Similar to Uber and Lyft, the Pinterest IPO is the latest startup “unicorn” to make Wall Street jump with excitement. And even though Pinterest shows potential, we cannot recommend buying its stock at the IPO.
The company announced plans for its IPO back in February, when it filed paperwork with Goldman Sachs Group Inc. (NYSE: GS), Allen & Company, and JPMorgan Chase & Co. (NYSE: JPM). The filing showed Pinterest intended to list its shares on the New York Stock Exchange under the symbol “PINS.”
However, there are just too many red flags for retail investors to get excited.
Here are a few things you need to know about Pinterest before you jump in on the Pinterest IPO…
What Is Pinterest?
Founded in 2010, Pinterest is a social media site that encourages users to share and post images based on their interests. The users are known as “pinners,” and when they like a photo they see, they “pin” and add it to their collection of images.
The collections, also known as “boards,” are organized spaces for a pinners’ saved and shared images.
It’s like if an online scrapbook had a child with social media. But instead of character limits and status posts, it’s meant for users to browse images about home improvement, interior decorating, recipes, wedding planning, fashion, and crafts.
The site is completely free to use, but you need an account to get moving. Luckily, Pinterest makes this simple by allowing you to integrate your Google and Facebook Inc. (NASDAQ: FB) logins.
While Pinterest is simple and fun to use, it’s also not without competitors. The largest and most obvious ones are Facebook, Instagram, and Twitter. However, there are others like Houzz and Allrecipes.
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Stacked up against Facebook’s 2.3 billion users, Pinterest has a comparatively smaller user base of 265 million.
Thankfully, Pinterest doesn’t have to worry about some of the negative press other tech companies are facing. For the last year, Facebook has been dealing with privacy concerns. And Uber has had a long string of scandals in the last two years as well.
Beyond that, the company has a growing user base that has gone up 22% since 2016. Its revenue is growing, too. It jumped 60% between 2017’s $473 million and 2018’s $756 million.
The company’s private valuation has also reached an estimated $12 billion after receiving $1.5 billion in funding. And some of its biggest private shareholders include Valiant Capital Management, Andreessen Horowitz, FirstMark Capital, Fidelity Investments, and Bessemer Venture Partners.
However, the company hasn’t provided a price range or goal for the Pinterest IPO launch.
There’s a surplus of hype surrounding the Pinterest IPO, but retail investors should be wary over these few key red flags…
Should You Invest in the Pinterest IPO? We Don’t Think So
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Pinterest says 43% of people that use the Internet in the United States are also Pinterest users. The company also reports its user base is composed of 80% mothers between the ages of 18 and 64.
Those are some pretty impressive figures, but Pinterest’s filing revealed the company wasn’t profitable.
Despite 2018’s $768 million in revenue, the company reported $63 million in losses. It’s not as troubling as Lyft and Uber’s $800 million to $900 million losses, but it’s still a major red flag.
To Pinterest’s credit, its losses dropped 54% from 2017’s $138 million. But for retail investors, buying a company’s stock that’s running on negative equity isn’t the most enticing…
Granted, the website is unique and fun to use, but that shouldn’t be what decides your investment decisions. Remember, Pinterest continues to compete with tech giants like Facebook and Google.
- In the second quarter of 2018, Pinterest’s user growth was hurt by Facebook changing its login authentication.
- Pinterest has a tough time breaking into less-motherly demographics.
- If Google or Facebook have technical issues with single sign-in, then Pinterest accounts will likely be impossible to recover.
- The EU and the United States continue to implement new regulations that could create financial and operational difficulties for Pinterest.
But there are several more red flags…
The Pinterest IPO Red Flags Just Keep Coming
For the foreseeable future, Pinterest’s 265 million users are likely to stay.
But one of the biggest issues Pinterest faces is that it relies on advertising and revenue. This puts it in direct competition with every other social media platform doing the same thing.
The company is also issuing dual-class stock. This means retail investors will receive one vote per share, while everyone at Pinterest will have 20 votes per share.
So, you better like who’s running the business already, because you certainly won’t have a say.
Unfortunately, tech IPOs are often driven by hype and emotion. There isn’t enough focus on the fundamentals. Money Morning does not recommend investing in the Pinterest IPO right away.
Wait six months to a year. Then check its earnings reports. If it shows growth, it might be a worthy investment.
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