Chit Chat Stocks - Pinterest (PINS) | Deep Dive

Episode Date: April 15, 2021

Pinterest provides a visual discovery platform to its users. The Pinterest platform provides inspiration for many aspects of our lives, including recipes, home decor, and even DIY projects. Listen closely as Ian, Brett, and Ryan dive into where Pinterest could go from here. Enjoy the show! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Ian and check out his work on Twitter: https://twitter.com/IanGrayLive Follow us on Twitter: https://twitter.com/chitchatmoney Subscribe to our Youtube Channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Email us: [e-mail] Timestamps Company Background | (1:34) Industry | (5:43) Management & Ownership | (9:00) Valuation | (11:28) Earnings | (13:57) Balance Sheet | (16:56) Our Analysis | (20:42) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. This is the Thursday Deep Dive episode with Ian Gray. Ian, how are you doing? I think Acuity Ads, the company we talked about for 25 Stocks at Christmas, had a nice update

today. So I think you're probably pretty happy, if I'm correct. Yep. Yep. Happy with it in the short term, but focused on the long term. So we'll see if they can continue to execute from here. All right. And we're talking Pinterest today, Ryan. You want to introduce the company? Oh, wait, no. I totally forgot. We talked about this right before we started recording, but we have to do the 7investing sales pitch. I think I did it last time. So, your turn. Yeah. Just use code CCM. You get $10 off at checkout. Typically, it's $17 a month. This is for 7investing.com. And not to mention, I think I am the best seller between Brett and I, So help us keep those numbers up.

That's really easy to track. Yeah. So, you know, just feel free to hop on over there and use code CCM. It helps us out. So without further ado, we're going to talk Pinterest. I think most people know what it is. If you're old and a male, you might not. I guess that's the demographic kind of left out.

But it's a social discovery app that helps people, otherwise known as pinners, as they call them, find inspiration. so the way it works you set up an account like any social media app and then you use the search bar as really a sort of discovery tool and then you can also post pins and pins are basically just pictures of specific topics and then you create boards which is like a file folder but for these pictures essentially so let's say you're planning a wedding you'd create a wedding board you'd look up wedding dresses save some pins on there wedding locations save some pins on there wedding decorations, save some pins, all to that board. And then that's sort of your file folder for your wedding, whatever. That's where you found all that inspiration. So naturally, I'm sure if

you're listening, you can imagine why this is a good value prop for advertisers because people are going there looking for something. Yeah. And they're looking, those pins are for other people to visit too, right? Or am I getting that wrong? Where they can visit it and get inspiration from other people's boards? Yeah. I think you might be able to keep your boards private, but the pins themselves are like basically pictures um i think and then the boards those are more like your file folders but you can publicize those so like oh that's a visited board or like someone has a really good board for whatever topic you know i mean am i missing anything there no i think you're you're capturing that pretty well okay and then uh yeah and then so as i said

earlier advertisers naturally uh you know people are going there to shop uh in some cases or they're going there for inspiration or it's like they are pinterest is capturing the thing that you don't know how to look up um which i know is kind of a weird way to describe it but yeah it's the whole thing they're trying to inspire you for whatever project you're kind of going on maybe vacation or something so like new like uh new room ideas like they can put a they can put picture to your search query or whatever it is. But I'll move on. They have 459 million monthly active users. Roughly 70% of them are women. The history about the company was founded in 2010 by Ben Silberman, Evan Sharp, and Paul Ciara. Silberman attended Yale University. I think

Silberman's still the CEO. And he worked at Google immediately after. His family was a bunch of doctors so i don't know what that tells you but uh that's huge to buy that is huge uh but anyway the uh in 2008 he left google encouraged by his girlfriend so good sign um and he started cold brew lab so shout out to that girlfriend because she made him very rich um and originally cold brew labs came out with uh a different app i think it was called tote um and it was basically pinterest but it was designed designed just for fashion and shopping which still kind of sounds like a good idea but it might have just been too early because that kind of fizzled out um and then they came up with a second app and brought on evan sharp who was at facebook at the time i believe he

