Eight initial public offerings (IPOs) are expected to make this week the busiest for the 2019 IPO market, and the leader of the pack is undeniably the highly anticipated Pinterest Inc. (PINS) debut. The social media company – known for letting users “pin” images or photo collections to topical online boards – will be the last high-profile deal before Uber likely becomes the biggest IPO ever next month.
As with any IPO, investors are keen on understanding how financially viable the newly public Pinterest will be. Many tech offerings are driven purely by hype and speculation, making them volatile investments in the near and medium term. Investors don’t have to look further than Lyft Inc. (LYFT) for proof, which went public less than a month ago and is already down more than 17% from its $72 offer price.
Here’s a closer look at the Pinterest IPO – and whether or not investors should rush right in when it starts trading on Thursday…
The Business
Pinterest continues the tech unicorn tradition of hemorrhaging money for years as a public company right before drastically minimizing those losses leading up to an IPO.
The company reported a massive loss exceeding $170 million back in 2016, but subsequently narrowed it to $130 million in 2017 and $63 million last year. As for revenue, Pinterest raked in $756 million in 2018, an immense 60% increase from $473 million in 2017. While last year’s $756 million doesn’t hold a candle to more established social media companies – Facebook Inc. (FB), for example, boasted pre-IPO revenue of $3.7 billion in 2011 – Pinterest still maintains exceptional growth for a firm that’s less than 10 years old. According to the Wall Street Journal, bank analysts predict that the firm’s annual revenue could grow as much as 35% in 2019.
But like any other social media company, users remain the most closely watched metric, and Pinterest’s monthly active users (MAUs) have been on a steady climb in recent years. From September 2015 and September 2018, the site’s monthly active users (MAUs) more than doubled from 100 million to 250 million. That has since grown to 265 million.
The Deal
Late Wednesday evening, Pinterest priced its IPO at $19 a share, raising $1.6 billion and valuing the company at $12.7 billion, slightly above the most recent funding round valuing it at $12 billion. That $19 price point was far above the expected range of $15 to $17, clearly demonstrating the appetite market participants have for the company. The IPO price also values CEO Ben Silbermann’s stake near $1 billion.
The Bigger Picture
Pinterest is yet another highly anticipated IPO in a year that’s sure to be full of them. With the S&P 500’s 15.7% rally this year and exceptionally low volatility, many analysts believe 2019 will become one of the best years ever for the IPO market in terms of total funds raised.
The first quarter marked a strong start to the year thanks largely to the Lyft and Levi Strauss & Co. (LEVI) debuts. Those two made up 63% of the $4.7 billion in proceeds raised during the January-March period. And with mega-IPOs waiting in the wings – including not just Uber but also trading platform Tradeweb and Chinese e-commerce firm Yunji – this quarter will surely outpace last quarter and may even become the biggest three-month stretch of the past five years thanks largely to Uber.
But despite the positive reception to IPOs recently, newly issued stocks often make for a tricky game, especially for everyday retail investors. A new stock’s first few months are prone to volatility due to insiders and institutional investors – typically the hedge funds and venture capitalists with enormous early stakes in the company – shifting their positions around. It can become even more volatile once the IPO lock-up – or the period of time following an IPO in which insiders aren’t allowed to sell their stakes – expires.
Looking Ahead
Jumping into an IPO right away is always risky. It’s rare for a newly public firm to roar for months out of the gate, and Lyft’s recent performance is clear proof of that rarity.
For investors itching to get into Pinterest, it would be wise to wait until after the lock-up expiration date tentatively set for Sept. 22, which, per the SEC IPO filing, is 180 days following the date of the March 22 prospectus. By then, many insiders will have dumped their shares and the company will have reported at least one quarterly earnings report, giving everyday investors enough to make an educated decision as to the strength of Pinterest as an investment.