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Pinterest Inc. is seeking to offer 75 million shares priced from $15 to $17 each, below the private valuation from 2017.
2019 Expected IPO’s
2019 started slowly in terms of tech IPO’s with a U.S. government shut down to blame in early 2019 getting regulatory approval was not possible. When the government resumed, there was much speculation that soon three major IPO’s would take place soon: Lyft, Uber and Pinterest. Lyft had a successful IPO, then a tough first week of trading, with the value falling below offering price and still has not climbed its way back.
Pinterest with their IPO will have to consider the lessons from Lyft Inc. (NASDAQ:LYFT) and not price their shares too high off the start, typically initial investors see at least a double-digit percentage return from an IPO when the listing happens, which was not the case with Lyft. The pricing for Pinterest seems very conservative in comparison, not only to Lyft but to their own previous estimated value. Blomberg reported that in their SEC filing Pinterest is expecting to price shares between $15 and $17 per share offering 75 million Class A common shares, the remaining 454,416,718 Class B common stock are held by current shareholders. This brings the value of the company to roughly $9 billion; however, prices can change before the IPO as was the case with Lyft raising the price with an amendment in their filing to the SEC days before their IPO.
An interesting note is that Pinterest in their last round of private funding in 2017 was valued at roughly $12 billion, and since then their finances have only improved, with lower net losses and revenue growth of 60%. The biggest question for Pinterest is when they will be profitable, as was the main question with Lyft. This quarter Pinterest is expected to lose $55 million in their operations but admits they are in the early stages of monetization in their platform, so they anticipate making adjustments over time that attract more advertisers and “Pinners” (regular Pinterest users).
Future of Pinterest
While the company will use the money raised from the IPO to pay shareholders and ensure capital is available, they haven’t identified many growth opportunities. They hold a very strong domestic audience in the United States and have roughly 250 million monthly users. Their international growth strategy is simply one line in their SEC filing “make Pinterest more accessible to users around the world by localizing the product and content experience”. They plan on partnering with brands retailers and content creators, but to outside investors, it could be a tough sell as Pinterest themselves even note they need to have “useful and relevant to Pinners’ personal taste and interests". It will be interesting to see if Pinterest can turn a profit in their first few years being public, or risk turning into Snap Inc. (NYSE:SNAP) which continues to gain users but lose money.
The excitement around tech IPO's was building for months; it will be interesting to see how Pinterest and more importantly Uber's IPOs fare. Investors might not get the same immediate return they are looking for, or companies may have to price their shares below expectation initially to be able to generate the same enthusiasm as before. Three unicorn IPOs over two months is a lot of volume and a good indicator of investors' view on the tech industry pricing as a whole. The Lyft IPO may have given more insight into the year than expected, we'll know more next week with the expected Pinterest IPO.