Pinterest has set its price range at $15 to $17 a share in an updated IPO prospectus, estimating the startup’s value at between $10.6bn and $11.3bn, some way off of the $12.3bn valuation it received during a previous funding round.
The image sharing platform, which allows users to ‘pin’ images in shareable galleries, hopes to raise between $1.13bn and $1.28bn by offering 75m shares, which will result in a loss for those that bought in during the latest funding round held by the startup in 2017.
The Pinterest IPO prospectus was submitted just weeks after Lyft debuted on the Nasdaq stock exchange. The ride-hailing company was forced to raise its price range from $62 to $68 to $70 to $72 ahead of its IPO due to high demand. However, within a day the company’s stock has fallen below its IPO price, raising questions over the demand for such tech stocks.
Snap Inc., one of Pinterest’s competitors in the social media space, faced a similar struggle when it launched in March 2017 with a value of $31bn. The company has since lost 47% of its value, which has plummeted to $16.3bn over the past two years.
According to John Colley, professor of practice at Warwick Business School the IPO struggles of tech startups are a result of the “wall of money looking for tech investments, rather than any fundamentals of the business”.
High demand in the coming days could force Pinterest to readjust its IPO price.
However, according to Chris Beauchamp, Chief Market Analyst at IG, the adjustment to Pinterest’s IPO price suggests that investors are becoming most cautious to avoid such early losses.
“Pinterest’s IPO takes place in the wake of a Lyft IPO that failed to generate the hype seen a few years ago when the likes of Facebook listed,” Beauchamp said.
“The $11.3 billion valuation is below the $12 billion valuation of 2017, providing an indication that investors are taking a more cautious approach.”
Will Pinterest avoid a post-IPO plunge?
Tech stocks usually present a degree of risk for investors. According to the Wall Street Journal, 83% of IPOs listed in the US in the first three quarters of 2018 were unprofitable. With startups like Pinterest and Uber set to join the list, that trend is likely to continue in the tech industry in 2019.
Yet, according to Beauchamp, Pinterest has put itself in a strong position to avoid similar turbulence to the likes of Lyft.
“Unlike Lyft, which has seen losses balloon, Pinterest has been actively reducing its losses while increasing revenue, with these two metrics moving in the right direction,” he said. “In addition, international growth is increasing, providing another string to the bow.”
Lyft saw losses of $911m in 2018, up from $688m in 2017 and $682m in 2016. In comparison, while Pinterest isn’t yet making a profit, it saw its losses drop from $130m in 2017 to $62.9m last year.
Yet, the company will need to find new ways to monetise its 265m-strong user base if it is to achieve profitability.
“The key, as with Facebook, will be whether Pinterest can successfully monetise its base. Cracking this nut was the making of Facebook’s stock, which surged 900% from its post-IPO lows, and Pinterest will be hoping it can capture some of that magic too,” Beauchamp said.