Pinterest, A new position

Pinterest (PINS) is a new position I’ve been building for a few weeks. I’ve had my eye on them for a little while after CMF_KBecks brought it to the board back in July. Gauchochris and I did a bunch of research. He has served as a wonderful sounding board and then I found that an investing website that I use also had written it up, (I have written articles for investing city but receive no pay and have no financial interest in it). Without further ado, more below.

I got tired of the tedium of trying to get tables correct on this darn website. A great companion read to my write up is PINS shareholder letter. It has pretty graphs and nice tables. Here is a link.…

PINS at its heart is a visual discovery engine with built in sharing and social functions. Basically a user identifies their interests, “modern homes, DIY backyards, cars” and then Pinterest fills your clipboard with pictures/videos/GIFs of things it thinks might interest you. Over time it refines the clipboard into a relatively sophisticated profile of you by what you click on and what you “pin”. Pinning a picture or video saves it to your clipboard/profile. As you might imagine this type of data is very valuable to advertisers because they are able to target you with exactly what you like. The service is very useful for its users because it allows them to discover new things around their interests. I signed up for an account and overall have been very impressed with how well it works.

PINS ability to keep people interested in its service rests on getting people to post content that PINS can then show to other people. The more customers PINS has and the more that PINS knows about what each customer likes, the better PINS is able to make money by leveraging that data with advertisers. From a high level, PINS the business depends on pleasing two seperate groups, users and advertisers. Up until the last year or so, PINS has focused mostly on making themselves useful to users and now they are making a strong push into making PINS a useful advertising platform. We will talk about both below.

Users/Engagement and Monetizing/Advertisers
Pinterest has 300 million global monthly active users (MAUs). 85 million of those users come from the US and the other 215 million are international. About 70 percent of users are women which is pretty incredible then that they have 85 million users in the US. Presumably about 60 million are women.

International vs US users is an important distinction since the average revenue per user (ARPU) is much higher for US customers at 2.8 dollars per user vs 0.11 cents per user international. Unfortunately PINS doesn’t break down where in the world those international users come from. We know from common sense and other social networks like Facebook that US users are the most valuable then other developed nations such as Western Europe and other English speaking countries. For Facebook a European user is worth about ? of a US customer, Asia about 1/10th and rest of world about 1/15th. Just as a comparison, Facebook earns about 33 dollars per MAU compared to 2.8 dollars at PINS. PINS currently just lumps all their non US customers into one basket called international.

On the monetizing side, Pinterest has begun to heavily invest in making its platform as frictionless as possible for advertisers large and small. They have also begun to open business centers in major markets mostly targeting Western Europe and English speaking countries. As of this writing, Pinterest now has business centers in most of Western Europe. In addition to opening business centers, Pinterest has begun developing tools to minimize friction for advertisers to get their content onto the platform as well as tools to track and analyze ad performance. Some of their tools are pretty innovative such as Catalogs which allows brands to have digital catalogs to show “looks” like outfits etc. as an ad. A person can then buy right from the picture everything they see. They are in the very very early stages of monetizing both the US, English speaking countries and Western Europe.

Some Numbers, MAU and ARPU
Pinterest shows pretty strong seasonality with most major holidays driving a fair amount of traffic. Last year Easter fell into Q1 and this year it was in Q2 which drove a couple of percentage point increases in q2 of this year. Q4 has historically been the strongest quarter from both a MAU and ARPU standpoint.

Pinterest’s MAUs for the US market is relatively mature and will probably see fairly pedestrian amounts of growth unless they are able to appeal to more men. In 2016 they had an average of 67 million MAU, 2017–73 milion, 2018 --79 million, and so far in 2019, 85 million.

International MAUs are still growing rapidly and will probably continue to do so for a few years. They are currently at 215 million international MAUs growing in the mid 30% range.

