• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Technology

Pinterest's IPO Filing Features More Positives Than Negatives - Tech Check

The company is still seeing strong revenue growth, and its cost structure gives it a clear path to profitability.
By ERIC JHONSA
Mar 25, 2019 | 01:10 PM EDT
Stocks quotes in this article: FB, GOOGL, TWTR, SNAP

Back in December, I argued that Pinterest looked well-positioned to achieve the $12 billion-plus IPO valuation it was reported to be seeking. On the whole, the image-sharing platform's S-1 filing, which arrived on Friday, does more to support that view than to call it into question.

Here's a look at positive disclosures found within Pinterest's S-1.

  1. Revenue growth remains strong -- Pinterest's revenue rose 60% in 2018 to $755.9 million. And in seasonally strong Q4, revenue was up 58% annually to $273.2 million.
  2. Revenue still has a lot of room to grow, particularly overseas -- Though nearly 70% of Pinterest's monthly active users (MAUs) are now located outside of the U.S., the company produced only $17 million in international revenue in Q4. And even in the U.S, the company's Q4 average revenue per monthly active user (ARPU) was a modest $3.16. For comparison, Facebook (FB) produced $34.09 in ad revenue per North American MAU in Q4. Though it's unrealistic to expect Pinterest's U.S. ARPU to ever match Facebook's, given differences in things like advertising scale and time spent per user, getting even a third of the way there would be huge.
  3. International MAUs are still growing strongly -- Pinterest's total MAUs rose 23% annually in Q4 to 265 million. Driving most of this growth: International MAUs rose 32% to 184 million.
  4. Cloud hosting expenses are reasonable -- Though Pinterest is still in the relatively early stages of monetizing its platform and relies on Amazon Web Services (AWS) rather than its own servers to host its platform, the company's cost of revenue was only equal to 32% of revenue in 2018, down from 38% in 2017. For comparison, Snap (SNAP) , which also relies on cloud infrastructure providers and has to handle a lot more video content than Pinterest, saw its cost of revenue equal 67% of revenue in 2018.
  5. There's a clear path to profitability -- Pinterest posted a GAAP net loss of $63 million in 2018, down from $130 million in 2017. And with the help of seasonal strength, the company reported a $47 million net profit for Q4. Assuming Pinterest can keep delivering healthy revenue growth, it should be able to report annual profits soon.
  6. Pinterest's search and e-commerce exposure work in its favor -- As Alphabet/Google (GOOGL) will vouch, search remains unmatched when it comes to delivering ads related to what someone is interested in buying at a particular moment. And Pinterest disclosed in its S-1 that it's now seeing over 2 billion monthly searches. The company also noted that 97% of its 1,000 most popular searches are unbranded, which potentially makes them appealing to brand advertisers looking to reach consumers who are undecided about which firm's products to buy. Separately, a recent Cowen survey found that 48% of U.S. Pinterest users said they use Pinterest to find and shop for products; that compares with just 14% for Facebook proper, 10% for Instagram and 7% for Twitter (TWTR) .

There were admittedly a few things shared within Pinterest's S-1 that are worthy of concern. Specifically:

  1. U.S. MAU growth has slowed -- U.S. MAUs were up by only 6 million annually in Q4 to 82 million. Unless Pinterest, which says that two-thirds of its global MAUs are female, figures out how to appeal to a larger base of U.S. consumers, most of its future U.S. revenue growth will be driven by better monetizing its existing users rather than winning over new ones.
  2. No daily active user (DAU) figure was shared -- Pinterest declines to share how many DAUs it has; the most it will do is say that 57% of MAUs visited Pinterest on a weekly basis as of the end of 2018. Moreover, the company says it doesn't anticipate "that most of our users will become daily active users."
  3. Sales and marketing spend is still growing rapidly -- Pinterest's sales and marketing spend rose 60% in 2018 to $259.9 million, leading it to equal 34% of revenue for the second year in a row in spite of strong revenue growth. And with the company having barely begun to flesh out its international ad business, it wouldn't be surprising to see sales and marketing spend continue growing rapidly in the near-term.

Overall, however, the positives clearly outweigh the negatives here. Given Pinterest's revenue growth, MAU growth, cost structure and long-term monetization potential, the company shouldn't have much trouble getting an IPO valuation above $12 billion. And if Pinterest doesn't immediately begin trading at sky-high multiples on its first day, its stock could represent an intriguing play on the growth of online advertising, social sharing and e-commerce.

To see Tech Check coverage from the previous trading day, click here.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: IPOs | Investing | Technology

More from Technology

Solar Firm Sunrun Continues to Run on the Upside

Bruce Kamich
Aug 8, 2022 1:24 PM EDT

Here's what the longer-term picture looks like.

CRISPR Therapeutics' Base Can Support Further Price Gains

Bruce Kamich
Aug 8, 2022 10:58 AM EDT

Let's look at the charts and indicators.

Palantir May Have Its Problems, But Here's a Reason to Like It Longer-Term

Stephen Guilfoyle
Aug 8, 2022 10:30 AM EDT

We know the federal government will be a buyer, as will the private sector, but there are challenges in this environment.

4 Positives for Tech Stocks Right Now...and 4 Reasons to Be Cautious

Eric Jhonsa
Aug 8, 2022 9:30 AM EDT

While earnings season and lower commodity prices have cheered tech investors, the Fed's stance and recent speculative behavior provide reasons for concern.

Momentum Technology Traders Have a Big Day Ahead This Week

Bob Byrne
Aug 8, 2022 8:30 AM EDT

Traders should be aware that there are a number of favorite tech plays that will be reporting results after Tuesday's close.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:24 AM EDT PETER TCHIR

    Jobs Report Reaction: Incredibly Strong, But Questions to Ask

    An incredibly strong July jobs report. Not only d...
  • 08:54 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The Secret to Dealing With FOMO
  • 03:51 PM EDT REAL MONEY

    AMD Second-Quarter Earnings Live Blog

    Real Money's Eric Jhonsa covers 's second-quarte...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login