Pinterest - future of search will be pictures

Summary

• Pinterest is founder led company with strong growth potential in coming years.

• It has a unique proposition to make a very compelling pitch to advertisers. Long run way for monetization and user growth.

• Partnership with Shopify is unique and interesting, company is finding more avenues to increase monthly active users.

• Richly priced now, however still strong buy from current level, given huge growth in monthly active users and average revenue per user.

Qualitative

• Mission - to bring everyone the inspiration to create a life they love. Pinterest is the productivity tool for planning one’s dream to reality. Visualizing the future helps bring it to life.

• Pinterest is founder led company. Co-founded by Ben Silbermann, Paul Sciarra, and Evan Sharp is 2009 and the first beta was released in 2010. Co-founder Ben Silbermann has been serving as CEO of the company since its incorporation.

• Company operates in a crowded social media industry where it competes with e-commerce companies such as Amazon as well as social media companies including Facebook, Instagram, Google, etc. While other social networking platforms are primarily focused on connecting friends and families, Pinterest focuses on connecting user with the content of their interests.

• Pinterest is used by 459mn people (called Pinners) around the world to discover ideas about anything one can imagine, the visual recommendations are called Pins. One can save & organize recommendations into collections, called boards.

• Monetization - value proposition for Advertisers

  • Billions of searches happen on Pinterest every month. Commercial content from brands, retailers and advertisers is central to Pinterest. This means that relevant ads don’t compete with native content on Pinterest; instead, they are content. The mutually beneficial alignment between advertisers and Pinners differentiates Pinterest from other platforms where ads (even relevant ads) can be distracting or annoying. Pinterest is in the early stages of building an advertising product suite that fully taps the value of this alignment between Pinners and advertisers.

• Pinterest is where people turn inspiration into action, as Pinners plan, save, and find things to buy that inspire them to create a life they love. Pinterest is building a place to shop online—not just a place to find things to buy.

• Advertising System - All advertisers on Pinterest buy ads through an auction-based system. Also, ad targeting (as user’s area of interest are revealed through pinboards) helps businesses reach the millions of people who come to Pinterest to find or shop for products and services. Measuring the effectiveness of digital spend is a high priority for advertisers.

• Pinterest and Shopify partnership - Pinterest has launched a new Shopify channel to make it easier for merchants to attract new customers and grow sales.

  • The new channel allows merchants to seamlessly turn existing products from their store into “Product Pins” on Pinterest, as well as add a shop tab to their profile on Pinterest, for free organic promotion. Shopify merchants can also promote their pins as a paid ad, bringing customers directly into their brand’s online store for purchase. The Pinterest channel adds to the growing list of tools already available within Shopify Marketing, making it easy for merchants to manage all of their marketing in one place within Shopify.

Quantitative

• Overview of 2020 results - Revenue was $1.69bn (+48% vs 2019). Monthly active users were 459mn (+37% vs 2019). Net loss was $(128.3)mn. Cash & cash equivalents were $1.76bn. Fig1.

• For 2020, global ARPU was $4.26 (+12% vs 20219). U.S. ARPU was $15.34 and international ARPU was $0.88, which represent increases of 27% and 62%, respectively, compared to the year ended December 31, 2019.

• Pinterest calls out that they are in the early stages of monetization efforts, as company is expanding sales efforts to reach advertisers in additional international markets, with an initial focus on Western Europe and other select markets to follow.

• TAM (total addressable market) - its TAM comprised of global digital advertisement spend. As per emarketer, global digital ad spending stood at $325bn in 2019 and is expected to reach $526bn by 2024, CAGR 10%. Google, Amazon, and Facebook continue to enjoy major share of the ad spending, Pinterest has the potential to grow its share. Fig.2

• Comparing to Facebook ARPU of $32.03/MAU in 2020; Facebook's ARPU is likely to grow over the coming years as the overall digital advertising market grows. Pinterest is monetizing its users at $4.26/MAU, with 459mn MAU (monthly active users), and assuming it reaches to 700mn MAU by 2030 (very conservative estimate) and $20/MAU in ARPU (reason being US ARPU is ~$15 already in 2020 & Pinterest is focusing on increasing its international ARPU), this will result into annual revenue of $14bn (this is 8.3x revenue growth as compared to 2020).
  As of Feb 2021, P/S ratio of Facebook is 9x, Google is 8.4x, Snapchat is 37x, Pinterest is 34.5x. With staggering growth in revenue, taking Pinterest P/S as 25x in 2030, this results in market cap of $350bn (which is ~7x from current market cap of $50.66bn).

Fig.1

Fig.2