The company began trading on the New York Stock Exchange on Thursday April 18. Just weeks after setting an initial price range for its initial public offering (IPO) with share values coming in at less than its previous $12 billion market peg, Pinterest stock ended up opening at $23.75 a share, which was a full 25% higher than the platforms initial IPO pricing of $19. In other words: It's good news for Pinterest.
Pinterest's lower-than-expected valuation raised some questions as to how in-demand the company is from an investment perspective. And, though Pinterest has reached its public debut, it’s important to take a look at how Pinterest actually makes money.
In its most recent prospectus, Pinterest admitted: “We’re still in the early stages of our monetization efforts. Today, our advertising products help businesses reach 'Pinners' across their decision-making journey.” So how does this translate into actual earnings?
Pinterest reported revenues of $755.9 million in 2018 and $472.9 million in 2017, suggesting an overall increase of 60%. This said, the company is still losing money. It reports that it generated a net loss of $63 million, with adjusted earnings before interest, taxes, and amortization (EBITDA) of $39 million in 2018. In 2017, Pinterest had a net loss of $130 million and EBITDA of $93 million. However, when compared to Lyft or Uber, Pinterest is losing significantly less money, suggesting that it’s not a total sinkhole.
In addition to more traditional ways of generating revenue, Pinterest approaches business as a “discover service” and monetizes its pins to make money. They have integrated a "buy it" button that allows users to buy products through their platform instead of having to visit third-party sites. E-commerce merchants are also allowed to partner with Pinterest.
Additionally, Pinterest works with advertisers to create Promoted Pin ads, which contain images, carousel posts, and video. They also cite a Talk Shoppe survey suggesting that 68% of active Pinterest users discovered a new brand or product on the platform. Pinterest also has an in-house creative studio, the Pin Factory, which allows advertisers to pay for more appealing promoted pins. For this, they charge “per action,” meaning that marketers don’t pay unless users take a specific desired action.
Ultimately, though Pinterest may not be as profitable as initially anticipated — and as many of their investors might have hoped — there is still a lot of promise when it comes to their approaching IPO. They currently have 250 million users, or “pinners," each month, according to Investopedia, so compared to other tech startups, the company still has a comfortable profit margin and a pretty bright future.