April 9, 2019

Breakingviews: Pinterest can make a virtue of down-round IPO

by Breakingviews.

Pinterest can make a virtue out of its down-round initial public offering. The social-scrapbooking app wants a lower value for its stock-market debut than its last price tag of $12 billion, according to an updated regulatory filing on Monday. That sounds like it ought to bode ill for tech IPOs in the wake of Lyft sputtering. But Pinterest’s finances are healthier than other startups going public.

Pinterest has set a range of $15 to $17 per share for its IPO of 75 million shares. At the top of the range, it would value the company at $11.3 billion, including restricted stock units and options. That would still bestow a punchy multiple of 15 times last year’s revenue, but would be at least 6 percent lower than its last private fundraising round in 2017.

Usually an IPOing company and its Wall Street bankers aim to sell as many shares as possible at the highest price they can manage. Sometimes that can lead to an excess of enthusiasm that ends up being short-lived. Shares in Lyft soared as much as 20 percent on the first day of trading last month, before dropping below the $72 launch over the next few trading sessions. They’re now idling just below the IPO price as investors try to work out how the fast-growing ride-hailing firm can turn its rising losses into a profit.

Pinterest co-founder and Chief Executive Ben Silbermann has managed that process far better. He increased the top line by more than 150 percent from 2016 to $756 million in 2018, while shrinking its net loss by two-thirds over the same period to $63 million.

Silbermann’s style could serve Pinterest and its investors well in the coming years. True, a down round initially puts more onus on executives to sell its story to the market – not least how they will turn growing overseas users into sales.

But taking some of the hype out of the IPO process can leave Silbermann room to argue that his more conservative approach puts the long-term interests of both the company and its investors first.


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