How Pinterest Makes Money

Social media platform and productivity tool Pinterest is among the prominent tech companies going public this year. In a filing it has revealed it is offering 75 million shares and has set the price range at $15 to $17 per share. This translates to a valuation of $11.3 billion at the higher end.

Founded in 2010, the company has received $1.5 billion in funding from 37 firms including Rakuten, Goldman Sachs (GS) and Andreessen Horowitz, according to Crunchbase. It was valued at $12 billion during its last round of funding in 2017.

Roughly 250 million users, or "pinners," use the bulletin board-like platform every month to browse and share images and other content in the form of "pins."

When it was founded, Pinterest seemed to follow the model of social network sites like Facebook Inc. (FB), meaning that it aimed to develop a massive network of users first and then to install means of generating revenue later on. It generated $755.9 million in revenue in 2018, a jump of 60% from the previous year, according to the recent filing.

"We’re still in the early stages of our monetization efforts. Today, our advertising products help businesses reach Pinners across their decision-making journey," said the company, which cited a Talk Shoppe survey that said 68% of weekly active users discovered a new brand or product on Pinterest. "We address various advertiser objectives through our Promoted Pin ad format, which contains either a single image, a carousel of images or video. Our ability to develop new and improve existing advertising products will be an important driver of our future growth." 

So just how has Pinterest come to be one of the most-hyped social media companies among investors and what is a promoted pin? Read on to find out.

Before looking at more traditional means of generating revenue, it’s worth looking at how Pinterest has utilized its unique pin system to create opportunities for monetization. The company has integrated a “buy it” button which permits users to buy pinned products directly from Pinterest, rather than visiting a separate merchant site. Merchants participating in BigCommerce, Shopify, or Salesforce Commerce Cloud are allowed the opportunity to partner with Pinterest; it’s unclear whether Pinterest charges any commissions from these partners, according to a report by Feedough.

Pinterest’s primary source of revenue is what it calls “promoted pins.” These special pins are effectively advertisements, paid for by identified sponsors. Like in Facebook’s timeline feature and other social media platforms, promoted pins look very similar to (but not exactly the same as) standard pins. Pinterest utilizes user data to target advertisements based on user interests and searches, as well as other demographics. Given that users pin items that they are interested in already, this process is relatively straightforward for the company.

Undoubtedly, Pinterest’s advertisement component is its largest source of revenue. Much of this revenue has been sparked by increased interest in the Pinterest mobile platform, which is increasingly popular among fashion and beauty brands. Given that the users of Pinterest are overwhelmingly female and have above average incomes, this perhaps seems like a natural area of strength for the company.

Pinterest will see its IPO coincide with that of other high-profile social startups like Uber, Airbnb and Lyft. Still, even with a path for generating revenue which has become increasingly clear as the years have gone on and a user base that has swelled, it will nonetheless be difficult for this (or any) new social media company to be able to rival the titanic duopoly of Alphabet Inc.'s Google (GOOG) and Facebook. However, Pinterest leadership has adopted a much less aggressive approach to growth than its competitors. That may make all the difference given the issues brands, regulators and users have with tech giants, like the spread of misinformation and inaccurate measurement data.