Pinterest IPO value slammed: “There is no guarantee it will ever make a profit”

By Lucy Ingham

The Pinterest IPO value has been met with criticism from experts in the business community after the social media platform’s initial public offering (IPO) exceeded the higher end of the expected range.

Pinterest had been expected to list with a price between $15 and $17, giving it a value of around $9bn – which on Monday Tom Forte, an analyst for D.A. Davidson, described as “a little pricey”.

However the Pinterest IPO value exceeded even the highest expectations, listing at $19 per share, with a total of $12.7bn. And this has not been received well by some experts.

“This valuation reflects the wall of money looking for tech investments, rather than any fundamentals of Pinterest’s business,” said Professor John Colley, from Warwick Business School.

“Astronomic valuations are popular in Silicon Valley, but there is surprisingly little real evidence supporting those valuations.”

Pinterest IPO value the latest in a long line of over-inflated tech listings

Over-inflated tech IPOs are by no means a new phenomenon. In fact, they are increasingly becoming the norm, with a similar story occurring with Lyft just a few weeks ago.

For Colley, these companies do not offer the sort of potential that should make them appealing to investors – they are simply being buoyed by the wider hype surrounding technology investments.

“Uber lost $3bn in 2018, whilst Lyft lost $900m and both admit to being some distance from making a profit. They are not even attempting to predict when they may become profitable,” he said.

“Pinterest’s losses were comparatively small at £63m last year, but like its fellow ‘unicorns’, there is no guarantee it will ever make a profit.

“That makes it hard for investors to form a clear exit plan. For most investors there is little point in investing without this.”

However, while the Pinterest IPO value shows the excitement surrounding tech stocks has clearly not yet abated, it is unlikely to last forever. Particularly if the trend of sharp drops after an over-inflated IPO continue.

“Lyft is already down 16% on its IPO, while Snap is down 60%. Ultimately it is possible that they will be worth very little,” said Colley.

“Investor fatigue is also possible, particularly if a number of technology IPOs fall below their initial price. This has prompted the current rush of technology IPOs at abnormally early stages of development.”