Pinterest, Worth Buying?

Founded in March 2010 by Ben Silbermann, Evan Sharp and Paul Sciarra, Pinterest has grown to become what it describes as “the world’s catalog of ideas.” As of June 2021, the platform had over 454 million users worldwide, with total revenue of just over $613 million for the second quarter of 2021.

It is headquartered in San Francisco, California, with offices in Atlanta, New York, Chicago, Los Angeles, Paris, London, Berlin, Sao Paulo and Tokyo
It is also available in over 30 different languages
Every month, users on Pinterest conduct over 2 billion searches
So far, there are over 200 billion pins saved on Pinterest

VISUAL SEARCH ENGINE

Pinterest could be described as a visual search engine for inspiration and ideas that allow creators, entrepreneurs and businesses to promote their ideas, brand and products by posting compelling and attractive images.

The platform is defined by specific features that include:

Website bookmarking: allows users to come up with a themed collection of videos and images while also being able to browse those of others
Visual search: users can easily and conveniently look up specific items within an image. Pinterest also shows them similar pieces and items, making it even possible to add to cart from a third-party retailer without ever leaving the app
Web visual search: visual search is not just limited to the mobile phone app. With a Pinterest browser extension, users can also conduct visual searches on any web page they could be on. Pinterest will then show similar items, which users can buy
Filters: with so much information being shared on Pinterest and the web, filters are proving more useful than ever. With Pinterest filters, users can narrow down their searches and this is particularly useful in Pinterest recipes
Secret boards: with Pinterest, boards can remain a secret, meaning that they become hidden from everyone else unless shared. This is useful when planning weddings or surprise parties
Group boards: in addition to secret boards, Pinterest also has group boards that allow users to collaborate. It is a useful feature when planning vacations, events, or even planning to remodel a home

CUSTOMER'S DELIGHT

Pinterest has made a name for itself as the go-to app for inspiration and ideas. It has managed to amass a wide audience, mainly because of its user interface, user experience and how useful it is for influencers and entrepreneurs to not only drive traffic to their websites, but also grow sales while at it.

Pros

Pinterest appeals to a broader audience and a larger demographic because of its user interface (UI) and overall user experience (UX). It has been lauded for how easy it is to use, even for someone who is not as familiar with apps or tech in general. Additionally, users have praised it for making shopping easy and more convenient
For creators and businesses, Pinterest helps to drive traffic to their projects, leading to more conversions. Many have noted getting a spike in viewership of their content and having a platform on which they can draw inspiration from other creators and businesses

Cons

On the downside, however, Pinterest has been called out for its lack of accountability. Some customers have reported purchasing items through Pinterest and never getting them delivered. Others have also reported Pinterest sending spam emails and the inability to unsubscribe from them. There have also been reports of customers getting falsely billed and unable to stop the charges despite reaching out to customer care

E-COMMERCE VENTURES

Pinterest, having noted the growing demand for e-commerce and seeing a rise in traffic, particularly during the pandemic, sought to introduce several features that appealed to users. These included:

The verified merchant feature: this is more of a program that allows brand profiles to be verified, assuring quality and transparency for Pinterest users. This, would be built on and would be complemented by other e-commerce features added to the platform as highlighted below
Shop from boards: this is a “shop” option that offers buyable product recommendations based on the pins that one has in their collection. Pinterest reckoned that it could be a great way to encourage more purchase behavior in-app, while extending the users established interests to showcase more relevant products
Shop from search: this includes the addition of a shop tab in the search results, making it easier to shop in-stock products when conducting searches on the platform
Shop from pins: Pinterest added a new “shop similar” button in visual search results, making it easier to dial in a search onto immediately available products when seeking inspiration based on Pin content
Style guides: this option is designed to help users to explore thematic styles, which are useful in narrowing in on their preferences, finding relevant items and choosing a specific style
Complete look: this feature is designed to help users identify relevant product matches. It takes into consideration the products that users have searched for and provides related recommendations, based on relative trends among other factors
Affiliate marketing: this feature ties into shopping from pins. Creators can now embed their pins with affiliate links, allowing them to make money from purchases made through that link. This will not only be helpful to creators, but also businesses, allowing the latter to increase their sales

