Many investors call Pinterest (PINS 4.78%) a social media platform. But this isn't how the company describes itself. Go to the help center of Pinterest's website and click "What is Pinterest." Once there, you'll see that it says, "Pinterest is a visual discovery engine."
Pinterest's users find what they're looking for by simply browsing images on the platform. And while scrolling, they're exposed to ads and Pinterest generates revenue. However, in the company's latest press release, it didn't call itself a visual discovery engine. Here's what it's calling itself now.
Pinterest's little acquisition is a big deal
Before we get to what it's calling itself, here's some context: On June 2, Pinterest announced that it's acquiring a shopping platform called The Yes for an undisclosed amount. This platform was co-founded in 2018 by former Stitch Fix chief operating officer Julie Bornstein. The idea is that users take a quiz to get apparel suggestions, and the platform continues learning about your style with your purchase history over time.
NYSE: PINS
Key Data Points
The Yes raised $30 million in 2019 in a Series A funding round, but CEO Bornstein declined to reveal the company's valuation at the time. However, when The Yes raised funds, its platform was still in the idea phase. It didn't officially launch to the public until May 2020. Therefore, it's only been live for about two years.
As of the end of the first quarter of 2022, Pinterest had $2.68 billion in cash, cash equivalents, and marketable securities. Considering how new The Yes is, Pinterest likely used relatively little of its resources to buy it. But if this is a small acquisition, as I infer, then why am I making a big deal about it?
The acquisition of The Yes is consequential because of what Pinterest management said in the press release: "Pinterest is a shopping platform." It subsequently mentioned visual discovery, but this was subservient to being a shopping platform first. In other words, it appears management has subtly shifted its thinking about the business. And that could have big ramifications for shareholders.
Is Pinterest the ideal e-commerce platform?
It's no secret that Pinterest is built different. Whereas we've probably tired of the ads we're served up when browsing social media or when streaming video content, people often browse Pinterest because they're looking for ... something. They may be browsing in hopes of finding what they want to buy. Therefore, when they get an ad, it's less likely to be annoying and more likely to have a good return for the advertiser.
As Pinterest management has better-educated advertisers on this aspect of its business, the platform's monetization has soared. For perspective, the company generated just $0.58 in global revenue per active user (ARPU) in the first quarter of 2018. In Q1 2022, it generated $1.33 in global ARPU -- an impressive 129% four-year increase and yet with seemingly much more room for future expansion. Clearly, it's valuable ad real estate.
However, management isn't emphasizing ads with the acquisition of The Yes -- it's emphasizing its e-commerce potential.
Perhaps Pinterest is simply trying to improve its algorithm for its advertising customers. After all, The Yes platform is shutting down. Its employees are moving over to Pinterest, which gets The Yes's technology. In short, this looks like a simple move to better Pinterest's technology and provide more value for its customers.
However, I believe Pinterest could be cooking up something meatier for investors. Again, management's wording choices in its press release suggest an evolving emphasis, not simply a better way of doing the same business it's always done.
One possible evolution of the platform could be Pinterest becoming a meta-shopping platform. Think of how online portals allow travelers to browse hotels, find the best deal, and book in one portal. That could be what Pinterest envisions but for physical items using visual search. And to be clear, the company was already experimenting with something like this prior to the acquisition of The Yes with a feature called Your Shop. Perhaps it can charge retail companies a fee for completed sales.
I'm speculating on that exact possibility. But I don't believe I'm overstating the importance of Pinterest's management saying it's a shopping platform. The wording of official press releases is intentional, not off-the-cuff. The company bought The Yes and emphasized its evolution into a shopping platform first -- something I haven't seen the analyst community acknowledge yet.
Pinterest shareholders should watch this in coming quarters. There are likely many changes to the business model on the horizon, and only time will tell if they're changes for the better.