did a majority of the coding um and that was pinterest and his girlfriend came up with the name once again feels like this girlfriend was very influential in the company's founding um and it was an invite only platform at the start which i always hate uh clubhouse did that i never got an invite but that's besides the point um and then they've had success since obviously and they ipo'd in 2019 i think they were a little slow to start within the first four months i was reading rehar jerk pitched pinterest in our 25 stocks at christmas yeah he has a good write-up on he said that within like the first four months they only had 200 users so whatever happened between now and then they did something right and they got a lot of users uh because now they're sitting above

spotify in users so yeah and above twitter and possibly snapchat although i really don't keep up with the social networks so i'm not exactly sure but i'll hit industry and competition pretty simple one here social networks we all know a large industry very well known digital advertising market is at over 300 billion dollars globally led by facebook and google i'm expected to hit about 500 billion dollars by 2024 competitors include instagram facebook snapchat taster made in-house are some smaller companies that are a lot more similar to Pinterest that I looked up. And I think they were for certain niches, but those aren't really meaningful yet. Potential acquisitions for Pinterest maybe. But I didn't really, it's kind of hard to decide who their

true competitors are. So I got a question. What do you guys think? Maybe start with Dean. Who is their biggest competitor? When I was first thinking about this question, I was kind of focused on Facebook and Instagram, just from the social commerce aspects that I think we'll get into and people buying directly from pictures. I think that's going to be a big thing. But I also think there's some some parallels with some competition with Google, just because of and I'm going to get more into this later, too, but just how how Pinterest really serves is a little bit of a search, a search bar, an alternative to Google in the search bar. So I'd say one of those to probably facebook or google in my mind okay ryan yeah that this is uh you know we coin

instagram as sort of the virtual mall or the digital mall this is less of a mall and more like you're going directly to a store like you you the downtown shop you go to pinterest with more intent than other social media platforms and so i guess that probably in that regard i think it competes uh most with google what about uh what about etsy they're as well uh but less i think they you can make the case i think you could make that case how they've been functioning now right it's etsy's more of a compliment right that you that you'll have you'll sell stuff on etsy and you use pinterest to to market your stuff on etsy whether it's through paid advertisements or it's just through pictures of stuff you're putting up and sharing.

So, uh, current, you know, as the market stands right now, that's, they're, they're more, more of a partnership, like you said, and, and, uh, Shopify has had those types of stores have a similar relationship with Pinterest, I think, but it will be interesting to see if Pinterest starts to get more into direct commerce, in which case those would be competitors for sure. i feel like yeah i feel like etsy or pinterest sort of serves as a customer acquisition tool for a lot of etsy sellers maybe yeah i could definitely see that i don't know i don't know the numbers for sure but uh yeah i would just say that's definitely definitely true i've looked at starting some stuff whether on etsy or shopify before and all of the all the advice you get is

okay set up your store and then the first thing you do is you set up your pinterest like even before you set up your Facebook account, maybe even before you set up a website, if you're selling on Etsy, it's important to set up your Pinterest is what they all say. And just that the conversion rate on the Pinterest stuff is just so high that it's that if you can pair Etsy with Pinterest or Shopify store with Pinterest, that that's really the way to go. Interesting. Interesting. All right, Ian, what do you want to talk management and ownership? Yep, I'll dive right into it. So as Ryan was mentioning, Ben Silverman is the CEO and co founder. I find him to be an interesting guy to listen to. He's done a decent amount of interviews. He's kind of connected with the Y

Combinator community. One quote he had in an article that I read that I thought was interesting and kind of shows his vision for Pinterest is he said, quote, what you collect says so much about who you are, unquote. And so I think he has that view for Pinterest as more of this on the social side, that if you're making these boards with all these pins on it, it just says a lot about you and is a visual expression of this hobby of yours, or even just your style or things like that. He owns a little over 6% of the common shares outstanding, so about $3 billion. So definitely heavily invested in this company. And this is the source of his wealth. So he's aligned with shareholders for sure. Some very big stock grants in 2019 from the IPO, about $45 million in stock

grants for both him and his co-founder. But these aren't quite as big as Snapchat's grants. I think those were historically large at about $150 million, if I'm remembering right, for Evan Spiegel. So a little bit less than that, not quite as egregious as some people might put it. Additionally, they don't have voting control of the company. He has about 25% of the voting power. And I think, uh, in total, the, uh, insiders have like 27 or 28% of voting powder power. So, um, a big, a big block of that, but not a total control of the company, uh, in terms of some outside investors, they used to have, when they first IPO, they used to have a lot of, um, some heavy VC investment, but most of those positions look to have been liquidated

