Social media platform Pinterest went public earlier this year. In short, the company makes money from advertising. Shares started trading on the New York Stock Exchange on April 18 under the symbol “PINS.” 

Pinterest's initial public offering (IPO) price was at $19 per share and it raised $1.4 billion, giving it a valuation of roughly $12.7 billion including restricted stock and options. As of Oct. 17, 2019, the company had a market capitalization of $14 billion. Roughly 300 million users, or "pinners," use the bulletin board-like platform every month to browse and share images and other content in the form of "pins."

Key Takeaways

  • Pinterest makes its money via advertising, specifically, promoted pins. These promoted pins are ads that look similar to user-generated pins (posts). 
  • The company generated $756 million last year in revenue but posted a net loss of $63 million.
  • Opportunities for increasing revenue that Pinterest plans to pursue include greater international expansion, focusing on video and increasing ad capabilities, as well as pursuing its own e-commerce efforts. 

Pinterest History 

The company, founded in 2010, previously received $1.5 billion in funding from 37 firms including Rakuten, Goldman Sachs (GS) and Andreessen Horowitz. It was valued at $12.3 billion during its last round of funding in 2017. The company has a dual-class structure.

When it was founded, Pinterest seemed to follow the model of social network sites like Facebook Inc. (FB), meaning that it aimed to develop a massive network of users first and then to install means of generating revenue later on. It generated $756 million in revenue in 2018, a jump of 60% from the previous year. The company generated $261 million in revenue during the second quarter of 2019, a 62% year-over-year increase. 

“Our advertising products help businesses reach Pinners across their decision-making journey," said the company, which cited a Talk Shoppe survey that said 68% of weekly active users discovered a new brand or product on Pinterest. 

"We address various advertiser objectives through our Promoted Pin ad format, which contains either a single image, a carousel of images or video. Our ability to develop new and improve existing advertising products will be an important driver of our future growth." 

So just how has Pinterest come to be one of the most-hyped social media companies among investors and what is a promoted pin? 

Monetizing Pins

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. 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.

Promoted Pins 

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.

Pinterest's revenue is driven by interest and use of its platform, which is increasingly popular among fashion and beauty brands. Given that the users of Pinterest are overwhelmingly female and have above average incomes, using its platform as an e-commerce gateway is more than ideal.

Next Steps

Pinterest's user base has grown over the years, where it’s carved out a niche that allows it to not directly compete with the likes of Facebook. Pinterest’s leadership has adopted a much less aggressive approach to growth than its competitors. Revenue has grown since the company has gone public, but so has its net loss, as the company has ramped up spending on sales and marketing and research and development. 

One big future opportunity is being able to tap the international markets, where Pinterest currently has little reach. Beyond that, Pinterest is interested in building out its e-commerce efforts (what exactly that looks like remains to be seen), as well as continuing to develop advertising tools, including video capabilities, for advertisers.