Will the Pinterest IPO Be the Next Tech IPO in 2019?
It’s still early, but 2019 is already shaping up to be a bigger year than 2018 when it comes to major tech initial public offerings (IPOs). Last week, we looked at the Lyft IPO and how it stacked up to Uber Technologies, Inc., both of which are expected to go public this year. And now we have the numbers for the impending Pinterest IPO.
The social media company publicly released its S-1 filing, detailing the PIN stock IPO. So does this social media stock have what it takes to be a big winner?
While I believe that Pinterest stock has the potential to be a major player in the tech world, I think the cards are stacked against it.
First, let’s take a look at how social media stocks have fared in general in the recent past.
Over the past year, Facebook, Inc. (NASDAQ:FB) has remained flat, Twitter Inc (NYSE:TWTR) is up about five percent, and Snap Inc (NYSE:SNAP)—the most recent major social media stock to go public—is down 35%.
Chart courtesy of StockCharts.com
Now, I was bearish on Snap Inc when its stock hit the market, and my apprehension proved correct; the stock has performed dismally ever since it went public. I’m very conscious of the pitfalls that lie in wait for social media stocks (which I’ll elaborate on below).
Having said that, there are quite a few things that separate PIN stock from SNAP stock. To understand the differences, let’s take a look at the numbers.
In 2018, Pinterest generated $756.0 million in revenue for a net loss of $63.0 million. This represented a 60% year-over-year growth. (Source: “Pinterest files to go public: Booked $756 million last year and claims more than 250 million monthly users,” CNBC, March 22, 2019.)
Pinterest recorded 265 million monthly active users (MAUs). That is below Facebook’s 2.3 billion MAUs and Twitter’s 321 million. But then again, both of them are far more mature companies. They are also both more “general interest” compared to Pinterest, so I would mark Pinterest’s numbers as strong, relative to the company’s size.
Pinterest says it saw “significant growth” in international MAUs over the past few years. The company attributed this growth to a “recent focus on localizing content in international markets,” and it expects that the growth in this segment will continue to outpace the growth in the U.S. in the near term. (Source: Ibid.)
That’s good news for Pinterest’s coffers: global average revenue per user (ARPU) for 2018 was $3.14, representing a 25% year-over-year increase. That number is dwarfed by those of larger players like Facebook, which saw an ARPU of $24.96 last year.
Still, the numbers are on the upswing; Pinterest’s ARPU in the U.S. hit $9.04, up 47% from 2017.
Another important note is that Pinterest is highly diversified in where it gets its revenue from; no customer accounted for more than 10% of its revenue in 2018. A large part of its revenue, however, derives from the consumer packaged goods and retail verticals.
Those are all solid numbers.
It’s also worth noting that the company is adaptable, with a major overhaul taking place last fall in order to bolster the company’s retail features. This move was made as other social media apps—like “Instagram”—have made more concentrated pushes into that space.
The overall picture, then, is that PIN stock has some solid numbers backing up its attempt to become a premier social media stock.
But as I mentioned earlier, there are a number of hurdles that the company will have to overcome before I’d be too bullish on Pinterest stock.
Social Media Stocks
While there is a lot of excitement surrounding the Pinterest IPO, social media stocks often face several obstacles when they hit the public market.
Direct competition, fickle support from consumers, heavy losses, difficulty attaining profitability, and difficulty in growing revenue are some of the key problems that social media stocks have to solve if they hope to be winners.
We can use Snap Inc as an example. One of the major difficulties that has plagued SNAP stock has been direct competition, namely Instagram. The social media company owned by Facebook was able to ape many of Snap’s features and draw huge swaths of users away from the company.
Targeting a younger user base that is often capricious to begin with, this led to Snap’s growth rate slowing, a death warrant for a company that had promised continuous growth when its stock first hit the market.
Couple the lack of growth with heavy losses, and that’s how Snap Inc ended up bleeding so heavily in its early days.
Pinterest, meanwhile, faces the same threats, but does have a few things going for it.
The first is that it is popular with mothers. About 80% of its total audience in the U.S. is made up of women aged 18–64 with children, according to an independent study by COMSCORE, Inc. (NASDAQ:SCOR).
Compared to the younger audiences generally sought out by social media apps, older users tend to be less fickle. That will go a long way toward warding off a mass exodus of its user base to competitors.
Pinterest’s S-1 filing said that “eight out of 10 moms” are on its platform, adding that they are “often the primary decision-makers when it comes to buying products and services for their household.”
While Pinterest acknowledged in its S-1 filing that it is concerned about failing to penetrate new demographics, the company is still making a strong impression on users in America, claiming that more than half of all U.S. millennials use Pinterest.
Furthermore, the filing said, “In the United States, more people use Pinterest to find or shop for products than on social networks, according to a survey by Cowen and Company.” (Source: Ibid.)
Instagram has recently announced a shopping feature, hoping to pull away at some of Pinterest’s user base, adding a little more risk to the stock.
And, as with most social media stocks, concerns over privacy have cropped up now and again. Facebook changed its login authentication process and Google is working on keeping user data safe, which could have an impact on Pinterest.
According to Pinterest’s S-1 filing, “[I]f Facebook or Google discontinue single sign-on or experience an outage, then we may lose and be unable to recover users previously using this function, and our user growth or engagement could decline.” (Source: Ibid.)
The company is also issuing Class A and Class B shares. Class B shares have a 20-1 vote ratio, similar to Lyft stock. This is often used to keep power in the hands of the creators when a tech startup goes public.
While not a horrible move, it is one that can concern investors, since it puts a lot of power in the hands of creators who may not always be willing to make the hard choices when it comes to business.
All things considered, we still have a very strong company that has the chance to see big gains in 2019, and I don’t think it’ll be as disastrous as Snap has been.
Snap IPO vs. Pinterest IPO
One of the true disappointments among major tech IPOs in the recent past, Snap has put a bitter taste in the mouth of many social media stock bulls. SNAP stock came out of the gate limping and has only seen losses since going public.
But I don’t think that Pinterest stock is similarly fated.
As mentioned above, there are a number of key differences that set the two companies apart. Most importantly, Pinterest is less directly threatened by other social media giants and has a more concentrated and loyal user base.
All the same, the risks are still there for PIN stock. But 2019 has so far been a great year for social media stocks in general, Snap included.
The following stock chart shows the performances of Snap stock (black line), Twitter stock (blue line), and Facebook stock (red line).
Chart courtesy of StockCharts.com
Of the three major social media stocks I’ve discussed today, all three have seen healthy gains year-to-date, and none more healthy than SNAP stock.
Snap shares have shot up by nearly 100% in the first three months of 2019. What this demonstrates is a returning appetite among investors for social media stocks—forgetting all the scandals and troubles that have surrounded the sector for the past few years.
With that in mind, Pinterest is picking the exact right time for PIN stock to go public, which can often be the biggest factor when looking at how well a stock will perform post-IPO.
The Pinterest IPO is happening at the right time and with a good amount of momentum. The company has strong numbers to back it up and a much more stable stream of revenue than other would-be social media giants have had.
While I wouldn’t go as far as labeling PIN stock a sure thing, I’m much more bullish about it than I have been about other social media stocks.
While I believe we’ll see healthy gains from Pinterest stock in 2019, there is still a lot of risk involved in a tech IPO such as this. Investors looking for a safer stock might want to look elsewhere.
But for those who don’t mind a bit of risk, the Pinterest IPO offers a lot to be excited about.