over the last couple of years, or at least brought down a little bit. Um, so now their biggest shareholder is Vanguard actually, which owns 7%. percent and i'll make one more small note is uh the infamous melvin capital owned about 1.5 percent back in december and that was according to the last 13f so there was some speculation i think pinterest took a big hit right in the whole gamestop debacle and there is some speculation that melvin capital was having to uh liquidate their pinterest position so who knows exactly what happened there but i just thought it was a little bit of an interesting piece of history No, that is quite interesting. I always love when Melvin Capital gets back into the mix. I think they're going to be a mainstay of the markets or jokes about the markets for years to come. But I'll hit valuation, hit that quick market cap from when the time I looked it up is about $52.3 billion. Right around there usually is what they trade at currently.

they're not super volatile they're not going up and down 10 of a day but you will see some major price swings with this thing ticker is p i and s price to sales about 26.6 from what i looked up price to gross profit about 36.4 and then they're unprofitable although i think ryan will get into it how they hit operating cash flow positive if you're including stock comp and then uh one thing i noted that ryan and i were discussing this uh debating about the uh if this is a crazy number or not before the show they have 77 million stock options exercisable versus 2 500 full-time employees 20 2 545 full-time employees 77 million dollars 77 million dollars stock shares okay so that equates to at the current market cap about

$6 billion worth at the current stock price. And if I can just throw out this because I was doing some research on that number too and just don't want anybody to feel like we're giving them a wrong number here. That includes both stock options and restricted stock units. So just for people who are looking,

I think it's like 23 million in true stock options, but restricted stock units, which you should also be looking at make up that $77 million or 77 million share number. yeah that's the two yeah the two numbers there is there or do you have a guess on how far out until these best oh they're exercisable so they're oh they're exercisable i'm correct i could begin that wrong and you and i yeah i did look into this a little deeper and the restricted stock units they're on an interesting schedule and it doesn't they didn't um at least

the ones for the executives vest um over four years basically until 2024 and so uh it so it's it's not a super long uh horizon but also not super short like there's there's a little bit of time for vesting to materialize but i would expect that that the vast majority of those 77 million are probably going to be um vesting just because we're we're moving in that direction like if the stock's going up people are going to want to stick around with the company um it's likely that the restricted stock units piece of that will vest would be my expectation. Yeah. It's not like it'll hit right away, but within the next five years, the dilution will hit. Ryan, do you want to get earnings then?

Yeah. They had $1.7 billion in 2020 revenue that was up 48% year-over-year, although fourth quarter revenue was growing at nearly 80% year-over-year. So they, I mean, if you remember back, I think Ian and I actually looked at this right after COVID had kind of hit, they reported their, I think it was first quarter earnings at the time. And everyone was worried that advertising budgets were going to go out the window. And they did take a little bit of a hit, but I don't think it was anything. It was probably like 20% revenue growth. And if I'm remembering that right, obviously a lot smaller than 80% revenue growth, but it sort of balanced out to about 48% for the year. They had 459 million monthly active users. That was up 37% year over year. 84% of those

users are from the US, but international, which makes up 16%, is growing triple digits. So it's growing much faster. And then average revenue per user grew 29% in the fourth quarter. Net loss for the year was $128 million. But in Q4, Pinterest had 30% net margins. I think they're kind of flexing that profitability if, you know, and this isn't necessarily, I don't think this is a seasonal business, but it's kind of demonstrating, yes, we had some tough times during COVID, but this is a very profitable business model where we want it to be. I think it's a tad seasonal just because it has a shopping relation, you know, holiday season might get a bump.