               US MAUs       International MAU       US ARPU           International  ARPU
2016     Q1   65                         63                       0.74                    --     
         Q2   65                         70                       0.96                   0.01
         Q3   69                         81                       1.07                   0.03
         Q4   70                         90                       1.60                   0.04
2017     Q1   71                         104                     1.13                   0.03
         Q2   71                         114                     1.36                   0.04
         Q3   74                         129                     1.52                   0.05
         Q4   76                         139                     2.17                   0.07    
2018     Q1   80                        160                      1.59                   0.05
         Q2   75                        156                      1.96                   0.05
         Q3   80                        171                      2.33                   0.06
         Q4   82                        184                      3.16                   0.09
2019     Q1   85                        206                      2.25                   0.08
         Q2   85                        215                      2.8                    0.11

Pinterest is in the beginning innings of monetizing in ALL their markets. ARPU is growing about 40% a year in the US. International monetization is even earlier in the story and management has said not to expect much of an acceleration in ARPU until the end of 2019 or early 2020. Modest increases in US MAUs and rapid increase of US ARPU along with rapid increase in international MAUs and modest increases in international ARPU is providing for >55% revenue growth.

Revenue, cash, opex etc:
Pinterest has a pretty incredible 1.85 billion in hand, most of that from their IPO.

              Rev     Rev growth %     OPEX as a % of Rev
Q2           161           59.4%             87%
Q3           190           64%               76%
Q4           273           57.6%             59%
Q1           201           53.7%             85%
Q2           261           61.9%             83%

Gross Margins are in the 64-75% range and improving.
No debt

Some Simple Projections
If we assume similar seasonality to previous years, Pinterest should have some really solid growth ahead of it. They are now focusing on growing their international ARPU but now that is on a large 200+ million base of monthly users. If we assume, as management said in their CC, that they are able to increase their US MAU slightly to 87 million and their ARPU in line (35%) or slightly below what they have done to 3.14 cents, they will have about 267 million Revenue from the US and international should be in the 30 million range for revenue growth in the 56% range. If they are able to start to show some movement in international ARPU then they could see a significant beat. Regardless, I think they have a pretty easy path to 50+% growth for the foreseeable future. Pinterest only gives year-end guidance which is between 1.095 and 1.115 billion. This would imply only 40ish % growth in the back half of the year. I’ll eat my shoe if that is all they do.

My Take
In my opinion, Pinterest is the anti-social network social network. They seem to have a strong focus on wellness, privacy and responsible usage. Almost a social network 2.0. I’ve been very impressed with management. They know their business very well and seem to have a very strong grasp on which levers to pull going forward. I give Management an A.

I think PINS’ growth prospects going forward are wide open. Facebook’s US ARPU is around 30 dollars, 10 dollars or so for Western Europe. I’m not suggesting that Pinterest will become as large as Facebook but I bring them up just to highlight that at the very least, Pinterest has far to go from their 2.8 of us ARPU and 11 cents of international. I give them an A on possible growth.

I also think that PINS can grow >50% for a while since MAUs are still growing and ARPU should continue to grow rapidly. I give them an A here too.

Pinterest is rapidly approaching some level of profitability. I’ll be interested to see if management tries to reach profitability or they continue to grow the business rapidly. That might not be an either/or question for PINs. With 1.85 billion dollars in the bank PINS has LOTS of optionality. I have zero worries about them going out of business.

I think PINS has a lot to offer advertisers since they have such incredible data around what their users like. Not only that but PINS continues to innovate on ways for advertisers to display their products. I think Pinterest Catalogs is such a great idea since it allows the advertisers to display curated content…think of things like the Ikea catalog or Macy. I don’t know of any other website that has really cracked the curated advertising content like PINS has. In one of their CC, Pinterest said they have close to an 80 percent conversion rate over a 30 day period. That is incredibly valuable to advertisers.

From a valuation standpoint, we have a company with tons of cash, growing >55%, approaching profitability with an EV/S of 17. They now have tons of cash and visibility from the IPO. I think they will continue to grow rapidly and be much larger in the future. I’ve been investing in them and will continue to increase my position size with good business results.

If this write up has sparked your interest, definitely go back and have a listen to their conference calls as well as read their shareholder letters. Lots of good stuff that I didn’t cover here.



For Facebook a European user is worth about ? of a US customer,

We found that European user were about 1/3 of a US user.

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Glad to see others are interested in Pinterest!

I also think it’s going to be a great long-term hold.

