Pinterest’s Value Opportunity In Three Key Factors
By
Jarett Boskovich
The Pinterest initial public offering is expected to hit the market next week. The offering has already gained massive attention from not only Wall Street, but the media and advertising industry due to the capital it is expected to raise. Pinterest is currently valued at more than $11 billion and aiming for an IPO in 2019 with $13-$15 billion valuations. With the amount raised estimated to reach $1.2 billion, Pinterest will have the ability to expand its platform and gain more of the market share.
Until now, many advertisers and businesses have underestimated Pinterest’s potential to act as an effective platform for advertising and commerce. Thus, having been seen as a red flag to potential investors concerned about how the company will be able to generate revenue moving forward. A successful IPO will provide Pinterest with the capital needed to invest in a more long-term growth strategy.
From my perspective, there are three major factors at play that present a massive opportunity in the future success of Pinterest that advertisers and businesses should pay attention to: 1) its strong user base and international expansion; 2) its visual search capabilities; and 3) the overall increase in digital advertising spend.
Loyal User Base
To date, Pinterest has successfully gained a loyal user base with a high ranking number of accounts and engagement. With 250 million users who go to Pinterest for inspiration and information, Pinterest has become one of the leading platforms for content. To date, the company says its community has saved 175 billion pins and created roughly 4 billion boards. Additionally, 36% of Pinterest users are between the ages of 18 and 29, which is the same age range that spends an average of 151 minutes using their smartphone daily. Even further, the platform’s international user base grew substantially in 2018 with sign-ups up 80% outside of the US. With demographics of this kind and 50% of users reporting purchase after viewing a product on the platform, Pinterest has the ability to expand its reach, capitalize on content monetization in foreign markets, and significantly increase its revenue per user.
Visual Search Capabilities – it’s more about search and shopping than being social
Visual search has been adopted by forward thinking brands in both media and retail, and is now starting to come into its own as a go to tool to help retailers boost their customer experience. Pinterest is the leader in the space with 600 million visual searches on the platform already. In Pinterest’s S-1, they list Amazon, Google, Facebook, Twitter and Snapchat as their competitors. This is a key factor because Pinterest is a user experience unlike any other. They do not label themselves or identify as a social networking site, they are promoting discovery and action. This ultimately means Pinterest is a visual search and commerce platform, more closely identifying with Amazon and Google. According to Pinterest, “over two billion text-based searches and guides searches happen on its platform every month.” Although some social features exist within the platform itself like re-sharing and liking, the discovery experience and search abilities are what truly make Pinterest stand out from the rest. By being at the intersection of search, social and e-commerce, Pinterest has very few competitors.
With that said, Pinterest has shown great early signs of success when it comes to its visual search but they haven’t fully taken advantage of the immeasurable possibilities. One major opportunity lies in deploying AI and Visual Search across its library of new and existing native content. Indexing and monetizing this content at scale will drastically impact their contents searchability, marketability and profitability. Through AI technology, Pinterest can take their vast quantity of curated content and invest in more robust search engine capabilities.
Overall Increase in Digital Ad Spending
According to research from IDC and referenced in the platform’s SEC Form S-1, the digital advertising market alone is projected to grow to $423 billion in 2022 from $272 billion in 2018, or a 12% CAGR. Just like anything in business, ROI and implementing a measurement system to gauge success through KPIs will come from monetizing already existing tools while finding unmarked territory to expand. Therefore, a critical factor in the platform’s growth will be monetization.
Pinterest’s potential lies within content monetization and diversified ad offerings, which we’ve seen to be successful for many media companies. Just yesterday, Pinterest rolled out its new “conversion optimization”, an ad optimization tool which offers promoted pins, promoted videos, carousel, and shopping ads. The ultimate goal of Pinterest’s new tool is to make less work for the brand while still engaging with its target audience. Instead of driving consumers to simply click on an ad, it can now lead them to an action based on the advertiser’s conversion goal.
In closing, by leveraging all the components of a successful platform – content, community, and commercialization – and leaning in on its international user-base, Pinterest will only continue to grow, increase its bottom line, and prove to be a successful investment for all those involved in its IPO.
Jarett Boskovich is Co-Founder and CMO of WowYow Inc. [@WowYow]