Yeah, I probably should have looked at that, but they were operating cashflow positive for the year. There was SBC, I think SBC made up 12% of revenue in the fourth quarter. But if you look back a year, stock-based compensation was I think 1.4 billion, which was like 100% or more of revenue. And now with the stock up, that's where all those options kind of came in. A lot of that was also tied to that IPO. So it looks like it's come down a lot. And I remember talking about this i think like right after the ipo like you know how do we gauge these stock options um and how much of this is going to stay well most of it did not stay most of the spc um and so now we're looking at about 12 of revenue at least in the fourth quarter um that's still

pretty high yeah but the thing with the ipo is um you have to realize all the options that were given to the employees or whoever uh say their history was like eight years you realize all those at the ipo so it's like kind of like a one-time hit um even though they weren't just giving it out that last year i i believe that that is correct i've read that before where you have to do the kind of like if you have a huge history yet you realize all those um when you go public and is that correct or i know that's not something we all know too much or yeah i haven't looked into it specifically with pinterest um but i think i think that's basically correct okay all right balance sheet yeah so as far as the balance sheet this was actually one of the

cleanest balance sheets i've looked at in a while uh 1.8 billion dollars in cash and short-term investments the only debt is uh some leases um which is about 150 million dollars and so it comes out to about 1.6 billion in net cash uh only 6.9 million in goodwill so not really any goodwill to speak of there's no weird things this isn't this business has no inventory so it just looks like a great balance sheet to me and it's really going to be they've got the foundation there it's really going to be about whether they can um operate well and execute and just to make one more comment on the sbc i think that's something um jason moser talks a lot about relative to twitter from a few years back is he would always talk about how their sbc was just so

crazy and the jack dorsey really came when he came back he said we're gonna we're gonna take this back and not have it be so outrageous and i think that there's you know we'll see if pinterest kind of does that on its own over the next year but it'll be that would be the one thing that i'd like to see them bring down a little bit um and just get a little bit of a stronger foundation because it's not fun to be a shareholder when you're being diluted that much every single year yes and you gotta look at revenue growth you know it's not like it's a bad investment if there's high stock comp but i think if there is you gotta look at revenue growth per share or whatever gross profit growth per share. And it can be easy to overlook and say like, well, that's fine. That

ties them into the company. That makes them more incentivized. But that is an expense. It's a very real expense. So I would at least add back the majority of that in your cashflow analysis if you're looking at that. Just be conservative, yeah. Or just assume, I don't know, 5% delusion for the next few years. So like, I don't know. So it might be more than that. Yeah, but however you want to do it, you have to factor it in

because when it's as big as it is, it will change the way your model is. And I think just to give, you know, a little bit of a side note, I, you know, I've been looking and people know this, but I've been looking at Mohawk quite a bit over the last couple of years

or the last couple of months. And depending on what their dilution is going forward, it changes the stock price by, you know, my target price by 30 to 50%, right? It's a dilution can have a major effect And the type of dilution that Pinterest is looking at is nowhere near that level, but it still has a pretty, pretty sizable impact. So definitely take it into account when you're building any sort of model or back in the napkin math, looking at what you think Pinterest is worth.

Yeah. The, uh, the balance sheet though, it's the, I mean, no complaints. It's so simple that you're like, all right. I mean, there's only like 10 line items. Lots of cash, no debt. Okay. Let's, let's keep going. Right. yeah don't they have like a huge they were gonna build some massive headquarters right before the pandemic i thought i read something i was like the opposite of dropbox where they just didn't sign the lease i thought so and that might be where that lease liabilities come from um but i might be off on that i i thought they pulled it back because they just thought everyone was going virtual either way if it's operating and maybe get out of their subway seat or something So it looks like just to give a quick note on that,

it looks like they paid just about $90 million to turn and back in August to terminate a San Francisco office lease. So probably a good choice. Probably, you know, especially given that we haven't really gotten back, especially in the San Francisco area, it's any sort of normalcy in the last, you know, what is it? Eight months since then. Yeah. And that's definitely not as bad as Dropbox. It would be like a $300 million write-off and had a, I think, a billion dollar signing lease.

So they went all in right before COVID. Really unfortunate. Pinterest, I don't think, is in that type of situation. But let's not ramble on on that. We're going to get the ad verdict, and then we're going to get to the second half discussion with Pinterest. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices.

