As for PINS, the social media company is expected to launch its IPO on the NYSE next Thursday, April 18th. In a new filing this morning the company said it is offering 75 mln shares within a range of $15-17. At the high end of the price range, PINS would be valued at around $11 bln, which is either disappointing or appealing/conservative, based on our point-of-view. In the last round of private fundraising in 2017, PINS was valued at $12 bln.
It is possible that LYFT's turbulent start in the public markets caused some anxiety for PINS and its underwriters, leading to the lower-than-expected price range. By setting a low price range, the odds of its stock careening lower over the first few days of trading are reduced. Of course, its early investors who are looking to cash out on their investment probably aren't as enthusiastic as the institutional investors considering its IPO.
At the high end of the price range, PINS would have a P/S of about 14-15x. On the surface, that looks quite rich. However, when compared to the three largest social media IPOs (Facebook (FB), LinkedIn (formerly LNKD), and Twitter (TWTR)), the valuation starts to look more attractive. Specifically, FB and LNKD both had trailing P/S of about 19x based on the mid-point of their IPO price ranges, while TWTR had a P/S north of 30x.
PINS will likely open for trading significantly higher than the $15-17 range. However, given its robust growth rates, it makes sense to use a forward P/S to get a better sense of its valuation. If we were to assume 50% revenue growth for FY19, and, the stock opened for trading at $25, its forward P/S would be around that same 14-15x level.
PINS generates its revenue exclusively through advertising. Its "Promoted Pins" contain either a single image, a carousel of images, or video. Its addressable market includes online brand advertising if people visit Pinterest intending to purchase something; offline brand advertising for when Pinterest is used similarly to catalogs or magazines; and online performance advertising focused on lower/middle funnel behaviors. Those behaviors include users browsing ideas and visiting merchant sites, eventually leading to a purchase.
Taking a look at its financials, something that immediately stands out is that its operating losses are rapidly shrinking. That is not necessarily a common attribute for high-growth tech IPOs as PINS has taken a more conservative approach to spending. That said, its growth rates are still quite strong.
For FY18, revenue climbed by 60% to $755.9 mln. While that growth rate may lag other tech IPOs, such as in the cloud software space, it is still very impressive given the scale of the business. Driving its growth has been the steady increase in monthly active users (MAUs). In 4Q18, MAUs were up 23% to 265 mln with international markets driving the growth, up 32% top 184 mln. PINS expects international growth to continue out-pacing US growth in the near term.
Quarterly average revenue per user has also been trending higher hitting $1.06 (+28% yr/yr) in 4Q18, its highest on record.
For most up-and-coming tech companies, Sales & Marketing is the largest expense, oftentimes expanding at rates near or higher than the top line. In the case of PINS, its Sales & Marketing expense increased by 60%, matching its revenue growth rate. As a percentage of revenue, it was steady at 34%, which is actually on the lighter side for a tech IPO. Its other main expenses, Research and Development and General and Admin, decreased as a percentage of sales.
Consequently, its loss from operations also shrunk to ($74.7) mln from ($137.9) mln in FY17.