Benchmarking Pinterest’s S-1 IPO Filing
How does Pinterest’s S-1 filing compare to Facebook, Twitter, and Snap?
Pinterest officially filed its S-1 on Friday, accelerating its plans to make its public market debut. It is reported the company is looking to raise $1.5B which should be confirmed in the coming weeks, along with its valuation.
In the past, I’ve taken a look at how Snap Inc.’s IPO compared to that of Facebook and Twitter. With Pinterest as the last remaining “social network” of that era to go public, let’s see how it stacks up with its North American peer group.
If you’re considering buying Pinterest (NYSE: PINS) stock when it goes public, you might want to read this.
The Basics
First, let’s compare some basic metrics and see how the 4 stack up.
Show me the money
Looking at the financial metrics it’s clear that Facebook at the time of IPO was at a totally different scale compared to its peers. The year leading up to the IPO, Facebook made $1B in profit alone, whereas Snap, Twitter and Pinterest all generated losses.
With that in mind, let’s dive in…
Revenue
Pinterest generated $756M in revenue last year — more than Snap and Twitter combined for the year leading up to their IPO. Facebook on the other hand, generated $3.7B the year prior to IPO (~5x the amount Pinterest generated!)
Looking at quarterly revenues leading up to IPO, Facebook was in a whole different world.
Pinterest’s maturity at the time of IPO, shows in its revenue when we zoom in on Pinterest, Twitter and Snap
Pinterest’s quarterly revenue growth is faster than Facebook and Twitter, leading up to IPO. While Snap’s revenue grew 44% leading up to IPO — its “easier” to grow off of smaller numbers.
Gross Margins
Revenues are great, but how much does it cost you to generate $1 of revenue?
Pinterest has the healthy margins at 68% which is comparable to Twitter’s current gross margins, but lower than Facebook’s current margins of 83%.
Research and Development expenses as a % of Revenue
As tech companies that are always developing new and innovative features, it’s important to look at their spending behaviour in this category.
What if we look at it on a total dollar basis?
R&D expenses for Pinterest are in line with its peers. It is interesting to note that Pinterest’s R&D Expenses did not increase as much as its peers year-over-year (21%, compared to 169%, 49%, 124% for Facebook, Twitter and Snap respectively). This could be because of Pinterest’s maturity as a company compared to its peers at the time of IPO.
Sales & Marketing expenses as a % of Revenue
And on a total dollar basis?
Pinterest has continued to spend consistently on sales and marketing — 34% of its annual revenue. This is the highest spending in this category of its peer group. As costs to acquire customers increase across the internet with every company vying for consumers’ attention, Pinterest seems to have fallen victim to their own success.
General & Administrative expense as a % of Revenue
Total dollar basis
Pinterest’s maturity as a company shows through here, spending only 10% of its revenue on G&A compared to 41% and 19% for Snap and Twitter, respectively.
Net Profit (Loss) Margin
While Pinterest had an annual loss, the company did generate a quarterly profit in the last quarter leading up to its IPO. An encouraging sign for potential investors.
Interesting note here is that not only was Facebook profitable 2 years prior to their IPO, they had a 27% net profit margin the year prior to their IPO!
Similar to Snap’s S-1, Pinterest notes the following statement — one that seems to have become the norm rather than the exception:
We have incurred operating losses in the past, anticipate increasing our operating expenses, expect to incur operating losses in the future and may never achieve or maintain profitability.
Cash is king
Pinterest has a healthy cash balance that they will look to add to after the Company’s IPO.
What about growth and engagement metrics?
Above all else, growth drives valuations.
For social media companies that generate most of their revenues from selling ads on their respective platforms, engagement and usage are key! If users are not coming back to the platform on a regular cadence it’s hard to convince advertisers to promote their brands and companies on your platform.
DAU / MAU
Daily active users (DAU) represents the number of users that are accessing the platform on a daily basis. Unfortunately Twitter and Pinterest did not report DAU so for the purposes of this analysis, I’ve included their MAU(monthly active users) which are always higher than DAU.
All 4 platforms had similar quarterly user growth metrics leading up to their IPOs. It is impressive to note that while Pinterest has a much larger MAU compared to Twitter, it continues to grow at a similar pace to Twitter’s growth prior to IPO.
ARPU
Average revenue per user (ARPU) determines how effectively a social media platform is monetizing its total user base. In order for a social network to thrive, once it has amassed a large user base it must begin to find ways to generate revenues from that user base. Snap, Twitter and Facebook are all free to use for the end user — the ARPU calculates (on average) how much advertising revenue each user generates and thus the value each user brings to the platform.
Pinterest is generating 66% more per user than Twitter was leading up to its IPO. Note Facebook and Snap ARPU isn’t comparable as they report DAU which would result in a higher ARPU since DAU < MAU. That said, given Pinterest’s ARPU on a MAU basis is higher than Snap’s on a DAU basis shows that Pinterest is monetizing its platform better than both Twitter and Snap leading up to their IPO.
Valuation multiple
It is unknown what Pinterest’s valuation at IPO will be. IF WE ASSUME it will be ~$18B, a 50% bump from their 2017 valuation of $12B, here’s how it would compare against its peers on a Valuation / LTM Revenue basis:
At $18B, Pinterest would debut at 23.8x LTM Revenue, which is in line with Facebook at the time of IPO. For what it’s worth, Facebook currently trades at 8.6x, while Twitter trades at 8.4x and Snap at 11.8x— both considerably lower than Snap’s expected debut at 61.8x!
Some final thoughts
Pinterest is the last of the group of North American social media companies to go public.
Facebook debuted at $38/share, falling as low as $18/share, to climbing as high as $200+/share in 2018 before its struggles with user data and privacy. Since IPO, they’ve gone from generating 100% of their revenue from desktop web ads at the time of IPO to now generating 80%+ of their revenue from mobile — a significant accomplishment. They’ve been profitable before their IPO.
Twitter on the other hand, debuted at $26/share, climbing as high as $69/share to now trading modestly above its IPO price at at $33/share.
Snap has faced their own troubles as a public company. After debuting at $17/share, and climbing as high as $27/share, the stock currently trades around $11/share. Well below its IPO price per share.
As Pinterest sets to go public, in what appears to be a tech IPO wave (with the likes of Lyft, Uber, Zoom Video, Slack, PagerDuty and others) investors will have plenty of high growth tech stocks to choose from.
Only time will tell how Pinterest will be received in the public markets. Will it thrive like Facebook has or falter as a public company like Snap?
Shubham looks for disruptive commerce experiences to accelerate Shopify’s product roadmap and make commerce better for everyone through acquisitions. He has a B.Math from the University of Waterloo and is a CPA by training. You can find out more at www.shubhamdatta.com.
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