The Best "Backdoor" Play on the Pinterest IPO

Before you even think about investing in the Pinterest IPO, there's a "backdoor" way to play the hype of the public offering while avoiding the risks.

No doubt, Pinterest is one of the most exciting IPOs of the year.

Revenue grew 60% last year to $756 million, helping the company get a valuation of roughly $12 billion.

Unfortunately, there are red flags hiding behind the growth. The biggest one: Pinterest isn't profitable yet.

No matter how much revenue has grown, the company is still losing money.

That's where the "backdoor" way to invest in the Pinterest IPO comes in...

With this play, you'll be able to profit without worrying about the volatility of new IPOs. This company helped produce software that enabled Pinterest users to search for and obtain gifts from online retail stores. So it will definitely profit from the hype Pinterest is creating.

And for an e-commerce business that's been around since the mid-2000s, the profits are looking good. If you invest in its stock now, you stand to see gains of at least 34%.

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E-commerce may not be a hot new industry, but according to Forbes, e-commerce sales are still growing 112% at unheard-of rates.

We'll talk more about how you can join in with this backdoor play on the Pinterest IPO below.

But first, here's why e-commerce stocks are still excellent investments.

E-Commerce Continues to Dominate the Global Market

Right now, Statista says global e-commerce sales are $3.5 trillion annually. They're set to increase to $4.88 trillion in 2021.

That's far from the only growth figure...

  • In 2018, the U.S. Department of Commerce says consumers purchased $513.6 billion worth of products online in the United States (14.2% higher than 2017's $449.88 billion).
  • E-commerce represented 9.7% of total sales in the United States in 2018.
  • 51.9% of all retail sales growth was represented by e-commerce.
  • Right now, e-commerce accounts for 13.7% of total global retail sales.
  • By 2021, e-commerce will represent 17.5% of total global retail sales.
  • E-commerce giant Amazon.com Inc. (NASDAQ: AMZN) currently represents 41% of all online retail in the United States.

E-commerce is also successful because it's convenient. Consumers don't have to travel anywhere. In fact, the location barrier is completely removed.

Beyond that, it's typically cheaper. Many stores sell products at higher prices to account for the cost of operations. With e-commerce, merchants can sell their products at competitively lower prices.

Nowadays, it's rare to find people who don't shop online. Whether it's clothing, home decor, computer parts, or even mattresses, it all begins with a Google search.

People can't stop shopping online. And it's in large thanks to the e-commerce heavyweight champion of the world, Amazon. People can buy just about anything, and all they have to do is click a few buttons.

All it takes is a drive down the street to see just how successful e-commerce is. Well-known retail brands are disappearing.

Stores with "massive sales for a limited time only" have had the same discounts for years now. Even companies that have been around for decades, like Toys R Us, have liquidated their assets and closed down their remaining stores.

However, the e-commerce 20-year bull run is just getting started.

By 2022, e-commerce sales could account for over 58% of all global retail.

In fact, the company we're about to show you today will harness much of that growth...

This E-Commerce Stock Is Your Backdoor Play on the Pinterest IPO

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The e-commerce company we're talking about, of course, is Etsy (NASDAQ: ETSY). It's an online business partnered with Pinterest that has seen exponential growth over the last three years.

In late 2018, Etsy teamed up with Pinterest to create the "Etsy Gift Finder" shopping tool. Its creation meant that any Pinterest users that see items they like from Etsy could easily find the products on Pinterest's site.

Etsy is an online marketplace where you can buy handmade goods, unique items, and just about anything its registered sellers decide to make.

The company labels itself as "quirky." That's mostly because it attracts a more artistic crowd: selling everything from desktop background art to handmade cards, clothing, jewelry, and more.

Its popularity continues to grow. Since the appointment of CEO Josh Silverman in May 2017, the company has seen a 521% increase in capital. And in a market where Amazon is practically all-encompassing, Etsy has carved its own niche.

It's not a place where you buy your basic necessities. But instead, it was designed to give users a unique and "eclectic" experience by having a wide range of sellers who are skilled in anything from drawing to painting, sewing, home-decor, and even jewelry.

Beyond that, even with the stiff competition from "Amazon Handmade," Etsy has continued growing.

Part of it is due to Amazon's not-so-friendly terms for sellers, reportedly charging higher commission fees for every item sold.

But the simple fact of the matter is that Etsy has solidified itself in its own e-commerce sector. There isn't really any other website that sells "whimsical" items in the way Etsy does.

Over the last three years, its sales have continuously shot up. In Q4 2018, the company reports gross merchandise sales increased by 20.4% to $3.9 billion for the year.

Once Etsy raised its transaction fee from 3.5% to 5% (with additional paid services called Etsy Plus and Etsy Premium that offer more benefits), its revenue ending Dec. 31, 2018, was $200 billion - resulting in a 46.8% increase year over year.

For full-year 2018, Etsy made $603.7 million with total revenue growth of 36.8%. However, its gross profit was $142.9 million (up 55.3% year over year), while its gross margin was 71.4% and up 390 basis points compared to 2017's 67.5%.

Thanks to that revenue growth, the non-GAAP adjusted EBITDA for the fourth quarter of 2018 was $51.4 million and grew 47.5% year over year. As for the non-GAAP adjusted EBITDA margin, it was 25.7%.

What's great is that the company has no direct competitors. Furthermore, it has the network advantage of working with sites like Pinterest. And analysts see long-term growth ahead for the niche company. One Wall Street analyst has a high price target of $90. That would be a 33.8% return from today's price of $67.25.

That makes Etsy the best "backdoor" way to play the Pinterest IPO...

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About the Author

Daniel Smoot is a Baltimore-based editor who helps everyday investors with stock recommendations and analysis. He regularly writes about initial public offerings, technology, and more. He earned a Bachelor's degree from Towson University.

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