Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

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Private Capital Markets

<div class="content-highlight"><h2>Profitability is in sight as we foresee <a href="https://www.smartkarma.com/entities/27999" target="_blank" data-smartkarma-citation="entities:27999:1">Pinterest Inc (PINS US)</a> taking a pinch out of the global digital advertising market.</h2></div><hr><p>In our view, Pinterest, an online product and idea discovery company that generates revenue by selling digital ads, has an intrinsic value of $15 billion, or $22 per share on a fully diluted basis. The firm is progressing toward an initial public offering by mid-April. After its last round of funding in June 2017, the firm's implied valuation was $12.3 billion, according to PitchBook. However, in its latest S-1 filing on April 8, Pinterest indicated an IPO price range of $15-$17; the $16 per share midpoint represents nearly an $11 billion market capitalization, below its last post-funding valuation. Assuming the IPO pricing remains in that range, we view Pinterest as an attractive investment opportunity.</p><p>We rate Pinterest as having a narrow economic moat and stable moat trend based on the network effect and intangible asset (data) moat sources, which we think can drive the company to profitability and excess returns on invested capital in the future. With more than 250 million average monthly users who access Pinterest with the intention of not only discovering ideas or products but also purchasing them immediately or in the future, we think the firm can attract more online ad dollars. In our view, Pinterest can attract various types of ad campaigns through the marketing funnel—from broad exposure or awareness to targeting and actual conversion. We think opportunities exist for the firm to gradually increase its share of the U.S. digital advertising market, after which, as its international users (mainly in Europe) increase, it will attract more ad dollars for that audience.</p><p>Pinterest is focused on carving out a piece of the global digital advertising space, which we value at a total addressable market of nearly $500 billion. While we don't expect Pinterest to displace online advertising behemoths <a href="https://www.smartkarma.com/entities/11369" target="_blank" data-smartkarma-citation="entities:11369:1">Alphabet Inc Cl C (GOOG US)</a> and <a href="https://www.smartkarma.com/entities/665" target="_blank" data-smartkarma-citation="entities:665:1">Facebook Inc A (FB US)</a> or up-and-coming <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon.com Inc (AMZN US)</a>, we do expect it to attract a small pinch of digital ad spending.</p><p>We expect impressive revenue growth at a 35% compound annual growth rate for Pinterest through 2023, likely to be driven by overall growth in digital advertising (which we estimate at a 12% CAGR) plus the firm adding more advertisers and the sale of more ad inventory as it is in its early growth stage. With strong top-line growth and Pinterest's network effect and data economic moat sources, we expect gross margin and operating margin expansion and foresee the firm becoming profitable in 2021, with the operating margin increasing to over 15% by 2023.</p><h2>Key Takeaways</h2><ul>
<li>We believe Pinterest warrants a narrow economic moat and stable moat trend rating. Indications of the network effect and intangible asset economic moat sources include Pinterest's strong (albeit decelerating) user growth and increase in average revenue generated per user through advertising.</li>
<li>While Pinterest will be competing with digital advertising behemoths like Google, Facebook, and more recently Amazon, we believe it can attract enough advertisers or ad dollars to become profitable and generate excess return on invested capital.</li>
<li>Pinterest's more innovative features such as Product Pins, Shop the Look, and visual search tool Lens have attracted retailers and direct-to-consumer brands to purchase ads on the platform and should continue to do so.</li>
<li>Pinterest's total addressable market is the global digital advertising market, valued at nearly $500 billion. We think that because pinners access the Pinterest app with the intention of not only discovering ideas or products but also purchasing them immediately or in the future, advertisers are willing to purchase ads from the firm.</li>
<li>We value Pinterest at $15 billion, higher than its latest filed IPO pricing range and its implied valuation of $12.3 billion in its last funding round.</li>
<li>On April 8, Pinterest indicated that it may price its shares between $15 and $17, the midpoint of which we estimate represents an $11 billion valuation, below its post-funding valuation. If the IPO pricing comes in below $17.60 per share or below a 0.80 price/fair value, we would view Pinterest shares as attractive.</li>
<li>We model strong ongoing revenue growth driven by growth in overall digital advertising plus the firm's advertisers and ad inventory. With strong top-line growth and Pinterest's economic moat sources creating operating leverage, we expect Pinterest to become profitable by 2021.</li>
</ul>

