According to the news report by Reuters, Pinterest Inc.’s shares shot up by nearly 30% on the company’s first day of trading on Thursday, April 18, taking the market value of the online scrapbook startup to about $16 billion. This has put the startup on track to raise more than $1.4 billion in possible payouts for its early investors.
The company’s shares opened trading at $23.75, which is much higher than the $19 per share price for the IPO (initial public offering), and closed the trading day at $24.40 per share.
Another startup – a US-based video conferencing company, Zoom Communications Inc.’s shares also skyrocketed, rising 72% on the company’s IPO price of $36 per share.
The performance of these two technology companies shows that investors’ appetite for new technology listing is now growing. It also is a good sign for Uber Technologies Inc. as it prepares to make its own IPO debut in May, especially after its rival Lyft Inc.’s shares have floundered well below their March IPO price.
According to Pinterest’s CFO Todd Morgenfeld, their company has focused on developing the best version of Pinterest that they can over the next few years. He stated that companies can fall victim to the drama and gyrations of the press as well as other short-term things if they allow themselves to get distracted by them.
Zoom’s CFO Kelly Steckelberg stated in an interview that the current market was very favorable, and that investors were seeing the opportunities in the software-as-a-service space.
Pinterest is the most high-profile social media startup to launch its IPO since the launch of Snap Inc.’s listing in 2017. And investors are hoping that the loss-making company will have a strong performance in the stock market based on the company’s ability to grow its user base as well as revenue.
According to E*TRADE Financial Corp.’s senior VP of trading Chris Larkin, when you see initial price jumps such as those seen in Pinterest’s and Zoom’s stocks, then it is a clear indication that investors’ interest in such companies is strong.
Pinterest is a social media platform that lets users look for topics such as travel tips or even home improvement projects. The results are shown most frequently in the form of infographics. Then, users can create their own themed social boards on the platform.
Revenue for the platform is generated via advertisements, which are placed strategically between the users’ posts or pins, as they are called.
Pinterest reported a revenue of $756 million, with a net loss of $63 million last year. In 2018, the company’s revenue was up by nearly 60% as compared to 2017. In the mandatory regulatory filing for its IPO in March this year, Pinterest disclosed that while its revenue was rapidly growing, so far it had never turned any profits.
As of March 31, the company is expected to report a total of 291 million global active users per month, which is a 22% increase from 2018. The company also stated that it more than 2 billion monthly searches on its platform.
However, according to Haran Segram, a professor of finance at the Stern School of Business at New York University, while Pinterest has clearly shown a path to profitability, the company has been overvalued.
The public listings of loss-making unicorns such as Pinterest have presented a conundrum to investors. Unicorns are startups that have market valuations of $1 billion or more.
While investors do not want to miss out on startups that have the potential of fast growth, there is also the danger of business risk due to unproven economics.