Social media site Pinterest has raised $225 million at a $3.8 billion valuation, according to The Wall Street Journal. But with nonexistent revenues, it will probably be a while until the company hits the IPO market.
Founded in 2010, Pinterest allows users to “pin” images, videos and other content on their virtual pinboards. Growth has certainly been strong. Keep in mind that Pinterest was reached 10 million monthly U.S. users faster than any other independent site in history.
Now it’s true that the valuation for the company may seem wacky. But there are some clear rationales. First of all, users often pin their favorite products, which certainly leads to lucrative e-commerce opportunities. It also helps that about 80% of the members are female, who are the main influencers when it comes to purchasing decisions.
In light of all this, it should be no surprise that many top brands, such as Williams-Sonoma (WSM), Lowe’s (LOW), Sephora and Sony (SNE), have been leveraging the platform. Consider that Pinterest is responsible for a quarter of retail online referral traffic. This is the case even though the site has a relatively low user base of 70 million, which compares to 1.15 billion for Facebook (FB) and 215 million for soon-to-be-public Twitter.
But Pinterest is not rushing to monetize things. For the time being, the company is experimenting with promoted “pin” ads, which will hopefully not ruin the user experience.
Again, do not expect an IPO from Pinterest any time soon. Even though the market has heated up, investors are still focused on companies that have proven business models. Besides, Pinterest has enough capital to pursue its growth strategy.
And still, an IPO may not be the ultimate exit. The folks at Amazon (AMZN) are likely very concerned. And with its huge market cap, a smart acquisition may be a premium deal for Pinterest.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.