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Today's news about the Pinterest stock price shows the company will be playing it safe during the IPO.
But despite the attractive share price, the tech startup "unicorn" will still be a pass for now.
Just one week before Pinterest shares begin trading under the symbol "PINS" on the New York Stock Exchange, the company lowered its price range 21% to 30%. That's $15 to $17 per share for 75 million shares.
This would raise roughly $1.2 billion for the startup. And while that low price might sound attractive, it's a bit alarming if you look at the company's 2017 valuation.
In 2017, pre-IPO investors bought shares at $21.54 each. This put Pinterest's value at about $12 billion. But at its updated price range, the company will only bring in $1.3 billion at a valuation closer to $9 billion.
If you've been following along, you already know the upcoming Pinterest stock is riddled with red flags. It's in competition with internet giants, Facebook Inc. (NASDAQ: FB) and Amazon.com Inc. (NASDAQ: AMZN). And it's also operating at a $63 million loss.
Beyond that, as we've already seen with Lyft (NASDAQ: LYFT), there's no guarantee that the Pinterest stock price will remain in that range. Price fluctuations are bound to happen, and only time will tell whether Pinterest's IPO will suffer from the same issues as Lyft.
Some analysts believe this shift for Pinterest is a direct result of Lyft's rocky IPO launch. As the first big technology company that went public in 2019, Lyft set the tone for the rest of the highly anticipated "unicorns."
Banks had valued the Lyft stock at $62 to $68 per share. But with the sheer amount of oversubscriptions, it jumped all the way up to $72 for institutional investors.
By the time the stock started trading and was made available to retail investors like you and me, it was a little over $88. And since then, it has been hovering around $71 to $72 per share. This means anyone that purchased it at $88 is sitting at an 18% to 19% loss.
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Because of Lyft's flop, a lot of everyday investors are anxious over these tech startup "unicorns." So, with Pinterest's stock debut following closely behind Lyft, the company has decided to take the conservative approach with its pricing.
As we've said previously, Pinterest still has potential. It's even growing quickly, with a 60% increase in revenue last year to $756 million. But as of right now, Money Morning cannot recommend buying the Pinterest stock while the firm is operating on negative equity.
However, we do have a company that can be your ticket into the Pinterest stock without all of the volatility early IPOs often see.
Avoid Pinterest Stock Price Volatility with This Stock
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The company, of course, is Etsy Inc. (NASDAQ: ETSY) - an online e-commerce marketplace partnered with Pinterest. The company has little direct competition, and you can purchase tons of unique, handmade items like clothing, jewelry, and more.
Unlike Amazon, Etsy isn't a website where you can purchase "necessities." It's a niche marketplace that was designed to offer an eclectic range of items from the sellers who create them.
The company makes money by charging a 3.5% to 5% transaction fee for every sale a seller makes. With its new inclusion of additional services like Etsy Plus and Etsy Premium, the company is rolling in dough.
In fact, Etsy has grown exponentially over the last few years. Since 2017, its capital has increased by 521%. In Q4 2018, its gross merchandise sales increased 20% to roughly $4 billion for the entire year.
Beyond that, Etsy's end-of-year revenue was $200 billion. That's a 47% increase year over year.
As for Etsy's full year 2018, the company made $604 million and saw total revenue growth of 37%. Its gross profit also increased to $143 million. That's another 55% year-over-year increase.
And it's not just the numbers that are great...
If you remember the comment about little competition, that fact cannot be understated. Even when Amazon attempted to break into its niche, Etsy had already solidified its position as the dominant force in the market.
It also has a huge network advantage by being partnered with companies like Pinterest.
And most analysts agree that Etsy will see long-term growth for the foreseeable future. In fact, one Wall Street analyst predicts a high target price of $90 (which would result in a 25% increase from today's current share price of $67.37).
This makes Etsy a great way to cash in on the Pinterest stock while avoiding all of the risks...
If you're interested in more information about the Etsy stock, you can click here.
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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.