Featured Image

Launched in March of 2010, Pinterest is a website and mobile app that gives its users the tools to discover, share, collect, and store items, pages, websites, etc. on boards they create. And the board possibilities, it seems, are endless.

Want to eat and live healthier in the New Year? Make a board filled with tips and recipes for doing just that. Love fashion? Create a board that demonstrates your personal style choices. Wishing for a complete home redecoration? Make a board that compiles all of your design hopes and dreams.

This approach has really caught on with users in the social media sphere, propelling Pinterest to incredible growth. In fact, the company reportedly only took nine months to go from 50,000 unique monthly visitors to 17 million monthly unique visitors, compared to 16 for Facebook and 22 for Twitter.

High IPO Potential

Back in 2013, Pinterest CEO Ben Silbermann, speaking at Fast Company's Innovation Uncensored conference, said Pinterest was not angling to go public, and while he did not rule out the possibility of a future IPO, he emphasized that it was not a priority.

Silbermann elaborated that the company wants to "stand on its own two feet," and he was not sure if going public would help Pinterest retain and grow its user base.

Fast forward to 2015, and Pinterest is one of the most talked about IPO candidates of the year. It's the last of the popular social media companies to go public or to be swallowed up in a merger. Despite Silbermann's past comments, the company seems to be following in the footsteps of other social media giants Facebook ( FB ) and Twitter ( TWTR ).

Currently, its valuation is at a praiseworthy $5 billion, allowing it to join an exclusive club of start-ups, which include fellow 2015 IPO candidates Dropbox and Airbnb, worth between $5-$10 billion (also read Will Uber Be the Hottest IPO of 2015? ).

And the value of Pinterest just keeps on increasing. Thanks to a SkimLinks deal that monetizes links on Pinterest to other sites, the company is expected to generate $50 million annually.

After a successful first phase with selected advertisers-and using a tool called "Promoted Pins"-Pinterest is opening its ad sales platform to all merchants. Wedbush Securities estimates ads could generate $500 million in revenues in 2016.

In addition to monetization, Pinterest possesses a unique balance of consumer and product. It uses advertisements to their advantage; users-or, really, consumers-pin products they like, want, or have onto boards to share with others. Whereas ads on Facebook and Twitter stick out like a sore thumb, Pinterest works ads into the experience as a whole. They are (almost) invisible.

Pinterest has also curated a rare audience as women account for 80% of its user base. This not only presents new possibilities in terms of marketability and loyalty, but it also drives online sales since women are more likely to shop and buy online.

Obstacles Ahead

Despite commendable numbers and distinctive users, Pinterest must take on some daunting hurdles.
First, there is the problem of future user growth. Since its user base is 80% women, and 1/5 of all Internet-using women are registered users, one has to wonder how Pinterest will keep up its blistering pace of growth over the next few years.

It is also highly vulnerable to copycats, with similar applications like Trippy, Wanderfly, Gtrot, Manterstring, and Gentlemint popping up left and right. Internet users are constantly moving on to the latest and greatest, so Pinterest must prove that it is not just some fad or craze.

Not only is monetizing Pinterest a risky bet-"Promoted Pins" could very easily have been a financial failure-but there is also a clear risk of the company devolving into a mess of advertisements.

Final Thoughts

Pinterest has become an important new way of driving traffic to web properties as well as spurring high mobile usage (75% of its traffic originates from mobile devices). With 70 million registered users, the company has the potential to be great; however, Pinterest must prove its staying power, and convince advertisers that vast pin collections can somehow be monetized. 

Its best feature, though, is not the $5 billion valuation or female-centered user base. Since its launch, Pinterest has been dedicated to discovering its identity within the immense social network space, and this desire to find itself may be what sets the company and its potential IPO apart from the crowd.

Investors will have to watch this 'promoted pins' plan and to follow Pinterest user growth in the months leading up to any IPO, as revenue generation will increasingly come in focus for this company.

However, Pinterest has grown unlike very few internet companies in history, suggesting that if they can figure out the monetization of its huge user base, it could become the next darling of the social media IPO world before long.

 Want the latest recommendations from Zacks Investment Research? Today, you can download  7 Best Stocks for the Next 30 Days Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

FACEBOOK INC-A (FB): Free Stock Analysis Report

TWITTER INC (TWTR): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.

Related Articles