Pinterest's Business Model

Part
01
of three
Part
01

Pinterest Revenue Streams, Pt 1

Pinterest revenue primarily arises from selling digital advertising — performance and brand ads, to marketers and companies. The company also earns interest income from its cash, cash equivalents, and marketable securities.

PINTEREST REVENUE STREAMS

PERFORMANCE ADS

  • Performance ads make up around 2/3 of Pinterest's revenue. They are also known as "Promoted Pins."
  • Promoted Pins are (sponsored posts) bought by advertisers that show up in a user's home feed and search results when they visit an advertiser's page on Pinterest.
  • An advertiser will need a business account to create Promoted Pins. Then, they'll visit the Ads Manager page on the platform where they can activate their pins after making the necessary payment as established by Pinterest for a set of campaigns.

BRAND ADS

  • The rest of Pinterest's revenue generally comes from click-to-buy shopping ads on the platform, which uses a "buy it" button to integrate Pinterest with major e-commerce brands like BigCommerce, Shopify, IBM Commerce, and Salesforce Commerce Cloud so that users can buy directly, rather than visit a merchant's separate site.
  • The first time a user attempts to purchase a product via the "buy it" button, they will be directed to a page where they will enter their payment information and shipping address, "which will be saved and usable henceforth. After that, the user has only to confirm that information, and click "buy it" to take action on what passion inspires them at that moment."
  • All ads on Pinterest are bought via an auction system.

INTEREST INCOME

GEOGRAPHIC SEGMENTATION

  • Pinterest estimates revenue based on the "geography in which ad impressions are delivered."
  • Currently, it only monetizes certain countries, with the United States revenue primarily higher due to the maturity of the country's digital advertising market.
  • The revenue is disaggregated into the US and International sources (Brazil, India, Turkey, and Poland).

RESEARCH STRATEGY

The research team leveraged Pinterest's S-1 form available at the US Securities and Exchange Commission, trusted media sites referencing the company's financials, and the official website, especially the "investors relation" page, to identify each of the firm's revenue streams. In the run-up to its IPO, the company released its S-1 document, which gives significant insight into its earnings and different revenue channels. The report reveals that the company's revenue is primarily from advertiser relationships separated into performance ads and brand ads. This message is similar across other databases; for example, CNBC, a credible media site, also lists performance ads (promoted pins), and brand ads (click-to-buy shopping ads) as the primary sources of Pinterest's revenue. In addition to these, there is the interest income that comes from the company's non-operating activities, and revenue breakdown by geography, as shown in the S-1 form, the Four Week News, and more.
Part
02
of three
Part
02

Pinterest Revenue Streams, Pt 2

Pinterest revenue primarily arises from selling digital advertising — performance and brand ads, to marketers and companies. In 2018, the company posted about $755.9 million in revenue. The social network also earns interest income, which totaled about $13.1 million in 2018, from its cash, cash equivalents, and marketable securities.

ANNUAL REVENUE

  • The firm's primary revenue stream is selling digital advertising to marketers and companies.
  • In the first quarter of 2019, Pinterest recorded roughly $202 million in revenues.
  • In total, Pinterest posted about $755.9 million in revenue in 2018.
  • The company generated approximately $472.8 million in revenue in 2017.

REVENUE STREAMS

  • In 2018, performance ads, also known as "Promoted Pins," made up around 2/3 (or roughly 67%) of Pinterest's revenue, which equate to $506.453 million (755.9 million x .67).
  • In the same year, brand ads made up the rest (approximately 33%) of Pinterest's primary revenue, which equates to $249.447 million (755.9 million x .33).
  • Interest income from cash, cash equivalents, and marketable securities rose from about $8.3 million in 2017 to $13.1 million in 2018.
  • Revenue from international advertising was $40.8 million in 2018 and from the United States advertising market, $715.1 million.
Part
03
of three
Part
03

Pinterest Revenue Streams, Pt 3

Pinterest revenue primarily arises from selling digital advertising — performance ads and brand ads, to marketers and companies. The firm expects revenue from advertiser relationships to grow by about 40% from $756 million in 2018 to nearly $1.06 billion in 2019, and around 32% from 2019 to more than $1.4 billion in 2020.

OVERALL REVENUE

  • The firm's primary revenue stream is selling digital advertising to marketers and companies. Pinterest's growth strategy depends on, "attracting more advertisers (including serving more mid-market and unmanaged advertisers and expanding its sales efforts to reach advertisers in additional international markets), scaling its business with existing advertisers and expanding advertising product offerings, such as self-serve tools."
  • The details of Pinterest financials indicate that it's generating steadier advertising growth, that's about 60% in each of the past two years, posting around $756 million in 2018.
  • Pinterest estimates that in 2019, it will record revenue between $1.055 billion and $1.08 billion, at a midpoint of about $1.06 billion.
  • Therefore, the company expects the revenue to grow by roughly 40% ((1.06-0.756)/0.756*100) from about $756 million in 2018 to nearly $1.06 billion in 2019.
  • Yahoo Finance, analyzing Pinterest leaked financial documents, estimates that the social network will generate more than $1.4 billion in ad revenues in 2020, approximately 32% change from 2019.

REVENUE STREAMS

  • Pinterest's S-1 report reveals that the company's revenue is primarily from advertiser relationships separated into performance ads and brand ads.
  • In 2018, performance ads, also known as "Promoted Pins," made up around 2/3 (or roughly 67%) of Pinterest's revenue. Therefore, assuming this to be the case in the next two years, this revenue stream is estimated to grow by about 40% from $710 million (67%*$1.06 billion) in 2019 to $938 million (67%*$1.4 billion) in 2020.
  • Pinterest says that brand ads make up the rest (approximately 33%) of their primary revenue. Hence, assuming this to be the case in 2019 and 2020, this revenue stream is estimated to post $349 million and $462 million, respectively.
  • Revenue from international advertising was $40.8 million in 2018 and from the United States advertising market, $715.1 million. Since revenue is expected to grow by 40% between 2018 and 2019 — international advertising is projected to record roughly $57 million (140%*40.8) in revenues, while the US, $1.0 billion (140%*715.1) in revenues in 2019.
  • In 2020, revenue from international sources will reach about $75.24 million (132%*57), and the US, $1.32 billion (132%*1.0). This will be as a result of revenue growth of approximately 32% from 2019 to 2020.
  • The social network also earns interest on its cash, cash equivalents, and marketable securities. The income from these non-operating activities has grown from $6.368 million in 2016 to $13.152 million in 2018, recording a year-over-year rate of 43.71%(estimated using the CAGR calculator). However, with Pinterest yet to disclose the future balances for its cash, cash equivalents, and marketable securities, it is difficult to estimate how the interest will change in the future.

RESEARCH STRATEGY

The research team examined the completed briefs, 'Pinterest Revenue Streams,' parts 1 and 2, to profile the company's growth strategy concerning their overall revenue, and as applies to each stream. Next, the team leveraged Pinterest's S-1 form available at the US Securities and Exchange Commission, trusted media sites; referencing the company's financial plan, and the official website, especially the "investors relation" page, to determine the firm's revenue growth strategy. Details regarding Pinterest's growth approach emerged for up till the year 2020 only, from these databases.





Sources
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