Can Pinterest Beat Instagram and Amazon With it’s IPO?

Pinterest, the nearly decade-old visual search engine, has unveiled its S-1 as it prepares for an initial public offering (IPO) expected in April.

Photo: Pixabay

Photo: Pixabay

The most famous online scrapbook Pinterest last week released pitch to potential investors in its initial public offering. The document revealed a company with about $756 million in revenue from online advertisements in 2018, a 60% growth rate that accelerated a bit from the previous year, an operating loss that is not outlandish by the standards of tech firms going public and about 265 million people who use Pinterest at least once a month.

Even though the company is considered unprofitable, its losses are nowhere near as high as those of other well-known startups like Uber and Lyft, which are also getting ready to list their shares. That makes Pinterest one of the rarer unicorns, a term applied to startups valued at more than $1 billion by private market investors.

The company had two profitable fourth quarters. In the most recent fourth quarter, the company said it had revenue of $273 million in the fourth quarter and net income of $47 million, compared with revenue of $173.3 million, and a net income of $3.4 million.

Its full-year 2018 revenue surged 60% to $755.9 million, up from $472.8 million in 2017. Costs grew, but with stronger revenue in 2018, it was able to narrow its 2018 losses by half, and reported a net loss of $63 million, or 17 cents a share, down from a net loss of $130 million, or 34 cents a share, in 2017. The company only began selling advertising on its site in 2014, and it only began to expand outside the U.S. in 2016, describing these approaches as similarly deliberate.

Betting Big on Machine Learning and AI

Through machine learning, Instagram detects products featured in photos uploaded by users on the platform, simplifying the process of users in searching and purchasing the products.

Vishal Shah, Instagram’s head of product, said:

“From a consumer perspective, we’re out to build a complete shopping experience.”

Amazon, on the other hand, has diversified its revenues across a variety of services including Prime, Amazon Web Services, and daily grocery delivery. Many companies in both the technology and retail market are betting big on machine learning and artificial intelligence to compete against Amazon and acquire some of the market share in the e-commerce sector.

While it remains uncertain whether the demand for online shopping on social media platforms could rise to an extent in which it begins to affect online sales of Amazon, Pinterest and Instagram are both eyeing to secure a niche market that is certainly scalable in the months to come.

Popular With Mothers

Around 80 percent of its total audience in the U.S. is made up of women ages 18-64 with children, citing an independent study by Comscore.

In its S-1 filing, Pinterest said that one of the risk factors is that it could fail to penetrate new demographics. Still, Pinterest flaunts its coveted user demographics, claiming more than half of all U.S. millennials. Pinterest said “eight out of 10 moms” are on its platform, adding that “are often the primary decision-makers when it comes to buying products and services for their household.”

The study made by Cowen and Company says that in the United States, more people use Pinterest to find or shop for products than on social networks. This puts Pinterest head-to-head with Instagram, which just this week announced a new shopping feature to encourage users to buy directly from their platform.

Also, same as Lyft, Pinterest plans to go public with a dual-cass share structure to concentrate voting power with Class B shareholders, which include co-Founder, President and Chief Executive Officer Benjamin Silbermann.

From the company, they said Class B shares will automatically convert into common shares seven years after the IPO. This conversion will not take effect if these Class B stockholders continue to own at least 50 percent of their shares held at the time of the IPO.

This follows a trade group representing top U.S. pension funds and asset managers asking exchanges to require companies seeking to go public with share classes with unequal voting rights to have plans to equalize them within seven years.

Investors focused on corporate governance have criticized dual-class share structures after the likes of Snapchat parent Snap Inc and meal-kit maker Blue Apron Holdings Inc went public since with little or no voting representation for certain investors.

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