PINS - Pinterest

[Broeb22]

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]

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]

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]

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]

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]

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?

[Broeb22]

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]

Bullish view on the business (from a male user):

https://www.330ramp.com/blog/2019/4/11/do-you-even-pin-bro

 

[Spekulatius]

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.

[CorpRaider]

I'm more intrigued by LYFT, UBER and Air BnB.  Mostly the last one, depending on valuation of course.

[Spekulatius]

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?

 

Broeb22 - I just wanted to thank you for the discussion here. I don’t think that PINS is a  straightforward value here, but at least the IPO valuation looks sensible here. I believe it is a niche business with relatively easy monetization. I can see this being attractive from both the users as well as the advertisers  POV. I signed up for IPO shares Fidelity, but not holding my breath here. I might buy some in the aftermarket, depending on prices.

 

FWIW, the reinstated my account the next morning  8).

[Broeb22]

Here I am trying to be some kind of value investor, hoping to buy PINS at a fair price for its growth.

 

The state of the IPO market worries me when many companies coming public are being priced at levels which make it almost impossible to justify.

 

PINS, ZM, BYND, all into the stratosphere.

 

Sigh....

[Spekulatius]

Here I am trying to be some kind of value investor, hoping to buy PINS at a fair price for its growth.

 

The state of the IPO market worries me when many companies coming public are being priced at levels which make it almost impossible to justify.

 

PINS, ZM, BYND, all into the stratosphere.

 

Sigh....

 

Imo, the market is story driven right now. I am keeping PINS on my watch list and I think there might be Chance to get this at a sensible valuation later on. I think that even Uber will come out of the gate strongly and my bet is that they will raise the IPO price a bit above $50. I am not interested in that one though.

[Broeb22]

Spek, I think you'll be right. Hopefully sooner rather than later.

 

These hugely successful IPOs all in close succession reek of late cycle investor/VC behavior. The VC's see the window closing IMO.

[Spekulatius]

Looks like one will be able to acquire PINS around the IPO price today- premarket quotes  are ~$19.75 today. Stock isn’t cheap, but the market seems to overreact to an earnings release that doesn’t looks pretty good to me? Anyone else interested. I think I will put in a “stinker bid”.

[griezeman23]

Yes, this and Twitter are on my "to research" lists in the next weeks after I finish up with earnings from last week!

[Spekulatius]

PINS seems to be a victim of tax loss selling. Recent insider sales (to be expected after lockup) don’t help much either. I bought a few shares today towards the close. If they can keep growing at a decent clip, paying 8.5x revenues isn’t too bad.

[peridotcapital]

In recent weeks I have started to find interesting situations in broken tech growth stocks that aren't SAAS businesses. PINS is one of a handful that I am intrigued by, as we are nearing a valuation of 5x 2020 revenue ex cash. Is it a value stock per se? Of course not. But for something that could grow 20%+ annually for 3-5 years, has fairly high gross margins already, burns minimal cash, and has a 10 figures in the bank, I actually think 5x sales is reasonable and the risk/reward looks attractive on a relative basis within tech.

 

I haven't bought it yet, but I have a feeling that some of these broken IPOs are getting into interesting territory. I started a position in UBER this week (a 2.5x forward EV/sales seems to imply a fairly modest long-term margin structure for a business that is likely here to stay) and PINS is on my short list to be my second foray into the group. 

[AzCactus]

This is looking super interesting to me at these levels.  Anyone else?

[Broeb22]

My whole portfolio is looking pretty interesting at this point, this among those options.

 

It's kind of triaging which names have been hit the most that should be affected the least long-term.

 

I wouldn't think product ad budgets get dinged significantly long-term. PINS balance sheet also makes it relatively more attractive.

 

~5.9x EV/2020 Sales and assuming 25% operating margin/25% tax rate the EV/E is a touch north of 30 on 2020 sales. 

 

Look out two more years, and I can get to 19x EV/E ignoring any cash generation from now til then.

 

Does that seem about right?

[Spekulatius]

My whole portfolio is looking pretty interesting at this point, this among those options.

 

It's kind of triaging which names have been hit the most that should be affected the least long-term.

 

I wouldn't think product ad budgets get dinged significantly long-term. PINS balance sheet also makes it relatively more attractive.

 

~5.9x EV/2020 Sales and assuming 25% operating margin/25% tax rate the EV/E is a touch north of 30 on 2020 sales. 

 

Look out two more years, and I can get to 19x EV/E ignoring any cash generation from now til then.

 

Does that seem about right?

 

It seems right and I am a buyer as well. One of the few recent IPO’s where value and growth potential somewhat intersect.

[ArminvanBuyout]

Anyone have any views on how the slowdown in ad budgets in the near-term will impact PINS?

[Green King]

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.

 

It's not one of the popular momentum stocks loved by the yolo if that is the price valuation. Going Long out of the money options will be a better bet than holding the common. 

[Broeb22]

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.

 

So, the $26 price target 5-years from now I mentioned above would require a >25% decline from current prices. I don't know what to do anymore. I'm trying to wrap my mind around what is the way, way high, dominate-the-world upside case (that is the reason these types of companies are so tempting, right?), and I think 25% growth will turn out to be more like 35% (due mostly to very high Int'l ARPU Growth off a low base), NOPAT multiple maybe stays the same, operating margins maybe stay the same, tax rate stays the same (though if Democrats win the WH it might be higher), shares stay the same and cash generation is probably not zero (I'm saying $3.5 billion total from 2021-2025). I can get to a 2025 multiple <20x and 2027 multiple <12x. 2027 seems like a long time to wait but if you go back and look at Facebook in 2012/2013, you were paying a single-digit multiple for their future earnings just a few years down the road.

 

Even 10 years from now, PINS would generate $20 billion in annual revenues (1/4 FB) and have 1.8 billion users. I feel a lot more comfortable about the ARPU numbers I'm seeing than the Total Users. It's hard to imagine 2 billion people using Pinterest with any regularity but who knows? Maybe Pinterest benefits from the ad companies avoiding FB long-term but I wouldn't count on that. Certainly one of the reasons Facebook has such high engagement may be because there is so much controversial content (even if you agree with the poster's views) on there.

 

Anyways, the valuation math is not entirely crazy, but it doesn't leave a whole lot of room to be wrong on more than one of the pieces of the puzzle. I'm probably continuing to hold here since this is probably the only stock I own with a 10x Sales ratio, but I'd love to hear some opposing viewpoints on this.

[Simba]

Pinterest, Inc. (NYSE: PINS) today announced financial results for the quarter ended September 30, 2020.

 

Q3 revenue grew 58% year over year to $443 million.

Global Monthly Active Users (MAUs) grew 37% year over year to 442 million.

GAAP net loss was $(94) million for Q3. Adjusted EBITDA was $93 million.

 

Outlook

Our current expectation is that Q4 revenue will grow around 60% year over year, a modest acceleration compared to our growth rate in Q320.

 

https://investor.pinterestinc.com/press-releases/press-releases-details/2020/Pinterest-Announces-Third-Quarter-2020-Results/default.aspx