What I learn from Pinterest IPO Filing

Pinterest, that photo bookmarking tool, filed this Friday to go public. Here is what I learned from reading their S-1:

Their main users are women

Pinterest reaches more than 250 million monthly active users, two thirds of whom are female. In the United States, our total audience includes 43% of internet users, according to an independent study by Comscore based on total unique visitors to our service. This includes eight out of 10 moms, who are often the primary decision-makers when it comes to buying products and services for their household, as well as more than half of all U.S. millennials. We expect to continue to grow our user base over time, especially in international markets

Pinterest S-1
An example of successful marketing with Pinterest

The majority of their Monthly Active Users is outside the US, but most of their revenue comes from the US

Quarterly Revenue (in $ thousands)
Monthly Active Users (in millions)

They did make money on two quarters and their business seems to have some seasonality

Their non-cancelable long-term contractual commitments

In addition, as of December 31, 2018, we had approximately $731.1 million of long-term contractual commitments that are not cancelable. In March 2019 we also entered into a lease for office space to be constructed near our current headquarters campus for which we will be subject to total non-cancelable minimum lease payments of approximately $420.0 million beginning in 2022 if certain contingencies are met.

Some particularly concerning risks

• We may not be able to develop effective products and tools, including measurement tools, for advertisers
• We may not succeed in further expanding and monetizing our platform internationally.
• We have incurred operating losses in the past, anticipate increasing our operating expenses, expect to incur operating losses in the future and may never achieve or maintain profitability.

Reliance on Facebook and Google Single Sign On

A significant number of Pinners use their Facebook or Google login credentials to access their accounts on our service. If security on those platforms is compromised, if Pinners are locked out from their accounts on those platforms or if those platforms experience an outage, Pinners may be unable to access our service. As a result, user growth and engagement on our service could be adversely affected, even if for a temporary period. For example, in the second quarter of 2018, Facebook changed its login authentication systems, which negatively impacted our user growth and engagement in that period. Additionally, if Facebook or Google discontinue single sign-on or experience an outage, then we may lose and be unable to recover users previously using this function, and our user growth or engagement could decline.

Personal Thoughts

Personally, I am not very bullish on Pinterest’s prospect. The good news is that it managed to make more money from its US base more in 2018 than it did in 2017. The bad news is that it has failed to monetize its majority of its MAUs which are outside of the US. To really grow and consistently be profitable in the future, I think Pinterest needs to rectify the situation overseas soon.

It acknowledged the filing that it may not be able to achieve profitability in the future. While it may not be uncommon to have a startup acknowledge that, it is unsettling to have it from an advertising company. Facebook might be in the same boat for a while after its IPO, but back then, Facebook didn’t have the same competition as Pinterest does now. In addition to Facebook and Google, there is a little problem called Amazon, which has grown to be a force to be reckoned with in the advertising world with its superior ability to connect advertising dollars with actual sale.

So far, I haven’t come across any report on privacy violations or scandals related to fake news, propaganda or human rights abuse, the likes of which took place on Twitter and Facebook. It remains to be seen how Pinterest would handle such issues in the future once and if it grows bigger.

Weekly Readings – 23rd March 2019

Chi Dung’s R collection. This guy’s work is impressive. If you are interested in R, take a look.

The Big Brexit Short. I really like this kind of investigative videos by Bloomberg. I honestly don’t follow Brexit enough. Hence, it’s good to know about this potential scheme. I highly recommend you check out Bloomberg’s Youtube channel. Treasure trove of good information.

What the hell is going on. A very long, yet informative study on how the switch from information scarcity to information abundance affects business, education and politics.

On the Hunt for Japan’s Elaborate, Colorful Manhole Covers. An interesting story on a beautiful aspect of Japan’s culture.

How India conquered YouTube. I find the article fascinating and informative. A good overview of Youtube’s popularity in India and the media consumption behavior in the country.

Howard Marks’ memos. His excellent and insightful memos are praised and read by Warren Buffets and many investors.

I found two links here and here that are very helpful in understanding the subscription model.

Nine Reasons Why Disney+ Will Succeed (And Why Four Criticisms are Overhyped). A fair and detailed piece on Disney+, Disney’s upcoming streaming service. I cannot wait to try the service myself

Inside AirBnb’s “Guerrilla War” against Local Governments. A very good article on how AirBnb fought local governments in the US to avoid taxes and restrictions that the local lawmakers sought to put on them. I am a believer in the fact that if the law allows you to avoid taxes, you have every right to not pay taxes and stay competitive. However, fighting hard to stop new laws (laws always play catch-up with the business world) intended to make AirBnb pay taxes is a bit too far. Loss of taxes strips a local government of necessary revenue to fund projects that will benefit citizens. If your business earns millions of dollars in revenue and profit, what’s the reason for not paying taxes? Simply by “being a platform”?

Pinterest S-1. The photo bookmarking company filed to go public.