Reports by CNBC in late July, 2018 suggested that social media website Pinterest could finally be living up to its hype. Founded in 2010, the company has been the recipient of VC funding from firms like Rakuten, Goldman Sachs (GS) and Andreessen Horowitz. Pinterest allows roughly 200 million active users to create and share pictures and other content by “pinning” items of interest. A pin is a sort of visual bookmark; when a Pinterest user clicks on it, the pin links him or her to the original website of the item in question. When it was founded, Pinterest seemed to follow the model of social network sites like Facebook (FB), meaning that it aimed to develop a massive network of users first and then to install means of generating revenue later on. So just how has Pinterest come to be one of the most-hyped social media companies among venture capitalists?
Before looking at more traditional means of generating revenue, it’s worth looking at how Pinterest has utilized its unique pin system to create opportunities for monetization. In recent years, the company has integrated a “buy it” button which permits users to buy pinned products directly from Pinterest, rather than visiting a separate merchant site. Merchants participating in BigCommerce, Shopify, or Salesforce Commerce Cloud are allowed the opportunity to partner with Pinterest; it’s unclear whether Pinterest charges any commissions from these partners, according to a report by Feedough.
Pinterest’s primary source of revenue is what it calls “promoted pins.” These special pins are effectively advertisements, paid for by identified sponsors. Like in Facebook’s timeline feature and other social media platforms, promoted pins look very similar to (but not exactly the same as) standard pins. Pinterest utilizes user data to target advertisements based on user interests and searches, as well as other demographics. Given that users pin items that they are interested in already, this process is relatively straightforward for the company.
Undoubtedly, Pinterest’s advertisement component is its largest source of revenue. CNBC suggests that the company is approaching $1 billion in ad revenue. It reached $500 million in sales in 2017, meaning that the company is on pace to approximately double its ad revenue in 2018. Much of this revenue has been sparked by increased interest in the Pinterest mobile platform, which is increasingly popular among fashion and beauty brands. Given that the 200 million or so users of Pinterest are overwhelmingly female, likely to be highly educated and with disposable income, this perhaps seems like a natural area of strength for the company.
So what comes next for Pinterest as it continues to grow its advertising arm? Talk has swirled around the venture capital world for years that the company could be considering an IPO. Now, it seems more likely than ever before that Pinterest is in fact considering just that. CNBC sites individuals familiar with Pinterest’s long-range plans as it suggests a possible public debut midway through 2019. If this timeframe proves accurate, Pinterest would likely see its IPO coincide with other high-profile social startups like Uber and Airbnb, both of which are also toying with IPOs sometime next year. There are certainly many investors eager to be able to buy into Pinterest; trades on the secondary market currently value the company at up to $15 billion, up from an average value of about $12.3 billion during its last financing round in June of 2017. Still, even with intense interest in Pinterest, and a path for generating revenue which has become increasingly clear as the years have gone on and the user base has swelled, it will nonetheless be difficult for this (or any) new social media company to be able to rival the titanic duopoly of Google (GOOG) and Facebook.