You'll get real-time alerts. Oh, like this one. So you don't have to worry about malware. Or when your kid downloads a song from a shady link. and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply okay welcome back next up is competitive advantages we'll kick things over to ian first what do you have for us so i'm going to keep this

short just because I think all three of our competitive advantages are actually fairly similar because it's the, it's the key to Pinterest, but they're, in my view, they're a different type of social network. They're search focused and which leads to a better tie in with e-commerce. And so it just gives them an advantage over, um, over some of their competitors. And I think what Ryan's going to get into is really, he was talking about, we were talking about it at the Motley Fool and, um, the, the line that he always gave, and I'm just going to say, because I don't want him not to say it is, uh, um, with Pinterest, people go to Pinterest looking for ads, right. Which is different than any sort of other, um, social media company.

So with that, I'll, I'll give it over to Ryan. Yeah, it is. It's a mutually beneficial platform. Uh, one of the stats I found 47% of pinners use the app with the intent of shopping. um i would say most social media platforms actually i think it was based on sprout social was the one that gave these stats it's like four or five times higher than any other platform so it's uh that in and of itself i guess is an advantage versus the other social medias but then social media as a whole has there are a lot of benefits to the business model and i mean I mean, network effects is the main one. Brett, do you want to just touch on it?

Because I know that's yours. I mean, we all know about that now. There's the lock. I mean, that can hurt yourself if you lose momentum and you start losing users that can have a negative spiral effect there. But I mean, you know, the more users, the more benefit it is for all the existing users. Classic thing.

We all know that with the example of Facebook. Yeah, not only does it enhance the platform, but I mean, the function that Pinterest is trying to serve is that inspiration factor. So for each added user, that adds that much more of an optimal search and that much more likelihood that their inspiration or whatever they're searching for will be found because those users bring in all those pins. And so then it kind of feeds back on itself in a really big way. I know other platforms have that as well, but it's not just like one more friend to add to your network. It makes the platform that much better.

Yeah, and I think the search is better. so i i have less confidence in like instagram or facebooks and and all those other ones long-term stability not stability not stability durability where people may you know we've seen it with different cohorts demographics you know different countries hopping in and out you know there's We saw that stat the other day of U.S. teens, Instagram. She was either their favorite choice or usage was down 7% year over year or from six months ago. But I think with search, it's important with Pinterest and that can get a better lock in, which is similar to why Amazon and Google have been so dominant, where I just think that's a better competitive advantage, like the search aspect. I don't know I just think it kind of comes back to like Google's mode or Amazon's mode's better

than Facebook's I think I don't know do you guys think that has any merit or is just kind of spitballing yeah I just it doesn't feel like social media to me as much it feels much more in the realm of discovery a lot like Google and so obviously the more content you get on there the more attractive it is for the next user um with that said i mean that doesn't mean it's in a land of its own like it does compete with google and there are other offerings that do probably something similar but obviously yeah social platforms like this once they reach a certain threshold that that feed that positive feedback loop is great for them because they have to spend less on customers and the customers in and of themselves attract customers and so they've

have kind of reached that level where i could see a very real scenario of them hitting a billion users yeah maybe maybe i don't know uh ian any thoughts on that before we have future growth apps yeah just a quick one before i jump into my future growth um i pinterest seems to be interesting to me and one of the reasons i kind of am interested in the company is they they have this unique blend of being search first, I think kind of like you were talking about Ryan, but having enough of a social piece there that it keeps people tied in and it makes it fun and not just, um, I'm going to search and I'm going to leave that there's actually like a, a method to building your board and building your, um, like, and, and sharing it with like some of your friends

and family about this is what I'm planning for my wedding, or this is the types of meals I'm eating now that I'm on this new diet or, you know, blah, blah, blah, whatever. There was some friends I was working on with, uh, um, I've got a lot of friends, you know, now basically, so I've got all these movie friends who do all this type of stuff and, and, um, they were working on a movie project and had a Pinterest board for that, that they'd share with people, um, when they were bringing them on board to say, this is kind of the style of the movie or things like that. So, um, I think there's some, there are enough social, I just like it because it's like, um, search first, like they probably wouldn't put it like this, but in my view, it's search first

