Pinterest IPO Already Garnering Concerns

Jon C. Ogg

This week is set to bring the highly anticipated Pinterest initial public offering. There are already some concerns that the valuation may be coming too rich for some investors, and there are some reasons that have to be considered by any individual or institutions which invest in IPOs.

Pinterest was valued at roughly $12 billion as a private company at the last look, and the IPO is projected to raise more than $1 billion in new funds.

24/7 Wall St. has provided several key issues that investors of all walks will want to consider. Pinterest will trade under the PINS stock ticker on the New York Stock Exchange.

Its audience is more than 250 million people, mostly female users, around the world who use Pinterest for inspiration for their lives. These are ideas for daily activities, cooking, what to wear, remodeling a house, exercise, hobbies and passions, and for planning a wedding or for ideas in setting up a vacation.

Pinterest described the total market size using IDC data in its filings. It sees the global advertising market is projected to grow to $826 billion in 2022 from $693 billion in 2018. The digital advertising market alone is projected to grow to $423 billion in 2022 from $272 billion in 2018. The U.S. digital advertising market is projected to grow to $166 billion in 2022 from $104 billion in 2018.

The company intends to use the net proceeds from this offering for general corporate purposes, including working capital and operating expenses.

Full-year 2018 revenue jumped by about 60% to $755.9 million on an entirely ad-supported model, up from $472.8 million in 2017. Its 2018 losses were cut in half, with reported a net loss of $63 million (versus prior year’s $130 million loss.

The mid-point of the $15 to $17 price range is already valuing the company at higher revenue multiples than that of its peers. One thing that may help Pinterest garner interest is that Jumia, being touted as the Amazon/Alibaba of Africa, saw its shares soar despite no earnings at all and after accumulating nearly $1 billion in total losses since its 2012 inception. That said, the Lyft valuation has cratered since its recent IPO.

While companies and influencers have taken advantage of Pinterest’s opportunities as a means to captivate hobbyists and grow their own customer bases, the company’s recent “Buy” button to purchase goods from other companies through the Pinterest site does not give a cut back to the company (yet).

Pinterest’s underwriters include Goldman Sachs, JPMorgan, Allen, Merrill Lynch, Barclays, Citigroup, Credit Suisse, Deutsche Bank, RBC Capital Markets, Baird, UBS Investment Bank and Wells Fargo.

Analysts already mixed ahead of the offering: Pinterest was initiated in pre-IPO coverage with a Neutral rating at D.A. Davidson on April 15. Pinterest was given new coverage by Atlantic Equities with an Outperform rating on April 10.

Pinterest has locked in high costs after it amended its agreement with Amazon in 2018 (AWS) and will purchase at least $750 million in cloud services through July of 2023.

There is also a dual-class of shares. Pinterest insiders will get 20 votes per share versus the typical common holders with about 99% of the votes.

More details will be shown ahead of the formal IPO date. Stay tuned.