2023-12-04 12:00:00 ET
Summary
- Pinterest is a social media platform focused on image sharing and inspiration, founded in 2010.
- The platform emphasizes visual discovery and personalized content feed based on user activity and preferences.
- Pinterest generates revenue through advertising, partnerships with brands, and e-commerce integration, but faces competition from Google.
- I would avoid Pinterest shares even if growth picks up because it will likely always be in Google's crosshairs as a discovery search engine.
Pinterest ( PINS ) was founded by Ben Silbermann, Paul Sciarra, and Evan Sharp. Ben Silbermann, who previously worked at Google, is the CEO and the most public figure among the founders. The trio launched Pinterest in March 2010, and it quickly grew into one of the leading social media platforms focused on image sharing and inspiration.
Another Covid beneficiary, PINS, fell on hard times during the rapidly rising rates period in 2022, with its stock dropping 81% from peak to trough from 2021 to 2022.
Pinterest Stock Chart (Pinterest Stock Chart)
In the realm of social media, Pinterest stands out as a platform of creativity and inspiration. Pinterest has carved a unique niche in the digital landscape.
Initially conceptualized as a 'catalog of ideas', PINS quickly evolved into a visual discovery engine. The founders' collective vision was to create a space where people could find inspiration, curate personal interests, and share their tastes and hobbies through images, known as 'pins'.
Visual Discovery and Inspiration
Users can browse a vast collection of images in various categories such as fashion, home decor, cooking, and more, to find inspiration and ideas. Unlike traditional social networks focused on updates and interactions, Pinterest emphasizes discovering, saving, and sharing visual content.
Users can create boards to organize their pins, whether it's for home decor, fashion, recipes, or DIY projects. This model encourages prolonged engagement, as users are continuously discovering and bookmarking new ideas.
Search Functionality
Pinterest's search tool allows users to find specific ideas or inspiration. The platform uses image recognition technology to suggest similar pins.
Pinning and Repinning
Users can "pin" images to their boards from other websites or from within Pinterest. They can also "repin" images from other users' boards.
Personalized Feed
Based on a user's activity, preferences, and follows, Pinterest personalizes the content feed, showing pins that are likely to be of interest.
Social Interaction
Users can follow other individuals or boards to see their pins in their feed. They can also comment on pins, share them, and send them to others.
(Image Source: https://www.socialpilot.co/blog/how-to-get-followers-on-pinterest)
Business and Advertising
Businesses use Pinterest to promote their products and services, with options for creating business accounts, sponsored pins, and analytics to track engagement.
(Image Source: https://www.socialcubicle.com/blog/pinterest-marketing-strategy/)
Overall, Pinterest is a platform focused on visual discovery, where users can find inspiration, explore interests, and share content in a visually rich and organized way.
Pinterest generates revenue primarily through advertising, leveraging its unique position as a visual discovery platform. Here's an overview of how it does so:
-
Promoted Pins : Businesses can pay to have their pins shown to more users. These Promoted Pins blend in with regular pins but are targeted to appear in front of users who are most likely to be interested in them, based on their previous activity and preferences.
-
Shopping Ads : Pinterest offers shopping ads that allow businesses to showcase their products. When users search for products or browse related categories, these ads appear, making it easier for consumers to discover and purchase products directly from the platform.
-
Audience Targeting : Advertisers on Pinterest can target specific audiences based on demographics, interests, and behaviors. This targeted approach ensures that ads are more relevant to users, increasing the likelihood of engagement.
-
Brand Partnerships and Collaborations : Pinterest often collaborates with brands for special projects or campaigns. These partnerships can be a source of revenue, especially when they involve unique content creation or leveraging Pinterest's data for market insights.
-
Video Ads : Pinterest allows advertisers to use video ads, which are more engaging and can capture users' attention more effectively than static images. Video ads can be particularly effective for storytelling and showcasing products in action.
-
Pinterest Analytics and Tools : While the analytics tools are generally free, they encourage businesses to use the platform more extensively for advertising, as they provide valuable insights into user engagement and ad performance.
-
Buyable Pins : While not a direct source of revenue, Pinterest introduced features like Buyable Pins (or "Shop the Look") that make it easier for users to purchase products directly from the app, enhancing the platform's value for advertisers and businesses.
E-commerce integration has been a game-changer for Pinterest. With features like Buyable Pins and Shop the Look, the platform allows users to make purchases directly, creating a seamless shopping experience. This not only benefits users but also provides valuable revenue streams through partnerships with retailers and brands.
In May, Pinterest announced an advertising partnership with Amazon.com Inc. ( AMZN ), aiming to make shopping easier on the site. By expanding its business model beyond advertising and into shopping, Pinterest will be increasing the amount of time users spend on the platform.
In Q3 2023, revenues grew 11% and the company generated non-GAAP net income of $193 Millon . GAAP net income was roughly $7 Million. It was good to see revenues in Europe topping $100 Million and growing 33% year-on-year.
Pinterest Revenues (Pinterest Revenues)
Future Growth Opportunities
Pinterest aims to expand its user base and enhance user engagement. One strategy is to enhance the platform's machine learning and artificial intelligence capabilities to provide more personalized and relevant content recommendations. This will likely increase user engagement and time spent on the platform.
Another area of focus is international expansion. Pinterest has a significant opportunity to grow its user base in non-U.S. markets. Tailoring content and advertising strategies to different cultural contexts and languages is crucial for this expansion.
Conclusion: Hold / Don't Buy
Valuation
I personally would prefer to see Pinterest growing faster to justify its current market cap. At a $23 Billion market cap (vs $2.9 Billion trailing twelve months revenues), it trades at 7.9X sales. This is a bit high given an 11% top line growth rate.
Also, if I look at the landscape that Pinterest competes in as a search engine, albeit a visual one, I personally don't love its long term position because it competes directly with Google ( GOOG ), which has a lot more resources to grow and essentially acts as the same thing as Pinterest - a discovery engine for users.
Pinterest does have some unique aspects to it, namely, its core focus is on idea inspiration through imagery. But it is reliant upon Google for search traffic and acquiring new users, and it is hard for me to look out past a few years with any confidence that Pinterest will have a durable moat.
Even if growth picks up either from further expansion into e-commerce or international growth, I would be hesitant to buy the stock because of its competitive positioning versus Google.
For further details see:
Pinterest: The Visual Search Engine Is Being Found By Investors