PINTEREST INC PINS
June 15, 2020 - 7:07pm EST by
sag301
2020 2021
Price: 20.89 EPS 0 0
Shares Out. (in M): 587 P/E 0 0
Market Cap (in $M): 12,251 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 10,673 TEV/EBIT 0 0

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Description

CERTAIN STATEMENTS CONTAINED HEREIN REFLECT THE OPINION OF THE AUTHOR AS OF THE DATE WRITTEN. NO INVESTMENT DECISIONS SHOULD BE BASED IN ANY MANNER ON THE INFORMATION AND OPINIONS SET FORTH IN THIS REPORT.  YOU SHOULD VERIFY ALL CLAIMS, DO YOUR OWN DUE DILIGENCE AND/OR SEEK ADVICE FROM YOUR OWN PROFESSIONAL ADVISOR(S) AND CONSIDER THE INVESTMENT OBJECTIVES AND RISKS AND YOUR OWN NEEDS AND GOALS BEFORE INVESTING IN ANY SECURITIES MENTIONED. Please see additional Important Disclaimers at the end of this analysis.

 

COMPANY OVERVIEW

Pinterest (“PINS” or the “Company”) is an inspiration and discovery platform that is emerging as a scaled digital advertising alternative to the Facebook/Google duopoly with its 367MM monthly active users (“MAU”) as of 3/31/20 earnings press release (90MM US and 277MM international).  The platform has visual content and discovery tools that allow its users (“Pinners”) to create personalized collections of human curated media.  Pins are created when Pinners save images or video found or saved from around the web by other Pinners, curators, or businesses.  Pinners use Boards to effectively catalogue, save, and organize pins around topics of interest.  Boards can be further divided into sections (e.g. “fashion” board could have “shoes”, “tops”, and “glasses” within it).  Every saved pin must be categorized under a particular board, and the user can access and customize their boards from their profile.  These pins link back to the original site where they were found, and when people click on a Pin they can learn more about it and possibly act on it, with the ability to buy items through features such as Product Pins (which makes items shoppable with up-to-date information) or Shop the Look (enabling Pinners to shop for products seen in Fashion or Home Décor Pins).  

 

In my view, the Company is uniquely positioned between Facebook and Google.  PINS is a productivity tool for planning that emphasizes discovery over search and as a personal rather than social experience.  Unlike in informational searches, Pinners are often not looking for one correct answer, do not know what they want or how to express their queries in text, and are open minded to design, brand and product.  When Pinners embark on a “search”, they view an average of 50 pages which is equivalent to scrolling through 5 pages of Google search results per RBC report dated 5/12/19.  Unlike in social, users are fundamentally pursuing self-care/interests rather than making connections or interactions, making it the health and wellness platform with high brand safety (no politics; fake news; controversial content; 91% of pinners say PINS is filled with “positivity” per Talk Shoppe Survey cited in its April 2019 IPO prospectus).  Based on my conversations with others knowledgeable in this space, I believe the latter is an understated advantage and should not be dismissed.  PINS’ high brand safety environment is a real differentiator for advertisers who are increasingly focused on presenting their brands with suitable content and associating their brands with pleasant user experiences.  Historically, PINS has addressed not only top-of-funnel content but also the elusive mid-funnel, including longer term consideration purchase windows.  The Company is gradually moving down the funnel to close the loop and directly facilitate/enable transactions – one of the biggest gripes of users is the inability to easily buy products, which causes users to drop off and search for that product on another platform (per former employees).  PINS has lower user frequency than its social competitors but much longer engagement and higher commercial intent, a key distinction which makes it more akin to search based on company disclosures and third party surveys (e.g. Deutsche Bank report dated 5/13/19).  

 

PINTEREST DESERVES TO EXIST WITH UNIQUE USE CASES FOR “PINNERS” AND DIFFERENTIATED VALUE PROPOSITION FOR ADVERTISERS

My concern that PINS is a feature that can be copied by Facebook as it has done with Snap and Twitter have been allayed.  Based on my research, I believe the Company’s unique positioning as a hybrid social/search platform that inspires its users to visually discover and answer difficult subjective questions/desires that lack objective discrete answers  supports the fact that its business model is not easily copied.  PINS graphic content has been thoughtfully curated by humans at (in my view) nearly irreplicable scale and cannot be matched with machine learning or AI.  Because there is no inherent adoption virality, there are “industrial” moats that likely make quick unexpected disruption harder and enable PINS to keep ahead as its scale feeds into better user experience.  In my opinion, human curation and personalization in its taste graph make it hard to leapfrog/short circuit with technology alone, suggesting that any competitor (e.g., Google or Facebook) would need to build a comparable data set manually through its user base.  Consider the simple graphic below (from IPO prospectus in April 2019) which shows all the different keyword tags that humans associate with a simple picture.  While machine learning or AI would tag this as Machu Picchu, human Pinners tag this with many other subjective terms that are seemingly unrelated.  Powered by human curation, the Taste Graph seeks to serve up the most relevant picture based on context and tags, making this picture easily discoverable to a Pinner with similar desires.  As users pin, Pinterest is able to [1] improve its understanding of user preferences; [2] glean from that data how similar consumers may think; [3] enable the Company to make its platform feel more personalized (according to Talk Shoppe survey cited its in IPO prospectus, 82% of Pinners indicate Pinterest feels personalized to them).  For context, the taste graph has >175Bn pins saved and assigned to 4Bn saved boards per the Company’s IPO prospectus (April 2019).    

 

Source: IPO prospectus, 4/17/19

 

As previously discussed, PINS occupies the space between social and search.  Users on the platform have a different mindset than on Facebook and Google: they do not come to the platform to socialize with friends and typically are not searching for discrete products/SKUs that have objective answers.  They come to PINS with high commercial intent and are typically project driven (85% of users say they go to Pinterest to start a new project according to Talk Shoppe survey cited in its IPO prospectus) and seeking inspiration on design, style, brands, products, etc.  Questions they’re looking to answer are not as simple as “black dress shoes” but more complex with no straightforward answer such as “shoes for wedding” or “ideal living room.”  For example, PINS says the #1 search during the week of V