COMPETITIVE MARKET

Pinterest is competing against industry giants such as Instagram, Snap and Twitter. Here is a further breakdown of these competitors:

Instagram

Total revenue in the last quarter of 2020 was $6.8 billion, up from $4.6 billion during the same period in 2019
As of February 2021, there were over 1.1 billion users on the platform
15.7% of global active Instagram users are women between the ages of 25 and 34 years, while 16.4% of overall users are men within the same age group
India has the highest population of Instagram users, followed by the United States and Brazil
The average person spends 53 minutes on Instagram in a day
Currently, Instagram’s revenue per active user stands at $12.86

Twitter

Total revenue in 2020 was $3.72 billion
In 2021, the platform has over 199 million monetizable daily active users, with the majority of them coming from the United States
38.5% of Twitter users are between the ages of 25 and 34, with males making up 68.1% of the overall usership of the application
The United States leads in terms of the number Twitter of users, followed by Japan and India
Twitter is currently the 6^th-ranked mobile application, with over 500 million tweets sent per day
Every day, at least 460,000 new accounts are created globally
It is projected that by the end of 2021, Twitter’s revenue per international user will be $12.8. It is expected to increase to $13.3 in 2022

Snap

Total revenue in 2020 was $2.51 billion
The total number of daily active users as of Q1 2021 was 293 million
54% of Snap users are women, while 41.9% are men
48% of all international users on snap are aged between 15 and 25 years
The United States leads in terms of its Snapchat audience size at 105.25 million, followed by India at 99.8 million and France at 23.4 million
The average user spends 49.5 minutes on Snapchat in a day
As of Q1 2021, Snap’s average revenue per user was $3.35

THE MARKET

Pinterest is currently valued at $34 billion, having gone public back in 2019. The company mainly makes money from advertising (e.g. promoted pins). This places it within the social media advertising industry, which, as of 2020, was valued at $85.2 billion. Here is a further breakdown of the industry:

In 2020, the global social media advertising industry was valued at $85.2 billion.

It is estimated that by 2027, this industry will have grown to $248.2 billion, representing a CAGR of 16.5% over the forecast period (2020-2027)
This growth will be fueled by the growing adoption of social media, the improving access to the internet and the overall proliferation of e-commerce
The Chinese market will post the highest growth at a CAGR of 21.1% over the forecast period, followed by the United States, Canada, Germany and Japan
By the end of 2021, it is projected that ad spending within the social media advertising industry will reach $153.7 billion
This ad spend is expected to grow at a CAGR of 10.55% for the forecast period (2021-2025), resulting in a market volume of $229.6 billion by 2025
It is projected that most of the ad spending will be generated within the United States

TIER-1 MANAGEMENT

Pinterest is led by Ben Silbermann, the company's co-founder and Chief Executive Officer (CEO). Silbermann also serves as the chairman of the board of directors and prior to starting Pinterest, he served as the Product Specialist at Google and a Consultant at CEB (now Gartner). Holds a Bachelor of Arts degree from Yale University.

