Pinterest’s Valuation Rises; Revenues Remain a Mystery

Twitter’s recent IPO has sparked  interest in IPOs of other social media sites. The next big one that the market is waiting for is online scrapbooking site,  Pinterest. Launched in 2010, Pinterest’s growth has seen phenomenal growth and is the third most popular website in the U.S. after Facebook and Twitter.

Pinterest’s Revenue Model

Like other social networks, my big concern with Pinterest lies in their ability to earn revenues. According to a comScore report, Pinterest sees more than 28 million monthly visitors who spend, on average, 98 minutes a month on the site. The company is currently figuring out its revenue model. Recently, Pinterest opened their network to ad-based revenues. Pinterest remains committed to the objective of not wanting to “commodify” posts on the site. So it is still keeping away from banner or pop-up ads and insists on delivering ads that are “tasteful”. In addition, the company is ensuring that the pins that are being promoted are relevant and that users are made aware of their promotional status. Pinterest has yet to disclose the revenues it is earning from these moves. But considering that revenue efforts just began, Pinterest is most likely still a loss-making company.

That has not stopped valuations from skyrocketing. Till date, Pinterest raised $563 million in funding from individual investors and funds, including FirstMark Capital, Andreessen Horowitz, Bessemer Venture Partners, Rakuten, Valiant Capital Partners and Fidelity Investments. After raising $200 million earlier this year at a valuation of over $2.5 billion, last month, it raised $225 million last month from Fidelity Investments, Andreessen Horowitz, FirstMark Capital, Bessemer Venture Partners, and Valiant Capital Partners. The recent round valued them at $3.8 billion.

Pinterest’s International Expansion

Pinterest plans to use the recently raised funds to strengthen its international presence. Since the beginning of the year, Pinterest’s international presence has grown 125% over the year. Pinterest has recently launched sites in the U.K., France, Italy, Japan and the Nordic countries.

In Japan, users can log into Pinterest using Rakuten Connect, which is Rakuten’s equivalent of Facebook Connect. Rakuten is Japan’s e-commerce player which earlier invested in Pinterest. Users will have access to more than 100 categories of information, including crafts, design and art, and will also be able to access Rakuten’s online store and services. It also launched a Nordic web site that offers a localized version and caters to users in Norway, Sweden, Denmark, and Finland.

Analysts believe that Pinterest’s strength lies in its rich content and site layout which helps with product discovery. It is also seeing increased traffic within mobile, with mobile users growing 50% this year and 75% of the site’s usage happening on mobile. Pinterest definitely knows how to attract users. It just needs to figure out how to successfully turn that base into revenue. Till then, I remain skeptical of their rising valuations.