and then it's social to keep you there yeah that's a good point that's kind of i think that's more that's a better articulation of the argument and it's true it's it serves something that google doesn't where it's like it's visualizing what you can't describe like if you're trying to share ideas and it doesn't you know do it justice to do it sort of verbally like you're saying where it's like that movie or like the wedding like this is what i want my wedding to look like you can really put a picture on it um and pinterest kind of allows you to do that there's not a lot of companies i know of that are enabling users to do that same thing yeah yeah unless people go ahead i think because we're i think because we're visual people um it lets us speak languages that we

wouldn't normally be able to speak and so when everybody can see the pictures in front of them or can say like my mom was like remodeling her house um and doing some work on it and she was able to build like some pinterest board stuff even though she wouldn't really consider herself a designer but she's like i like the look of this and i like the look of this and what style is that for exactly and what you know does that pull on i don't know but it lets people like we it's funny this is just a random thought i had and sorry to ramble on but we've had all this talk about low code and getting letting people like code their own apps and that's because it's it's hard to learn that language and i think there's a lot of stuff in life that it's hard to learn the language

But Pinterest is making it easier because instead of having to learn the whole language, you just have to know what you like or know the pictures that go together. Right. You can you can take these visual expressions of whatever field you're interested in and put it together in a board instead of having to to know all the verbiage and the terminology and all that type of stuff. But anyways, as far as future growth opportunities, there's been some news in the last week that Pinterest may be interested in acquiring VSCO, which is way too cool for me. Yeah, me too. I am definitely not a VSCO girl, but I'm not sure that I love this particular acquisition. I think there's some interesting things where it kind of plays to some of the same markets. But it got me thinking that what are two of the best acquisitions of all time when we bring them up? YouTube, Instagram, right? And those were done by what we've just talked about is probably two of Pinterest's biggest competitors.

And I would say really vaulted them into the upper echelon of companies in the United States was Google acquiring YouTube and Facebook acquiring Instagram. And so especially with the strength of Pinterest balance sheet, I'd be interested to see if they can make some sort of strategic acquisition that really leapfrogs it into that elite status and takes it out of like, you know, it's a $50 billion company. So it's already a big company, but takes it out of kind of this, these questions about how big can Pinterest get and if they can really acquire something that's additive, it could be, it could be a really interesting opportunity for them. yeah i mean it seems like there's a lot of opportunity to just there's a lot of avenues they can go i for it's just not something i personally like use so it's really hard for me to visualize i guess a little ironic there but uh a little hard for me to visualize what they're gonna do or what the right move would be but it seems like with their the platform quote-unquote there's just a lot of different ways they can go about it

I know it sounds like we're probably rambling on about all these different ways or different sort of all the optionality that Pinterest has, but that's really what the business is right now. I mean, it's all this demand and now it's finding what's the right way to monetize this sort of how can we build off that? Yeah, they have low ARPU, but Ryan, let's get, yeah, we don't want to go on forever. What's your future go about? International user growth, I know right now it's about 16% of the current users right

now. I'm blanking on the exact number, but I think they can obviously get to where domestic is, like how many users they have in the US eventually, if not larger, from the international base, just purely based on the amount of users that are out there. And so I guess I would say you've got the balance sheet to do it. Why not just keep your foot on the accelerator, spend on sales and marketing just to get as many users as you can internationally? That's sort of the position you're in.

Go after it. Try to get a billion users. I think that's the way you go. If you're going to get to a billion users, you have to be huge internationally. Oh, 100%, 100%. I'll hit mine. I got e-commerce. I took the easy one.

We talked about this before. They're already moving on this. makes sense for them versus a lot of other platforms it's probably like if you were going to rank what what social networks it makes the most sense on you'd probably rank pinterest one and then instagram two and then there would be the rest um but you could you could really see them growing this quickly they want to get as many businesses as possible on pinterest it's still early days so we'll see what kind of happens if it's individuals like etsy or if it's more businesses um and it does seem like instagram and pinterest are kind of closing the venn diagram where they're

all all their use cases are overlapping um whether you know the style of the feed versus the pin is a little different um and i wrote here what a shopify partnership makes sense or a wix and a weebly or whatever i think they already have a shopify one i wrote that down i looked it up so they already have that and it seems like every company in the world has a partnership with shopify to get their stock to pop 10 but yeah uh any thoughts on that guys you know we'll hit yeah that that's just the right way uh anyone that's selling on shopify or etsy you're basically going here to market yourself um sometimes i see these shopify partnerships everyone everyone's part i don't think they mean anything like it doesn't change the business it's