Here’s my favorite reason why:

Market cap:
FB: $524 billion
TWTR: $31 billion
SNAP: $22 billion
PINS: $17 billion

And yet…

  1. The majority of Pinterest users say the site is “filled with positivity.” If you were an advertiser, which social network would you want your brand to be associated with?

  2. People visit Pinterest with the expressed purpose of taking action. Learning a new recipe, trying a new exercise routine, tackling a home improvement project, doing a new craft…etc. This is a very natural segway into buying something. As Pinterest says “ads do not compete with native content – they ARE the native content.” Compare that to TWTR/SNAP/FB/Instagram/Whatsapp, where the ads are a distraction.

Again, if you’re a brand, which site sounds like the most attractive to advertise on?

PINS is also just now starting to provide tools that allow for monetization & brand building, especially in international markets.

This is why I could easily see the market cap order in a few years becoming:


I could easily see PINS becoming a $100 BB business in time, if not higher.

I also did a podcast with Dylan Lewis on the company:…



1) The majority of Pinterest users say the site is “filled with positivity.” If you were an advertiser, which social network would you want your brand to be associated with?

2) People visit Pinterest with the expressed purpose of taking action. Learning a new recipe, trying a new exercise routine, tackling a home improvement project, doing a new craft…etc. This is a very natural segway into buying something. As Pinterest says “ads do not compete with native content – they ARE the native content.” Compare that to TWTR/SNAP/FB/Instagram/Whatsapp, where the ads are a distraction.

Brian, you did a much better job highlighting what I was trying to say in when I called Pinterest a social network 2.0 and why the brand is so valuable. Thanks for the link to the podcast you did. I really appreciated your insight on the value of the PINS brand and why the Ads are much better integrated into the platform. Anyone thinking about an investment in PINS should give the podcast a listen.

A couple of times you guys mention them using AWS as being a negative or a risk. I see it a little different. Cloud hosting costs are going down, azure and google cloud are both waiting and ready if AWS becomes too burdensome and now with a 1.8 billion dollars in the bank they can go the co-location route and over the long term decrease their cost of revenue. Another lever they can pull to improve the financials.

Anywho great podcast, Thanks for your insights.



I was looking for Pinterest’s net retention rate. I can’t find it in their 10-Q. I’d be interested to know if businesses who advertise on pinterest are finding the platform to be effective. If the NRR is high, it means that the ad platform is working. If it isn’t, it could be the case that everyone is trying it out, but it isn’t catching on. In the former situation the growth will sustain itself. In the latter, it will not.

I really do think Pinterest has a fantastic brand and think this thread highlights a lot of reasons to own the stock. In fact, it is my 7th largest holding. I just wish I knew their NRR. Does anyone have it, or do they not break it out?


I use Pinterest all the time. It’s become a go to for anything I’m designing or looking for while creating a project.

Filled with ideas I wouldn’t normally think of and a great community of like minded people.

Searches have many times brought me to products I’ve then purchased.


Net retention rate measures how much a customer cohort increases their spend year-over-year. For Pinterest, the customer is the advertiser so it doesn’t make sense to use that as a metric. You would essentially be saying “Hey, look how much more money you’re spending with us.”

This differs from a subscription business because the add-ons/up-sells are aligned in terms of the value proposition.

For advertising companies like Pinterest, the metric that matters is ARPU (average revenue per user). And Pinterest breaks this down between US and international. This is a better metric because the value of the ad platform is directly correlated to its reach and its engagement with users. So rather than focus on the advertiser’s metric (retention) it makes more sense to highlight how much value the platform is extracting from end-users.

The same goes for Facebook, Google, etc.

The thesis behind Pinterest is that the company has yet to really monetize its 300 million MAUs. For comparison, Facebook has about $33 in ARPU for its domestic users and Pinterest has about $2.8.

Hope that is helpful,


thanks for kicking of great dialogue Ethan… and others…
PINS looks to be promising more as a combination of next gen e-commerce & social network… I would call “social e-commerce” or even “visual commerce”…

Its been very intriguing… story and potential looks really good… however, ability convert that potential to reality is always a challenge and proof is in pudding…

So for this quarter when their international ARPU went up from 8 cents 11 cents, I am very encouraged… and started a small position (1.5%)…

Valuation looking backward is very high but if you believe in growth picking up, its fairly reasonable at this point.

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