Now that Facebook’s IPO is in the works, investors have started casting around for the next big tech IPO, and Pinterest is one of the names that keeps cropping up. What are the odds that we’ll see a Pinterest IPO? And if we do, when will we see it?
“Big-name social networks like Twitter and Pinterest are months, if not years, from needing to go public, most experts say, given the gobs of money venture capitalists have been throwing at them,” writes Peter Delevett of the Mercury News.
In Pinterest’s case, the company has already raised $30 million in venture capital. Rumors are they’re casting around for more, too, with some sites claiming VCs are valuing Pinterest north of $1 billion. That’s the sort of valuation where an IPO starts looking imminent. And it could help Pinterest raise the warchest it’ll need to bring in the right execs, law firms and bankers to transition from a start-up to a public company.
It’s in Pinterest’s best interests to go public sooner rather than later – especially as competitors like PinView (an app that lets Facebook users use the social network just like they use Pinterest) start nipping at their heels.
So, let’s speculate on when we might see a Pinterest IPO. The first and largest hurdle is the fact that Pinterest isn’t generating revenue. Potential investors would want to see the company roll out a platform for ads, or – at the very least – have future revenue plans in the works.
We can safely assume Pinterest is investigating revenue models. Until they launch one, expect them to “pull a Twitter” and delay going public for as long as possible. Once they’ve started generating income, the next steps on the road to an IPO should come quickly.
After revenue kicks in, they’ll need advisors and (potentially) a seasoned CFO. The company will also need lawyers, auditors and a investment bank. With those pieces in place, Pinterest will file a Form S-1 with the Securities and Exchange Commission. That form will give the public its first look at Pinterest’s finances, and it will need to be approved by the SEC, NASD and state securities organizations – a process that can take anywhere from 20 to 60 days.
After that, we’d likely see a two-week roadshow during which Pinterest will try to drum up investor interest in the company. A few days after the roadshow ends, shares in Pinterest stock would officially start trading.
To use Facebook as an example, the social network filed it’s Form S-1 on Feb. 1, 2012. Per the latest rumbling on the Web, the company will officially go public on May 17, 2012, three-and-a-half months later. Taking that into account, here’s a rough, shot-in-the-dark formula for when we might see a Pinterest IPO:
Development and rollout of a revenue model + Hiring a CFO and lining up finances/investment banks + Filing and approval of an S-1 + Investor roadshow = IPO date
Given that formula, my best guess is we’ll see a Pinterest IPO within a year of the introduction of a revenue model. That would give Pinterest at least three quarters of financial growth to show off in their S-1 filing.
Now, the question becomes, when will we see a revenue model on the site? Considering the fact that they’re growing faster than just about any other Web site in history, I suspect they’re predominantly focused on user and system support right now. Perhaps we’ll see revenue models roll out this fall, then an IPO just over a year later. That puts my tentative guess somewhere around January 2014. I just wish I could get my hands on shares before then…
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Facebook filed its 200-page Form S-1 on February 1, 2012. The SEC, NASD and state securities organizations must approve the S-1 before Facebook shares can start trading. That process takes anywhere from 20 to 60 days. That means Facebook shares could start trading as early as the end of February. In all likelihood, though, it will probably take longer for Facebook’s S-1 to get approved.
1) LinkedIn Corporation (NYSE:LNKD). Trading at a P/E of 646, LinkedIn isn’t cheap. The social networking site for professionals does have some interesting tricks up its sleeve, though. For one, more than a quarter of the company’s revenue comes from subscription-based services. That gives it a steady flow of incoming cash that a lot of the company’s peers don’t have. Check out my post “
1) Small numbers. For the nine months ended Sept. 30, LinkedIn netted $2 million on revenue of $161 million, and the company is forecasting a loss for 2011 as it looks to aggressively expand its user base. Not only are the profit margins fairly small at LinkedIn, they’re going to be shrink as the company gambles on growth at the expense of profits. Ongoing losses could force out speculative investors with short investing timelines. Even the company’s initial IPO valuation at $4 billion “assumes an $100 million-plus in 2012 net, along with a Google-like growth trajectory for the next 5-10 years,” writes 
It appears LinkedIn has piqued investor interest. The company raised its offer price $10 yesterday from a range of $32-$35 per share to $42-$45 per share. LinkedIn, which targets white-collar professionals, has displayed some impressive growth. Revenue doubled last year to $243 million and membership ballooned around the world to more than 90 million.
1) Niche audience. LinkedIn caters to a very specific subset of the population: job seekers and professionals eager to network. While that makes the site a great marketing tool for recruiters and companies eager to fill white collar jobs, it also automatically puts a cap on the site’s potential audience. Since companies like Twitter, Facebook and RenRen don’t target specific niches, their long-term growth prospects aren’t nearly as limited.
Finally, we’ll get to sink our hands into a genuine social networking stock. Better yet, it hails from behind the Great Firewall in the world’s largest Internet market. Expect fireworks.
1) Competition. As it stands now, Facebook.com is blocked by the Chinese government. Rumors are running rampant that a partnership with Baidu.com, Inc. (NASDAQ:BIDU) – China’s largest search engine – is imminent, though. That could be bad news for RenRen. Who needs a Facebook clone, after all, when you can get the real thing? That said, I’m still not sure Facebook’s willing to turn information on its users over to the Chinese government – particularly if those users end up “disappearing” a few days later. Even if Facebook does decide to move ahead, it won’t happen overnight.
Back in February, I wrote a post titled 
Zynga’s clout may overshadow Chinese competitor Rekoo, but Rekoo’s approach closely mirrors Zynga’s and the company’s growth is just as potent. Based in Beijing, the small gaming start-up has looked beyond the Great Firewall as it pushes out titles like Sunshine Ranch, Sunshine Deep Sea and Animal Paradise.
