Author Topic: PINS - Pinterest  (Read 1478 times)

Broeb22

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PINS - Pinterest
« on: April 08, 2019, 08:32:12 AM »
At the risk of being thrown off the board for discussing an IPO, what are current views on Pinterest's business and attractiveness as an ad platform?

Given how visual the content is, I would think Pinterest would be able to embed advertisements for products fairly easily. Some have said the site has had difficulty attracting video content, which can extend people's viewing and time spent on Pinterest. Not sure how to confirm.

The audience has a reputation for skewing female, which is not a huge issue in my opinion. I would be more than happy if Pinterest only captured the attention of most of the women on the planet (and some men).

Valuation-wise, the business seems priced in line with other larger social media platforms on a P/S basis. The company is also less unprofitable (?) than TWTR was when it came public at similar revenue levels. Twitter did run significantly higher losses once it went public than when it was private. Between TWTR at a 15% operating margin (though margins are rapidly increasing) and FB at 45% (but decreasing over the next few years), long-term margins are likely sustainable at 20-30%. I assume FB is able to earn higher margins than comps by virtue of its greater network effects and the resulting benefits to user growth and pricing.

Based on 25% revenue 5-year CAGR (starting from 2019 revenue of $1.05 billion), terminal NOPAT multiple of 30x, 25% operating margins, 25% tax rate, 700 S/O (assumes some dilution), and no cash generation for the next 5 years yields a business worth about $26 five years from now.     

I think most of these assumptions are conservative with the exception of the terminal multiple, which is stretching a bit if you view FB's multiple as the more appropriate comp, even adjusting for lower FB margins.


fuzzhead1506

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Re: PINS - Pinterest
« Reply #1 on: April 09, 2019, 03:04:11 PM »
None of those assumptions seem to far-fetched to me considering the high advertising ROI on the platform, but I would think waiting for the lock-up on its' shares to expire before thinking about the purchase to get a gauge on sentiment.  If it trades up to $80 from it's projected $15 IPO price then it is almost certainly not a company you'd want to own for 5 years anyway given the fickle-ness of that type of investor.  If it remains close to your estimate then there is a good chance it does the 20%/annum that you are projecting with those numbers.  If it trades down dilution will be the major overhang until profitability (see SNAP and TWTR).  Sentiment is such a big driver of IPOs and I don't envision this one being too much different. 

Never mind that the advertising market will also be fickle over the next 5 years and will probably only spend where they see good ROI and if PINS isn't able to maintain or grow their metrics then they'll just go back to FB or GOOG or AMZN. 

I tend to believe that a lot of these "disrupt-er", negative earnings type of stocks will be able to hit/overshoot their ambitious targets as long as they attract good employees and Pinterest does a good job of that right now (see Glassdoor.com).  But I also don't believe they are going to have the same growth levers at year 5 that are available to the giants in year 5 which would weigh on your exit multiple.  I also believe that valuation compression is destined to happen over the next 5 years as the fed raises rates to a more reasonable 4ish%.  Perhaps a safer assumption is a NOPAT multiple of 20 putting it at a $21-$22 on exit with the rest of your assumptions... that would be ~7-8ish% returns.  It would seem to me this one would be good for a covered call/call spread type of ownership based on the likely IPO price being thrown about if you want to get in earlier than the lock-up expiration.  ¯\_(ツ)_/¯

K2SO

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Re: PINS - Pinterest
« Reply #2 on: April 10, 2019, 06:37:24 AM »
I think the big problem with Pinterest is that, anecdotally, Instagram is eating their lunch.
I haven't done any research or analysis on this point, but I have talked to women who used Pinterest in the past who spend a lot less time on there today, having migrated over to Instagram.
I also have a hunch that their user base probably skews older and will decline over time.

SHDL

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Re: PINS - Pinterest
« Reply #3 on: April 10, 2019, 11:22:20 AM »
An interesting piece about the company’s culture:

https://www.cnbc.com/2019/04/10/pinterest-overly-nice-culture-has-hurt-growth-ex-employees-say.html

I personally see this as a negative for their long term prospects, but others may feel differently.

Broeb22

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Re: PINS - Pinterest
« Reply #4 on: April 10, 2019, 11:40:45 AM »
An interesting piece about the company’s culture:

https://www.cnbc.com/2019/04/10/pinterest-overly-nice-culture-has-hurt-growth-ex-employees-say.html

I personally see this as a negative for their long term prospects, but others may feel differently.

I think this is a good point and worth keeping in mind.

I was thinking the other day, how would Pinterest respond to the threat of Snapchat? Would they clone them and crush them like FB did or take too long making a decision and allow competitors to take some of their turf. I worry what Pinterest's competitive response would be.

I still am interested in the business but I agree their slowness is a red flag.

With that said, my girlfriend is a heavy user of both Instagram and Pinterest. She uses Pinterest more for ideas for her job, which is in design. In speaking with her sister, who is a few years younger, she almost never uses Pinterest and greatly prefers Instagram. Take it with a grain of salt, but I'd be interested to hear others' opinions on the target demographic.

Spekulatius

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Re: PINS - Pinterest
« Reply #5 on: April 10, 2019, 08:04:58 PM »
PINS seems pretty mediocre to me. Also note the last private round only raised $150M at a ~$12B valuation, so maybe that round was just done to get a high valuation mark?
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Broeb22

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Re: PINS - Pinterest
« Reply #6 on: April 11, 2019, 05:56:20 AM »
PINS seems pretty mediocre to me. Also note the last private round only raised $150M at a ~$12B valuation, so maybe that round was just done to get a high valuation mark?

Can you elaborate? The company is growing at a very fast rate for any business with $750 million in revenue, and has not really monetized a significant portion of its user base. I laid out a decent bullish argument (which I'm not 100% sure of). I'd love to hear why Pinterest is absolutely not worth $16 per share.

It may be the case that Pinterest only raised $150 million to get a high valuation. They would not be the first or last VC-backed company to do so.

The other side of that coin is that they have not needed to raise funding since they raised capital nearly 2 years ago, which is actually kind of a good thing right? I'm not arguing that Pinterest is going to join the FANGs or anything, but what could it be? A second-tier social media platform in a sub-industry with high levels of profitability at scale, and high incremental profitability with minimal additional capital required to grow? 

K2SO

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Re: PINS - Pinterest
« Reply #7 on: April 11, 2019, 11:08:15 AM »
Bullish view on the business (from a male user):
https://www.330ramp.com/blog/2019/4/11/do-you-even-pin-bro

Spekulatius

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Re: PINS - Pinterest
« Reply #8 on: April 11, 2019, 03:56:34 PM »
Bullish view on the business (from a male user):
https://www.330ramp.com/blog/2019/4/11/do-you-even-pin-bro

Not so bullish here. I opened an account to research this and was kicked out. This happened when i clicked on a topic (“Glammy babes” - 133k followers  and looked really promising ) and was immediately suspended due to violating the spam policy. I guess I know now why the audience screws female. I kind of liked the format and it should be easy to monetize, but I am done mucking around with this. RIP.
« Last Edit: April 11, 2019, 04:03:31 PM by Spekulatius »
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CorpRaider

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Re: PINS - Pinterest
« Reply #9 on: April 11, 2019, 04:00:23 PM »
I'm more intrigued by LYFT, UBER and Air BnB.  Mostly the last one, depending on valuation of course.