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Despite the impressive growth, the current model does not allow the company to generate even remotely similar revenues abroad compared to its domestic market. In Q2, 2020, the average quarterly revenue per user was $0.14 for international vs. $2.5 for the US based users.  

Whenever someone searches for an image on Google, the first few results will likely be links to Pinterest. A 10-year-old company grew from its modest beginning in an apartment in New York to a multibillion-dollar company that finally IPO'd in 2019. 

The company has gained popularity almost immediately after its website was launched and continues to attract new users each quarter. However, it is no longer the startup it once.  Is the continuous growth bringing the expected revenues, and how much more can it expand?

2020 and the ongoing pandemic continue to impact most companies, albeit Pinterest's user acquisition continues substantially. In Q2, 2020, the company had 416 million quarterly monthly active users vs. 200 million in the same quarter last year. The growth primarily came from international markets, contributing 321 million vs. 96 million in the US. 

Pinterest also cleared substantial costs arising from IPO linked employee compensation. As a result, the R&D costs decreased from $801,877 million in three months ending June 2019 to $136,593 million in 2020. We see similar decreases in sales & marketing and general & administrative, $296.919 million to $86.483 million, and $224.179 million to $45.680 million, respectively.

Despite user growth, the average quarterly revenue per user has decreased. Global figures indicate $0.70 in Q2, 2020, compared to $0.77 in Q1,2020 and $1.22 in Q4,2019. The declining global average revenue per user results from modest US growth, compared to more pronounced numbers in international markets, where average revenue per user is much lower.

The company faces multiple challenges in the upcoming quarters. In Q1, 2019, the company entered into a lease of almost 0.5 million square feet office built near its current headquarters. The rapidly changing workplace landscape and growing popularity of remote work, especially amongst the tech workers, may leave the company exposed to the minimum  $440 million in lease payments for the office space it is less likely to need.

However, the major problem for the company is the meager revenue from international visitors. Despite the impressive growth, the current model does not allow the company to generate even remotely similar revenues abroad compared to its domestic market. In Q2, 2020, the average quarterly revenue per user was $0.14 for international vs. $2.5 for the US based users.  

Pinterest also lacks the synergies Facebook can deliver by further integrating its Instagram, Facebook, and WhatsApp services, making it a less attractive option for ad spend.

Pinterest can attract and retain its users that are often very engaged with the platform; however, it will require more than just another injection of capital it received after the IPO.

It is difficult to see how declining average revenues from domestic and international users will meet a newly listed company's realities.  The global pandemic and subdued economic activities globally will result in many companies thinking twice about how and where their ad dollars should be spent. Pinterest is unlikely to sustain the necessary levels of revenue without substantial changes to the way it runs and earns from the ads.


Disclaimer: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.

Published On
2020-10-11 16:19

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About the Author
Valdas S. London based head of technology during the day, writer at night. Valdas writes about finance, economy, and technology.

$53
$2.19 4.31%
Perf. YTD 186.22%
52W high -0.43%
52W low 424.75%
PE Ratio -74.8
MKT Cap 31.83B

Analyst Ratings
Target Price $42.23
# of Analysts 24
Last updated 2020-10-21