On the heels of Zoom’s S-1 filing, social giant and San Francisco unicorn Pinterest publicly filed to go public. The company’s long walk to the public markets has been the subject of much speculation. The firm joins a number of other, highly-valued technology firms in going public this year.
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The company’s SEC filing was widely expected to land today, after news broke this morning that the company was accelerating its IPO run. Recent market conditions have looked good, with the fantastically unprofitable Lyft managing to find more buyers than it had shares to sell. The ridehailing firm will likely raise its price, sell more shares, or both.
But Pinterest’s IPO has a cleaner ramp to profits, as we’ll see. Let’s check the numbers.
Before we begin, Pinterest uses the calendar year instead of an amended fiscal calendar. We’ll examine it using full-year periods that correspond to the years as we know them.
Pinterest has consistently reported revenue growth and falling losses. The top and bottom lines of its financials, then, are each pointing in the correct direction.
In 2016, Pinterest posted $298.9 million in revenue, resulting in a net loss of $182.1 million. In 2017, both numbers improved. Pinterest saw top line of $472.9 million, and a smaller $130.0 million net loss. And in 2018, the most-recent full year period, Pinterest lost a far smaller $63.0 million against revenue of $755.9 million.
Pinterest grew 58.2 percent from 2016 to 2017, and 60.0 percent from 2017 to 2018. That acceleration in revenue growth, coupled with falling net losses, could endear investors looking for a path to profitability and a growth story. Pinterest may be able to afford both during its impending roadshow.
The unicorn’s revenue is lower-margin than what some software companies post. In 2018, the company’s more than $755 million in revenue brought cost of revenue expenses of over $241 million. That left Pinterest with a gross margin of around 68 percent in the year. Its 2017 gross margin was around 62 percent. That improvement is a boon to Pinterest, a company with a stiff $12.35 billion valuation to defend.
Turning to its cash position, the company is nearly comically rich. Pinterest closed calendar 2018 with nearly $628 million in cash and equivalents. That’s a mountain of duckets, exacerbated by its modest cash burn. Pinterest’s operating cash flow improved from -$102.9 million in 2017 to -$60.4 million in 2018, and the firm flipped from negative investing cash flow to positive last year. The company had years of cash on-hand before it filed. After its offering, the company will be well-set for future growth, presuming that it doesn’t manage to reach positive operating cash flow in short order.
A Big Fourth Quarter
Why is Pinterest pushing its IPO now? The company posted a monster fourth quarter. In the last three months of 2018, Pinterest brought in record revenue of $273.2 million, leading to an outsized profit of $47 million.
Pinterest, unsurprisingly, enjoys the holiday shopping season in the fourth quarter of each year. In the fourth quarter of 2017, for example, Pinterest managed a profit, though it was a smaller $3.4 million piece of net income. The company traditionally loses a lot of money in the first quarter.
So, get out now while the math is fire, as the kids say.
Tip Your Cloud Provider
Before we turn from the company’s financial performance, something caught our eye. Have you ever had a large bill ahead of you? How about three quarters of a billion dollars in cloud spend? Read this:
In May 2017, we amended the enterprise agreement governing our use of services from AWS with an addendum. Under the agreement, as amended by the addendum, we agreed that a substantial majority of our monthly usage of certain compute, storage, data transfer and other services must be provided under the addendum, and we are required to purchase at least $750.0 million of cloud services, which we primarily use for compute, storage and data transfer services, from AWS through July 2023
Dropbox this isn’t, in other words.
Backers And Winners
Pinterest has raised a known total of around $1.5 billion from its investors. The company’s biggest funding round was a $186 million Series G in May 2015, led by Goldman Sachs Investment Partners, SV Angel, and Wellington Management. The company went on to raised $150 million in June 2017 from Sinai Ventures.
Pinterest did not yet break down the percentage each investor has in the company, in its S-1 filing. However, investors listed include Bessemer Venture Partners, FirstMark, Andreessen Horowitz, Fidelity, Valiant, as well as co-founder and first CEO Paul Sciarra (who left the company in 2012). Executives listed include: Benjamin Silbermann, the founder and CEO of Pinterest; Jeff Jordan, general partner at Andreessen Horowitz and CEO of OpenTable; and Leslie J. Kilgore, a director over at Netflix.
In terms of acquisitions, Pinterest snapped up 15 companies since being founded in 2009. Most recently it scooped up searching engine Jelly HQ in March 2017. Other companies Pinterest owns include Instapaper, Hike Labs and Math Camp.
Understanding All That
As we’ve reported, Pinterest had higher expectations for its own growth than what it has put up. But the firm’s big fourth quarter, its history of growth, and notably slowing losses, could help the firm get a firm pitch across the table.
In fact, after seeing Zoom’s profits and Pinterest’s falling losses (measured in dollars, not merely points of revenue), Lyft’s own S-1 looks worse and worse.
As always, more when it prices.
Illustration Credit: Li Anne Dias