Profitability is in sight as we foresee Pinterest Inc (PINS US) taking a pinch out of the global digital advertising market.In our view, Pinterest, an online product and idea discovery company that generates revenue by selling digital ads, has an intrinsic value of $15 billion, or $22 per share on a fully diluted basis. The firm is progressing toward an initial public offering by mid-April. After its last round of funding in June 2017, the firm's implied valuation was $12.3 billion, according to PitchBook. However, in its latest S-1 filing on April 8, Pinterest indicated an IPO price range of $15-$17; the $16 per share midpoint represents nearly an $11 billion market capitalization, below its last post-funding valuation. Assuming the IPO pricing remains in that range, we view Pinterest as an attractive investment opportunity.We rate Pinterest as having a narrow economic moat and stable moat trend based on the network effect and intangible asset (data) moat sources, which we think can drive the company to profitability and excess returns on invested capital in the future. With more than 250 million average monthly users who access Pinterest with the intention of not only discovering ideas or products but also purchasing them immediately or in the future, we think the firm can attract more online ad dollars. In our view, Pinterest can attract various types of ad campaigns through the marketing funnel—from broad exposure or awareness to targeting and actual conversion. We think opportunities exist for the firm to gradually increase its share of the U.S. digital advertising market, after which, as its international users (mainly in Europe) increase, it will attract more ad dollars for that audience.Pinterest is focused on carving out a piece of the global digital advertising space, which we value at a total addressable market of nearly $500 billion. While we don't expect Pinterest to displace online advertising behemoths Alphabet Inc Cl C (GOOG US) and Facebook Inc A (FB US) or up-and-coming Amazon.com Inc (AMZN US), we do expect it to attract a small pinch of digital ad spending.We expect impressive revenue growth at a 35% compound annual growth rate for Pinterest through 2023, likely to be driven by overall growth in digital advertising (which we estimate at a 12% CAGR) plus the firm adding more advertisers and the sale of more ad inventory as it is in its early growth stage. With strong top-line growth and Pinterest's network effect and data economic moat sources, we expect gross margin and operating margin expansion and foresee the firm becoming profitable in 2021, with the operating margin increasing to over 15% by 2023.Key Takeaways
We believe Pinterest warrants a narrow economic moat and stable moat trend rating. Indications of the network effect and intangible asset economic moat sources include Pinterest's strong (albeit decelerating) user growth and increase in average revenue generated per user through advertising.
While Pinterest will be competing with digital advertising behemoths like Google, Facebook, and more recently Amazon, we believe it can attract enough advertisers or ad dollars to become profitable and generate excess return on invested capital.
Pinterest's more innovative features such as Product Pins, Shop the Look, and visual search tool Lens have attracted retailers and direct-to-consumer brands to purchase ads on the platform and should continue to do so.
Pinterest's total addressable market is the global digital advertising market, valued at nearly $500 billion. We think that because pinners access the Pinterest app with the intention of not only discovering ideas or products but also purchasing them immediately or in the future, advertisers are willing to purchase ads from the firm.
We value Pinterest at $15 billion, higher than its latest filed IPO pricing range and its implied valuation of $12.3 billion in its last funding round.
On April 8, Pinterest indicated that it may price its shares between $15 and $17, the midpoint of which we estimate represents an $11 billion valuation, below its post-funding valuation. If the IPO pricing comes in below $17.60 per share or below a 0.80 price/fair value, we would view Pinterest shares as attractive.
We model strong ongoing revenue growth driven by growth in overall digital advertising plus the firm's advertisers and ad inventory. With strong top-line growth and Pinterest's economic moat sources creating operating leverage, we expect Pinterest to become profitable by 2021.


Pinning a Narrow Moat Rating on the Pinterest Board