3 Things for Pinterest to Consider Before an IPO

In one of the biggest funding rounds of recent months, Pinterest has snagged $200 million funding from Valiant Capital Management and other existing investors.

The new round of funding will probably be used to improve its service, introduce additional features, and even help the company in its global expansion.  But the nature of such a large round of funding also indicates Pinterest is looking to go public.  That’s a big step for Pinterest, a highly popular, but still young social network.  Is this a sign of another tech bubble?  And could Pinterest handle an IPO?


Private funding looks like an IPO


According to some analysts, this current funding brings Pinterest’s valuation to $2.5 billion, but some are also doubtful given the fact that the company doesn’t actually generate revenue.

“There seems to be a valuation bubble for private tech companies in Silicon Valley,” IPODesktop.com’s Francis Gaskins said. “I think a lot of it is based on the expectation of growing into their billion-plus valuations. It’s not clear that Pinterest has much actual revenue now, and ultimately in the IPO market it does come down to top-line revenue growth and how soon to break even.”

On a positive note, Pinterest is rallying some pretty solid, long-term investors which could help the company if it actually decides to go public in the immediate future or sometime later this year.

Is this a bubble?  Will Pinterest be like MySpace or Facebook?


This is a good point.  Is this just a phase for Pinterest?  Analysts valued the company at $2.5 billion because from 9 million active monthly users from last year, it now has 48 million monthly active users and more people are being enticed to use the service.  Analyst see a great opportunity with its continued increase in users.  But can Pinterest actually keep people interested in what it offers?

In light of Facebook’s dismal IPO, many wonder if social media is the right sector to hit Wall Street.  But then, Facebook didn’t take advantage of its early popularity when taking to the market.  Many say that Facebook went public after its prime window of opportunity, given consumer sentiment now compared to three years ago.

But we’ve also seen companies go public too early, fumbling their IPOs despite huge popularity.  Groupon is another example of a socially driven tech firm that struggled to maintain market leadership after revolutionizing brand marketing, unable to stabilize the business model behind group discounts.

How will Pinterest monetize?


As mentioned above, it’s not entirely clear how Pinterest actually generates cash.  Most likely, revenue comes from third-parties who develops tools based on data gathered by Pinterest and sell them to other companies to promote their brand and products.

Pinterest has raised a total of $338 million in venture funding to date, which gives it a great “cash runway” to free up resources as Pinterest continues to build its user base.  The business model will come in time, as we’ve seen with the likes of Facebook and Twitter.  Pinterest is in a good position right now, even as it fleshes out the best avenues for monetization.

Infrastructure buildout — will Pinterest build its own or go with vendor products?


Pinterest accumulates quite a lot of data as more people sign up for the service, use it, Pin things, and re-Pin things.  With the venture funding, Pinterest could actually build its own data center, just as Facebook has done.  But the difference is, Facebook has an established ad network, driving revenue for a data center.  Pinterest may not have that luxury.  So the most probable move is to go with vendor products for the time being.

But as Pinterest explores monetization opportunities, infrastructure will become an increasingly important consideration for in-house development.  Pinterest’s best resource is its massive dataset on consumer intent, ripe for analytical breakdown and advertising applications.  If Pinterest hopes to realize its potential as a central platform in tomorrow’s economy, there’s significant implications as to what Pinterest will have to work out for its supporting infrastructure.  As Wikibon Senior Analyst Stu Miniman explains, Big Data requires a new way to think about the infrastructure, putting new demands on information processing that affects the data center’s networking, storage and beyond.