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Will Pinterest IPO Step Up Competition for Snap and Twitter?

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Pinterest, the photo-pinning social site, is rapidly approaching an IPO and will be reckoned in the same breath as Twitter (TWTR - Free Report) , Snap (SNAP - Free Report) and Facebook (FB - Free Report) owned Instagram.

Since its launch in 2010, the website and mobile app, which provide users with the tools to discover, collect and share items on boards they create, has taken the world by storm.

Notably, the company is witnessing rapid growth in the monthly active users (MAU) per S-1 filing, which is helping it boost its revenues, and in turn, its valuation. Moreover, robust growth outside the U.S. market is aiding the company to expand its user base.

Reportedly, Pinterest is seeking a valuation of $12 billion for its IPO and is likely to start trading under the ticker — PINS — in late April or early May.

 

Why Should Snap and Twitter Worry?

Pinterest might be lagging Twitter and Snapchat in terms of the total users on its platform. However, its user growth rate is quite impressive. In the last reported quarter, Pinterest MAUs increased 22.7% year over year to 265 million. Moreover, this is a huge jump from 128 million reported in first-quarter 2016.

Meanwhile, Twitter’s MAU of 321 million declined 3% year over year at the end of fourth-quarter 2018. Although Snapchat’s figures refer to Daily Active Users (DAUs) instead of MAUs, we note that the photo-sharing application’s 186 million DAU was down 1 million on a year-over-year basis.

Furthermore, Pinterest’s revenues have steadily improved over the years. The company generated revenues of $755.9 million in 2018, significantly up from $475.9 million in 2017, $298.9 million in 2016, $139 million in 2015 and $24 million in 2014.

Also, its $755.9 million revenue figure is far behind Twitter’s $3.04 billion and Snap’s $1.18 billion in 2018 but Pinterest’s 60% year-over-year revenue growth rate is much higher than Twitter’s 24.6% and Snap’s 43% revenue rise.

Moreover, we note that though the company is still unable to reap profits, its net loss of $63 million in 2018 narrowed substantially from a net loss of $130 million in 2017. Coupled with high revenues, its low-cost base is also likely to boost profitability.

Reportedly, Pinterest's R&D expense is only about 30-50% of Twitter and Snapchat while its G&A expense is 16-26% of its peers’ metric.

Further, users on Pinterest are mostly there to shop when compared with Instagram, Facebook or Twitter.  Per a recent Cowen survey, 48% of the U.S. Pinterest users stated that they utilize the platform to browse and shop products as compared to 14%, 10% and 7% for Facebook, Instagram and Twitter, respectively.

Shares of Twitter have rallied 21.7% in the past year versus the Snap stock's decline of 23.5%.

Competition for Ad Revenues to Intensify

Pinterest admitted in its S-1 filing that the increasing competition from big players like Facebook, Amazon and Alphabet’s (GOOGL - Free Report) search engine Google, which have better resources, poses a huge threat as these companies can easily lure away users and advertisers to their platform.

As Pinterest generates revenues, primarily from one source i.e. advertising, it might be a concern for investors.

Therefore, the company’s initiative to increase its users’ engagement levels will make it instrumental in converting the searches into product purchases, which will attract advertisers to the platform and in turn, drive rapid revenue growth for the company.

Per IDC (International Data Corporation), the digital advertising market is forecast to reach $423 billion in 2022 from $272 billion in 2018 at a CAGR of 12%.

Zacks Rank

While Twitter, Snap and Alphabet carry a Zacks Rank #3 (Hold), Facebook has a Zacks Rank #4 (Sell) at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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