just like we're partnered with them yeah huge all right weren't you kind of already like synonymous with them like no and like you weren't battling against each other no partnerships i used to get hyped up about partnerships but i learned that it's usually more noise than news um it sounds great when all these partnerships go through and they're like who facebook partnered with spotify oh my god it's like just temper your expectations of that stuff but it is definitely the right thing to do and it's if they it would be a you know a little bit of a yellow flag if they didn't have this partnership but in anything on that um and then we'll get highlights and lowlights now i'll go ahead and dive right into the highlights and lowlights so as we've mentioned

the balance sheet looks great um compared to snapchat which is kind of at least recently was valued fairly similarly now snapchat's almost twice valued twice as high as pinterest um i think this has higher quality management an easier path to sustained high revenue growth what did we say how many active users they have over 400 million closing in on 500 million yeah closing in on 500 million monthly active users, Snapchat, and it's daily active users. So it's a little different, but Snapchat quotes, uh, 265 million daily active users, um, at like double the valuation of Pinterest almost. And so this just looks like a much better value to me. Um, when comparing, you know, doing a head to head comparison, I'd also say a lot of room for

international revenue, almost 80% of their monthly active users are international and it's only accounting for 20% of Q4 revenue. So, um, you know, low international ARPU, if they can drive that up, it's going to be huge for this business. Um, as far as a low light, this could probably be considered a potentially a highlight or low light, but, um, they have three parties that they're interested in instead of the traditional two parties for most of, uh, social media. So they have, uh, creators who are actually creating the content and making the pins, the people who are making the boards, people like you and I who might make a board for, you know, a movie project or whatever. And then they also have the advertisers. And so they've got three constituencies that they

have to keep happy versus just like the traditional Facebook where they're having to keep users and advertisers happy. Now, Twitter might be somewhere in the middle where we'd say, especially as Twitter says, starts talking about like super followers and stuff like that, where you have people who are really out there pumping content on Twitter and you have people who are really just absorbing content on Twitter. And then you've also got the advertisers, but, um, as far as Pinterest goes, they have really, at least in my mind, three distinct parties. So, um, yeah, that's my low light. Okay. Uh, Ryan, what about you? Highlights? Um, that sort of positive feedback group we talked about. Uh, there's a lot of benefits to social platforms. I think

management is good. I like Ben Silverman. Uh, growth has been really solid. I just, my low light is i have this like first of all i'd like to see them break out maus from da use because pinterest does seem like a platform to me where it's not something i'm on daily it's not something i'm on based on events um and so their dau number might be close to snapshots um or a lot lower and i just wonder i wonder what arpu can really be i i just i just don't i don't understand the world where there's like 10 different social media platforms that are all worth hundreds of billions and all garnering consumers time i don't get how consumers are spending all that time on different places it doesn't seem like there's that much room

it feels and social commerce especially is super competitive yeah like what what happens when the next pinterest comes along and steals users from a pinterest that's just why i worry about this industry i just have and why i it's just i worry about investing in social media companies in general it's just i have less confidence in the durability it's just hard yeah i mean vc dollars yes yeah well and 500 500 million monthly active users at this point yeah like i know we we like to downplay network network effects and i think they're overused but there is some barriers entry there yeah yeah right getting to that level yeah that's definitely tough to do i just don't i don't it's so hard for me to pin something down i just don't understand how it's super

useful maybe it's me yeah i said this like when it was a much smaller company i said the exact same thing and i've been wrong um the use case doesn't make sense to me i guess that's a little way the yeah it's just hard no sorry the value for advertisers isn't as compelling as it might seem okay okay uh just because there's less i don't think there's as much attention paid to pinterest as some of these other social platforms okay okay i think that that does make yeah i think maybe the efficacy is higher maybe i'm wrong yeah yeah there's a lot of you could be right there i just i worry about and this is this is one of my main moments i struggle i to find like all right where's the value going to accrue here for like social commerce is it all going to go to shopify