Ben Silbermann

Co-founder and CEO of Pinterest
Also serves as the chairman of the company’s board of directors
Previously worked as a Consultant at CEB (now Gartner) and a Product Specialist at Google
Holds a Bachelor of Arts degree from Yale University

Evan Sharp

Co-founder, Chief Design and Creative Officer at Pinterest
Previously worked as a product designer at Facebook before joining Pinterest
Studied Architecture at Columbia University and holds a Bachelor of Arts degree in history from the University of Chicago

Todd Morgenfeld

Chief Financial Officer (CFO) at Pinterest
Also serves as a member of the Board of Directors at Urban Outfitters
Previously served as an Associate at Goldman Sachs, Director at Silver Lake Partners, Senior Vice President, Treasury, Financial Analytics and Corporate Development at Hewlett-Packard and Vice President, Finance at Twitter
Holds a Master’s degree in Business Administration from the Stanford Graduate School of Business and a Bachelor of Science degree from the United States Military Academy at West Point

RED FLAGS

The 2020 pandemic saw an upsurge in Pinterest uptake since most people spent more time indoors and on the internet than before. However, with the world opening back up, consumers are now spending less time online, which is reflected in the reducing number of monthly Pinterest users. As of July 2021, for instance, the platform has lost over 24 million users in just three months.

The surge in usage saw a spike in Pinterest’s value. As such, investing in the company may offer limited upside. However, the company still has a strong track record and could make for an interesting buy in a few months.

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

Founded in March 2010 by Ben Silbermann, Evan Sharp and Paul Sciarra, Pinterest has grown to become what it describes as “the world’s catalog of ideas.” As of June 2021, the platform had over 454 million users worldwide, with total revenue of just over $613 million for the second quarter of the 2021 fiscal year
Pinterest could be described as a visual search engine for inspiration and ideas that allow entrepreneurs and businesses to promote their brand and products by posting compelling and attractive images
Pinterest, having noted the growing demand for e-commerce and seeing a rise in traffic, particularly during the pandemic, sought to introduce several features that appealed to users
Pinterest is currently valued at $34 billion, having gone public back in 2019. The company mainly makes money from advertising. This places it within the social media advertising industry, which, as of 2020, was valued at $85.2 billion
Pinterest is led by Ben Silbermann, the company's co-founder and Chief Executive Officer (CEO). Silbermann also serves as the chairman of the board of directors and prior to starting Pinterest, he served as the Product Specialist at Google and a Consultant at CEB (now Gartner)

FINANCIAL CHECK

Pinterest posted total revenue of $613.2 million in the second quarter of 2021, up from $272.5 during the same period in 2020, representing a 125% year-over-year growth
Net income for this second quarter totaled $69.4 million, up from a $100 million loss during the same period in 2020
Non-GAAP net income for Q2 2021 was $169.9 million, up from a $38.4 million loss during the same period in 2020
Total assets for Q2 2021 were $2.88 billion, up from $2.61 billion as of December 31^st, 2020
Total liabilities, on the other hand, were $381.7 million, up from $367.1 million as of December 31, 2020
Total revenue for the entire 2020 fiscal year was $1.69 billion, up from $1.14 billion in 2019
Net loss for the whole of 2020 totaled $128.3 million, down from $1.4 billion in 2019
Total assets for the 2020 fiscal year were $1.76 billion, up from $1.71 billion in 2019
Total liabilities for the 2020 fiscal year were $367.1 million, down from $369.6 million in 2019

THE BOTTOM LINE

The Good

Pinterest is a social media company that gained in popularity and was discovered by many during the pandemic as it helps creators, entrepreneurs and businesses showcase their ideas and products
Throughout the pandemic, the company managed to grow its sales by growing its MAUs from 367m to 478m for the three months ended March 2021 all while international revenue per user grew from $ 0.13 to $ 0.26 on average

The Bad

The company is currently trading in the upper echelon of its historical range
In its Q2, 2021 earnings, the company pointed to a decrease in active users in the U.S. and globally from 478m to 454m

THE STAKE

We have do not have a position in Pinterest. Pinterest is a fast growing social media company that gained a substantial following during the pandemic. It is now richly valued and may be facing a decrease in active users for the months to come as users spend more time offline.

We will buy if it manages to sustain its sales growth over the next year while expanding its average revenue per user (ARPU) in the U.S. and globally
We will stop considering if MAU count falls or if it fails to expand its ARPU globally

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Souvik Banerjee on Unsplash.