The problem for Pinterest is getting a strong cashflow from its revenue base, which is mainly advertising. There’s also the familiar issue of revenue being US-driven, with over 90% of sales derived in the United States.
Market views and perspectives about Pinterest are to put it mildly equivocal after the stock’s fall. Brokers’ forecast are mixed to say the least. Four brokers recommend “buy”, one recommends “sell”, and 12 others recommend “hold”. That’s a very mixed bag for investors, who, after all, are looking for stocks to buy, and good positioning. The general broker position is lukewarm at best, and indicative of the general lack of information about next moves by Pinterest.
Typical social media cashflow problem? Only to a point.
Social media sites have generic and case-specific issues. Facebook is the classic example, listing in a market which was oriented to very different investments. The expectation that Facebook would behave like a Mom and Pop stock was never realistic, and the stock price history on the NASDAQ shows a rise with many moves since listing. Twitter was quite similar in its pre-listing and post-listing fluctuations.
Pinterest, however, is an even more esoteric social media site. It’s social media to the extent that people can socialize, but it’s also a very immersive site, where people search for specific content. It’s certainly not on the same page as other social media sites in just about every respect.
Pinterest has included ads, tastefully installed on relevant searches, and has done a good job of not including toxic content. Most people would agree that it’s a nice place to browse and explore. Translating “nice” in to “cash” is the big issue.
Social media commentators, who frequently run out of expletives, aren’t so much critical of Pinterest as disengaged. Pinterest simply doesn’t generate the same hectic profiles as other social media sites.
That situation is one of the issues with its marketing. Pinterest has become part of the furniture, not the place where you go to buy things. That’s a real stumbling block. Pinterest is commercially too understated, and definitely not recognized as the go-to shopping option.
That’s a pity, because it does have a lot of excellent features to recommend it commercially:
• It’s a strong visual site, geared to deliver visual media as well as YouTube or any graphic art site. There is a theoretical technical issue in that the vast amount of content also includes a truly massive data load, but the site seems to perform well and consistently.
• The scope for searches on Pinterest is virtually unlimited. You can put absolutely anything on Pinterest for sale, even on an Etsy-like basis, and it will definitely be seen by someone. (That can’t be said for the high turnover sites like Twitter and Facebook. Suspicious, hostile, high sales resistance from irritated viewers to online ads is a major factor. People don’t particularly want to be “sold to”; they want information they can use.)
• Nobody has any “ideological” objections to Pinterest the way they do to Facebook and other sites. That’s a strong positive in a market saturated with polarizing content and other nuisances which the public is very tired of seeing. The negative content on social media now equates to a negative return, and Pinterest has managed to avoid that issue pretty comprehensively.
…So what’s wrong, you ask?
This may be an unfair statement to someone or not – Equating Pinterest to other social media sites looks demographically wrong. Due respect to the analysts, but the market isn’t at all well-defined. Who or what is a “Pinterest user?”
You can see where the marketing can come unstuck with ease, with that simple question. This audience very obviously isn’t the standard social media demographic; it’s a much wider mix. People can happily browse their favorite subjects for hours, and they like doing it that way. If, perchance, they stumble upon something interesting on their search, there’s your revenue potential. So the question becomes “What isn’t being done?”, rather than “What’s wrong?”
I’m a commercial writer. I see a lot of lousy targeting, hideously overblown ads which get the total lack of interest they deserve, and other bizarre social media flora and fauna.
If I was looking for a good place put long-running “Check this out” ads, it’d definitely be Pinterest. Unlike almost all other social media sites, the hard sell is turned way down, and that fact is much appreciated by users.
My instinctive guess would be that the lack of high pressure promotional stuff also works for advertisers. Advertisers don’t want to be running campaigns obsessively, simply to feed a high-churn process with or without solid market value. Any type of media which allows advertisers to work under good control with a less threatening budget impact is a good option. Pinterest has to be considered by decision makes on a good bottom line basis.
Pinterest does also have one truly unique major advantage – It’s extremely easy to manage content. You could run an entire campaign on a Pinterest page with ease, with all direct links built in, and all you need to do that is some decent SEO.
Novelty factors?
The easy promo option also works on the same basis as any good sales option – You can include all your special offers, new products, discounts, etc. whenever you want. It’s an instant shopfront for anything, anywhere.
With whatever respect is due to the promo guys in social media, simpler is better, in so many practical ways. If you’re monitoring social media, Pinterest is the easy one to do, right?
That seems to be missing. Do you actually know you’re looking at something of value, when you see it on Pinterest? You might not. The novelty factor/new/the latest/whatever the buzzwords factor is missing. People will look at new things. They just need to know they’re new.
Pinterest-only promotions?
This “us only” class of promotions is almost a no-brainer, but it’s outside the usual frame of reference for Pinterest. It’s a positive, particularly if it covers a good shopping list of advertisers. The discounts, extras etc. can be measured easily, and for most promotions, the outlay factor is very low. It doesn’t have to cost much at all to deliver a good deal across a broad bandwidth audience like Pinterest.
Recommendation
The market may need to revise its view of Pinterest to factor in the natural evolutions of its revenue base. “Get rich quick” has never been the working theory for social media listings of any kind. Pinterest is a good product, with a huge market. If they expand on the US-only revenue base, which they will have to do, they’ll be in a very good position.
My recommendation is “Be realistic”. This stock can deliver. It needs to fine tune, and expand, to do so. Margin dwellers will see enough movement for the stock to deliver value, but let’s not go nuts on pre-judging its potential in future as a capital growth stock.
