The fintech had reportedly been preparing a $45 billion bid for the shopping site at about $70 per share. During the height of the rumors, Pinterest traded as high as $63 share.
Rumors that the deal might be off sent Pinterest stock down 5% on Oct. 22, and another 11% over the weekend. Pinterest was expected to open this morning at a smidge over $50 with a market cap of $37 billion.
Before the PayPal rumors started, Pinterest was trading below $50.
Pinterest, whose interface uses pictures called “pins” users can re-arrange, has been a pandemic success story. Revenue was up 48% in 2020 and is heading toward another 32% jump in 2021.
But even that would put it at just over $2.2 billion, meaning the rumored bid would be over 20 times revenue. The earnings whisper for the third quarter, to be announced November 4, is for $631 million of revenue and earnings of up to 28 cents per share.
Even if the price seemed reasonable to some investors, the buyer didn’t to some analysts. PayPal is a financial site lacking physical infrastructure. Pinterest had only recently been taking its service global.
When I wrote about Pinterest in August, I called it a niche site meant to inspire serendipity. It’s a treasure hunt, whose 454 million users generated just $1.35 each in revenue during the second quarter.
The fastest growth is coming from outside the U.S., where the average user is worth just 36 cents.
A Closer Look at PINS Stock
Interest in Pinterest is centered on one fact. It’s unique, appealing to women who are tough for many online sites to attract, mainly aged 20-50, a prime buying demographic. Many have become creatives themselves, turning from buyers to sellers. It’s a niche Tumblr tried (and failed) to exploit in the last decade.
You can think of Pinterest as akin to TikTok parent ByteDance, which is expected to generate $1.9 billion in revenue this year and to go public next year. But it’s more stable, and more commercial than TikTok.
The success of TikTok underlines Pinterest’s rarity but also its risks. Users move readily between social sites. What’s hot today becomes passe tomorrow. People once loved Facebook (NASDAQ:FB) and Instagram. They once rushed to Twitter (NASDAQ:TWTR). Now neither of those sites are growing, despite having billions of dollars behind them.
What Pinterest needs is a parent with global reach and a good reputation. Tumblr’s fall began with its purchase by Yahoo in 2013, which many users saw as a bad corporate parent.
A scaled buyer like Amazon.Com (NASDAQ:AMZN) may be rejected in the same way, Pinterest’s goodwill crumbling to dust in its hands.
Based on its current price, PINS stock is seen as only a moderate buy at Tipranks, with most analysts having just a hold rating.
The Bottom Line
Pinterest needs to be bought to accelerate its international expansion. But who might buy it, and at what price isn’t clear at all.
In retrospect, the PayPal deal made some sense. PayPal would be a hands-off owner and could have used Pinterest to expand its financial services. But $45 billion looked like too much.
At $37 billion, Pinterest may be affordable by Twitter or it could become a vehicle for ByteDance to go public. Having been put “in play” by PayPal, it might be of interest to Amazon or even Alibaba Group Holding (NASDAQ:BABA).
You haven’t heard the last rumor concerning Pinterest.
On the date of publication, Dana Blankenhorn held a long position in BABA and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.