Pinterest’s E-Commerce Transformation
Pinterest, despite some 1Q headwinds, is well entrenched in a strategic transformation from a fairly unengaging, unprofitable and uninspiring platform, to one heavily focussed on profitability via a seamless e-commerce experience — connecting users/pinners with the products they love.
Pinterest has long been an interesting platform for pinning, creating boards and getting inspiration….but that’s about where it stopped.
Compared to Instagram and all other social media platforms (TikTok, Snap, Twitter) it’s never really been hugely inspiring.
Over the years, Pinterest has acquired a very specific user-base — 60% women - with a majority being mums. In fact, according to the company prospectus, 80% of internet-using women in the US, from 18–64 with children, have a Pinterest account.
According to the Pinterest 100, which tracks growing trends across the platform, these users are seeking inspiration for everything from low-waste lifecycle (+446%), thrift shop crafts (+2,276%), feng shui decor (+137%), homemade baby foods (+379%), Indian living rooms (+2,080%), Macedonian food (+509%), cat playgrounds (+512%), outdoor play areas (+550%) and 90’s hair clips (+930%).
I can’t relate to any of those trends BUT do resonate with the 40% of, presumably, male users who search for things like brewing equipment (+411%), audio room (+803%), home coffee station (+751%) and outdoor kitchen bars (+2,795%).
However, the problem for Pinterest is that they can get people to log in once or twice a month to search and pin but have no way of getting them to complete the journey through their platform (and monetise it).
All this is about to change.
Following Instagram and Google’s lead, Pinterest are evolving their platform to online shopping — allowing users to shop with verified merchants directly through Pinterest.
How does this look?
Firstly, Category Search (my definition; not Pinterests). Let’s assume you’re searching for inspiration for an ‘audio room’. Filtering by product will return a number of relevant shoppable items — stereo systems, cabinets and turntables from the likes of The Home Depot, Overstock, Walmart, Target, Urban Outfitters etc.
Once you’ve identified the relevant product (in the below example, an Audio-Technica Turntable), you’re then directed to the verified Home Depot site where you can quickly navigate to the product’s checkout.
In cases, where you have a specific merchant in mind you can always navigate directly to the Merchant’s Site. In the below example, you can go directly to West Elm’s verified site and shop directly for whichever home goods and furniture you’ve had your eye on (or pin those products for later).
Finally, there’s one of the more unique features on Pinterest — Visual Search. This is where Pinterest’s AI engine helps you identify specific (and similar) products to those you’re interested in, and allows you to buy directly through the merchant.
How does this work? Let’s assume you’re looking for outdoor dining inspiration and come across (in the below image) some appealing outdoor chairs. What you can then do is select the specific chair and Pinterest will highlight a number of similar/identical shoppable products. For example, the first option from Frontgate retails at US$321 whilst a similar product can be ordered through Walmart at US$193. In the same image, you’ll also see a white dot over the outdoor light. Selecting that, or the dining table, will bring up similar results.
It’s important to note that Pinterest’s foray into online shopping is only in the early stages of rollout and monetisation.
At present, it is only really available to US merchants (Samsung US, IKEA US, Lululemon, Converse, Under Amour, West Elm, Nordstrom, Pottery Barn etc) with a global rollout earmarked for later in the year. As a non-US user, you can still see some functionality (prices, in-stock status, shop tabs), but full functionality (i.e. ‘Shop from a Board’) is yet to be unlocked.
The shopping feature finally puts Pinterest in a position where they have a clear value proposition to advertisers, merchants and users (many of whom have relatively high incomes >US$100k).
With this clear value proposition comes platform monetisation which will largely be reflected via their Average Revenue Per User (ARPU).
What the above chart highlights is that Pinterest have been steadily increasing ARPU, but are still considerably lagging their peers in terms of optimising profitability per user. Note, FB and Pinterest ARPU above is based on Monthly Active Users (MAU) whilst Snap and Twitter is based on Daily Active Users (DAU).
What best highlights Pinterest’s problem (or opportunity) though is the following graph:
This highlights two primary issues Pinterest have:
Flatlining US user growth (averaging 1.5% Q-Q for the last 2 years) vs the ‘relative’ surge in international user growth (averaging 7% Q-Q for the last 2 years); and conversely
Poor monetisation of international users relative to US (13c for Int’l vs $2.66 in the US)
For comparison, FB’s US/Canada ARPU is $34.18 (1Q20) vs $10.64 in Europe, $3.06 in Asia-Pac and $1.99 RoW (weighted avg. $3.98 int’l). Over at Twitter, using Int’l and US GAAP Revenue for ARPA, gives $14.18/US user (33m DAUs) vs $2.54/Int’l user (133m DAUs). Note Twitter‘s terminology of ‘monetisable’ DAUs.
What this tells us is that the monetisation gap between domestic and international markets isn’t unique to Pinterest. What is unique is the magnitude of that gap. Pinterest’s US users earn the company 20x more than their int’l users vs 8.6x more at FB and 5.6x more at Twitter. All based on the latest quarterly earnings (1Q20).
Let’s then make an assumption. Let’s assume that Pinterest can close the gap enough over the next couple of years to be in line with “peers” — with domestic ARPU at 7x international. Let’s also assume they maintain their quarterly growth in MAU (1.5% and 7% for US and Int’l respectively) and ARPU (10% for US but Int’l slowly closing the gap to 7x by 1Q22).
What this all implies is a ‘best case’ trailing 12m revenue of US$2.9 billion for 1Q22 or US$2.4 billion for FY21).
That’s a doubling of current 12m trailing revenue (1Q19–1Q20).
This best-case assumes a business as usual economic and consumer environment; and we all know we’re nowhere near business as usual. So, factoring in the current recessionary environment (slowing GDP growth, increasing unemployment, decreasing consumer confidence and spending) the risk-weighted FY21 number is more likely to be in the US$1.7-$1.9 billion range. That’s still a pretty decent 40% to 57% higher than the current trailing revenue.
Despite the obvious headwinds, Pinterest are executing on a strategy which can drive considerable value for merchants and consumers alike.
Further, this value will be quite unique to Pinterest (vs Google, Amazon, Instagram) and enhanced through critical partnerships, such as Shopify, where merchants of all sizes can seamlessly synchronise their inventory and check-out.