Enough?

According to an eMarketer report published last year, global social network ad spending was estimated to grow from $17.85 billion in 2014 to $25.14 billion in 2015. By 2017, this market is expected to grow to $41 billion. While Facebook, Twitter, and LinkedIn dominate the market with more than 75% share, others are also gaining ground.

Pinterest’s Offerings

San Francisco-based Pinterest is primarily a content discovery app that is improving its appeal to the analysts by monetizing its user base. Pinterest apps and services allow users to create, discover, share, and collect online scrapbooks. Since its launch in 2009, Pinterest has received positive reviews. The site grew from 50,000 users to more than 17 million monthly active users in a matter of 9 months. According to latest reports, the company now has more than 176 million registered users of which over 100 million are active users.

It wasn’t till very recently that Pinterest took active interest in monetization. It has struggled with figuring out a way to earn ad revenues, while keeping users interested. But it began leveraging its women concentrated audience toward e-commerce initiatives last year. And things seem to be looking up. Last year, the company released Action Buttons, which allow users going through a recipe pin to quickly add the ingredients to a shopping cart that can then check out from Amazon. It also released Buyable Pins that allow users to purchase the selected item from vendors that Pinterest has partnered with. It has also released traditional advertising in the form of Promoted Pins. Market rumors also suggest that like other social media platforms, Pinterest may be evaluating video advertising.

Recently it released its Ads Manager to small and medium businesses. The Pinterest Ads Manager is a do-it-yourself ad tool that includes services such as a bulk editor to allow businesses to manage more than one campaign at a time and other advanced measurement tools to track the impact of Promoted Pins campaigns of these businesses. It also includes targeting capabilities to help deliver the message to the targeted audience.

Pinterest’s Financials

All these efforts are delivering well for Pinterest. While the company keeps its financials under tight wraps, recent reports suggest that Pinterest could earn as much as $500 million in ad sales during the current year. It will be a big growth considering that the company was expected to be trending at revenues of $169 million last year. Pinterest hopes to reach $2.8 billion in revenues by 2018 and grow its active user base to 329 million by 2018.

Pinterest is venture funded so far with $1.3 billion in funding from individual investors and funds including Valiant Capital Partners, FirstMark Capital, Fidelity Investments, Bessemer Venture Partners, SV Angel, Andreessen Horowitz, Slow Ventures, Rakuten, Jack Abraham, Max Levchin, Kevin Hartz, Michael Birch, New York Angels, William Lohse, Jeremy Stoppelman, Wellington Management, and Goldman Sachs. Its last round of funding was held in May 2015 when it raised $186 million at a valuation of $11 billion. Many believe that Pinterest may be a good IPO candidate this year, provided its revenues are in line with market expectations.

I am still not convinced of its valuation though – $11 billion valuation for a company that had $169 million revenues last year and is possibly still making massive losses. Even social media giant Twitter, which has revenues of $710 million a quarter and a monthly active user base of 320 million, was trading at a market capitalization of $9.77 billion at the time of its last result announcement. Pinterest would need to deliver stellar financial results to justify its valuation.

Let us see if they can deliver on the $500 million revenue projection for 2016, which might back-fill its previous round’s valuation to an extent.

This segment is a part in the series : 2016 IPO Prospects