Pinterest made its pitch that it’s the future of advertising and seems to have found some believers — at least on Wall Street.
The company, which expected to price its initial public offering at between $15 and $17, is coming in above that range, according to multiple reports, valuing the tech darling at over $9 billion.
That is a bet by the big-money crowd that the company will continue to grow quickly and pick up more advertising dollars as brands look to move their marketing budget online.
Pinterest’s revenues shot up 60 percent to $755.9 million last year as it gained share of the ad market — but so far the company is more growth engine than profit engine, having logged net losses of $63 million last year.
Users browse collections of recipes, craft and style ideas, among other things, on Pinterest and “pin” ideas and images to create their own virtual vision boards.
For beauty brands, luxury goods and other consumer product companies, this sort of personalized curation offers an opportunity to directly target consumers.
“Especially with the fashion industry, they like it for the fact that there’s a lot of visual impact,” said Denning Rodriguez, of counsel at Holland & Knight LLP, who represents fashion and entertainment companies. “With platforms like Pinterest and Instagram, you can tell your story without using so many words to get it out there.”
But popularity can be fleeting online. Snapchat, the shares of which soared when its disappearing photos were once all the rage, has found that investors can be just as ephemeral. Its stock price has dipped to $11.75 from its IPO price of $17 as rival Instagram kept up the competitive heat.
“The success of Pinterest’s IPO will obviously determine how significant of a role the platform will play in a brands’ marketing or advertising strategy, going forward,” said Rodriguez.
The image-sharing platform, which has 250 million users globally, is still early in its plan to monetize the billions of searches it facilitates and has argued in regulatory filings that its users are uber desirable for brands and are in acquisition mode when they’re on Pinterest.
In the U.S., it captures 43 percent of Internet users.
“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,” the company said.
Pinterest also paints itself as that rare corner of the Internet where advertising is welcomed by users.
“Ads do not compete with the content Pinners want to see — they are native content,” the company said. “The mutually beneficial alignment between advertisers and Pinners differentiates us from other platforms where ads can be distracting or annoying.”
Once Pinterest does become public, it’s going to come under more pressure to make money off of this happy positioning. The company is working to make sure ads on its platform are more relevant to users and is building products to help advertisers catch Pinners as they move toward purchases.
To illustrate its potential, Pinterest pointed to IDC data projecting the global digital advertising market will grow from $272 billion last year to $423 billion in 2022.
“We have an opportunity to capture brand advertising dollars currently being spent in offline channels,” the company said. “People seeking inspiration use Pinterest in ways that mirror how they use magazines and catalogs. Traditional offline advertising options — specifically print, direct mail, television and radio — accounted for $378 billion in global advertising spend in 2018,” according to IDC.
Sandra Honegan-Pounder, a partner at BurgherGray, said of Pinterest’s pitch to investors: “You want to project the best scenario, and a more positive outlook. But what will drive the price after the IPO is a combination of the business, if the market thinks the business is growing, and how the market looks at the company’s management.”
But there’s also some pretty big competition out there trying to scoop up digital marketing dollars.
Google’s advertising revenues topped $116 billion last year, while Facebook pulled in $55 billion. And Amazon is also growing fast in the area. The e-commerce giant reported revenues of $10.1 billion in its “other” category, which primarily includes sales of advertising services but also the company’s other service offerings.