The best comparison for the Pinterest S1 is Facebook. I was attempting to compare Pinterest to the more recent IPO of Lyft but found the comparisons to be almost impossible to establish. Pinterest by far is in a better financial condition than Lyft. Not only does Pinterest have a smaller loss but it is also cash flow positive. This makes Facebook a better comparison for being in the same social media market.
Pinterest is a social media app and website that operates with a more visual photographic platform. The concept is that people share things they like and gains inspiration for decorations, food, and much more.
The above stats on Pinterest are about 1/10th of that of Facebook. Facebook has about $55 Billion in revenue and 2.3 Billion monthly users. When you look at the financial statements for Pinterest it shows that they have $755 Million in revenue and “over 250 million” monthly users.
Pinterest S1 the Market
Pinterest has been successfully competing with Facebook for eyeballs since its inception in 2009. Unlike most of Facebook’s competitors, Pinterest has been able to survive the social media wars. While the company has been successful there is still significant market opportunity available.
Pinterest has a large yet meager audience of 250 million monthly users compared to the potential 2 Billion plus possible users that Facebook keeps. While the total market opportunity for users is strong, the opportunity for ad dollars is even stronger. Currently Pinterest only generates about $3 per monthly user vs Facebook’s $24.
On the Pinterest S1 P&L statement you can see that Pinterest is not in financial distress. This is good for investors because it limits the likely hood that there will be an additional share offering in the future. They only lost $62 million in 2018. While it is a lot of money it is in far better financial condition than Lyft or Uber.
If you look at the expense lines you can clearly see that if Pinterest wanted to be profitable they could be. They are investing in growth. They have a gross margin of 68%. This is a very healthy margin for a business as competitive as social media. Also, they are good at managing research and development and selling, general and administrative expenses. If Pinterest wanted to be profitable, all they would have to do is cut back on either or both of these lines.
There is little reason for Pinterest to cut expenses. Pinterest, a cash flow positive company is investing in growth that will ultimately lead to a more valuable asset in the long term. They generated $51 Million in cash in 2018. This is a surprising number considering that most social media companies do not have positive cash flow when they come public. The reduced risk of having future dilution and debt problems should lead to a higher valuation.
Pinterest vs Facebook Valuation
My method of valuation is to compare the cash flow of Facebook and what is said in the Pinterest S1. Facebook has a current market cap of $501 Billion and generated $1.9 Billion in cash. This gives Facebook a current cash flow multiple of 263. Pinterest’s last private transaction was $12 Billion and company generated $51 Million last year and when we apply that to Pinterest we get a current market price of about $13.4 Billion.
I do not believe that the $13.4 Billion will be the IPO price. Pinterest has solid cash flow and P&L statements and a greater growth rate ahead. Pinterest has a larger gross margin than Facebook , the gross margin of Pinterest is 68% vs Facebook’s 44%. The larger gross margin could lead to a more profitable company in the future.
I believe that Pinterest has less political risk than Facebook. Pinterest is far less conversational and already manages controversial topics with its search feature.
I believe that Pinterest will IPO between $20 and $25 Billion and open in the neighborhood of $26 to $30 Billion. I do not know the share price that it will be since the Pinterest S1 does not list the fully diluted share count.
Giving a valuation of $26 Billion gives Pinterest double the cash flow valuation of Facebook but also represents; the lower risk, the larger margin, and greater future growth prospects.
Check out the Uber S1 Review