is it gonna you know is pinterest going to have the ability and instagram to cut off their shopping platforms is etsy the model to go is amazon i don't know or are they all going to win i just have those are questions that i just don't have any confidence in answering and when you're at this type of valuation it's kind of it's a question you gotta you gotta answer with confidence you know you know yeah more more or less interested in go ahead oh yeah i got mine oh sorry yeah uh okay the only thing on the highlights that i think you guys didn't have was i like how they're creating a win-win scenario uh for their users where their users are not being and this might be something that's you know overhyped and yeah and the media and stuff like that but compared to

like facebook or twitter it seems like people are exploiting you for your anger and emotions and like that pinterest it's it's more of a something where people go on there and they're happy and they leave and they're happy i think that's more you're doing this kind of a tool not a weapon yeah yeah exactly um low lights i guess the stock comp we mentioned it don't harp on it forever but i just really think it's tough here just as an example so at the current stock price of all those best that's six billion dollars how many years of cash flow will it take to hit that just just those options because they're at 1.6 billion in revenue okay let's say optimistically they can generate they just keep up this phenomenal growth and they can start generating 30 free cash flow margins

and they can hit 2 billion in annual free cash flow then maybe you're good here but i mean just just to fulfill those stock options. That's just do a DCF on the stock options here. That that's, I don't know that that's just what I like the business a lot. And it's just the stock options angry because it's probably going to keep me away. I don't know. It just, it just, I hate that to just be the line in the sand. All right. Yeah. More or less interested. Yeah. This is a company that for me, every time I look at it,

I get more interested in it. It's, i think as we were talking about like the intent of users to shop is so high that it just provides a different type of value for advertisers and i think that value will continue to grow um and it looks like it's at a fairly you know at least somewhat reasonable valuation here i'd love to hear what you guys think about the valuation as well but it doesn't it doesn't seem insane to me especially compared to something like a snapchat if yes uh it's not crazy well i want to use i want to use snapchat as a perfect comp but because there seems a little egregious but no agreed agreed it if the growth that they have right now is sustainable or if they can sustain

you know 30 revenue growth for the next five years or something like that then you're going you're going it's not crazy but it just feels like every social platform right now everyone's other than facebook people are just painting like the rosiest possible future like yes like they're all going to capture a billion users and they're all going to capture the users daily time like it's going to get competed away somehow some way we're going to bend the laws of physics we're going to get 48 hour days i don't know yeah that's just a concern that it's hyper competitive a lot of dollars going after this but if you're confident that they can grow at 30 rates um or a 30 rate or 20 even for the next five years like you said ryan then things will work out but you have to

be confident in that and you also have to be confident that they can have strong margins as well because at a price to sales of 26 um but people obviously matter yeah so like i think a lot of people look at these networks or anything like this and say all right they're going to have facebook like margins they're going to deserve the price to sales in the 10 to 15 range maybe maybe they will maybe they won't um i i follow pinterest i say i'm more interested but again adding the high valuation of the stock comp um it just feels like so many headwinds and it's not a fat pitch but i mean i don't know it's just so many things to like and then so many things that keep me away i don't know it's weird it's weird because if if things just keep going the

way it is yeah it's gonna seem like the dumbest miss i've ever had because we visited this company probably three or four times and said the exact same thing every time yeah it's one of those things where i keep saying i miss the boat i know the boat sails a little further but i think you just gotta be yeah yeah you gotta be comfortable missing the boat sometimes i don't know the law of large numbers also does eventually start to play in here uh 50 billion isn't huge but yeah uh And, you know, trees don't grow to the sky. Yeah, that's true. Ian, any final thoughts?

Nope. All right. That's going to do it for this episode. As always, make sure to use our code CCM at checkout to get $10 off your first month at 7investing. Remember, we are not financial advisors. Anything we say on this show is not formal advice or recommendation. Brian and I are general partners at Arch Capital.

Clients of Arch Capital may hold securities discussed. Got to get that done. in this on this podcast stock for next week stock for next week yes uh i was thinking of a lot here had a lot of choices but i will find i will be doing postmark or poshmark ryan we still don't know what it is yeah we'll find out how to say that first uh we're going to be doing posh posh or poshmark we'll find out the proper spelling or other proper saying yeah so that's a fun one Stocks totally come down like 60%, so it could be fun. Post IPO, kind of looking at it.

But yeah, thanks for listening. We'll see you next time.