Company Analysis — Pinterest
How Pinterest Generates Revenue
Revenue is generated through ads. Advertisers purchase ads directly with Pinterest through advertising agencies. Charges are on cost per click (CPC), cost per thousand impressions (CPM), cost per (video ad) view (CPV) basis.
Pinterest’s Cost of Revenue
Cost of Revenue is primarily cost of hosting application and website. It also includes operation team’s salaries.
Since 2017, Cost of Revenue decreased from 38% of revenue to 20% of revenue. This is because Cost of Revenue is is primarily driven by user growth, if user base does not grow, cost of revenue is likely not going to be affected much.
Pinterest’s Research and Development Costs
R&D is primarily personnel-related costs in the research and development of Pinterest products.
Second largest source of costs for Pinterest, Went from 44% of revenue in 2017 to 28% in 2021.
Pinterest’s Sales and Marketing Costs
Sales and Marketing is primarily personnel-related expenses to employees engaged in sales, sales support, marketing, and customer service function. It also includes advertising, promotional expenditures and professional services.
It is a very stable expense item, around 25% of revenue.
Pinterest’s General and Administrative Costs
General and administrative consists primarily of personnel-related expense to employees engaged in finance, legal, human resources and other administrative functions, professional services, including outside legal and accounting services, charitable contributions and allocated facilities and other supporting overhead costs.
It is around 12–20% of revenue in 2020 and 2021.
Key Business Metrics
- MAU (Monthly Active Users)
Pinterest defines a MAU as an authenticated Pinterest user who visits our website, opens app or interacts with Pinterest through browser or site extensions, such as the Save button, at least once during the 30-day period ending on the date of measurement.
For Pinterest, MAU has been decreasing since Q2'21. Pinterest said it was due to easing of covid-19, we’ll see. The trend is likely going to push Pinterest MAU to pre-covid level if not stopped.
Segmenting by market region shows that, Pin’s Domestic Market MAU has shown limited movements, while International Market saw significant MAU growth before 2021.
- WAU/MAU (Weekly AU/Monthly AU)
This metric serves as a measure of stickiness. Since WAU is always less than MAU, WAU/MAU is between 0% — 100%. Higher WAU/MAU means that monthly active users are using the app more frequently with better engagements.
As of December 2021, Pin’s WAU/MAU is 58%. Pinterest said their WAU/MAU metric is consistent over time.
Although Pinterest had trouble maintaining its MAU level in 2021, global revenue increased. 2020 revenue saw 48% growth from 2019’s $1.14B. In 2021 Pinterest managed to deliver another stellar 52.3% growth in revenue.
Pinterest currently only monetizes certain countries and it charges different rates for different countries. United States is the most mature market for Pinterest’s monetization because Pinterest’s earliest monetization efforts were focused on US. due to the maturity of US digital advertising market. International revenue is growing at a higher rate (129%, 109.7%) than US market (39%, 41.5%). But it is noteworthy that international revenue growth in 2021 is slowing down due to less international MAU.
- ARPU (average revenue per user)
ARPU increased 36% YoY for Pinterest. Therefore, ARPU is the primary reason why Pinterest continued to deliver strong revenue growth in 2021 despite headwinds in MAU growth. Although we don’t know whether it was Pinterest’s aggressive monetization that caused MAU decrease (more promoted ads discouraged users from using?), or the decrease in MAU led to Pinterest’s monetization efforts, the stronger the negative correlation between Pinterest’s ARPU and MAU, the less attractive the product is likely to be.
ARPU in United States in 2021 was $ 21.98, while international ARPU was $1.59. The gap is primarily due to 1. Pinterest has not fully monetized its international market 2. U.S. Digital marketing market size is much larger than other regional markets. But we are more interested in the growth, especially international ARPU, because the majority of MAU are international users, and potential future growth is going to be coming from international users too. In 2021, international ARPU increased 80% vs. 2020, and US ARPU increased 43% vs. 2020. Looks like Pinterest is still patiently monetizing international markets.