2020 Made This Tech Company

Do you want to invest in a tech company that added 100 million new accounts in 2020?

Well, you’ve meandered down the right alley and I will show you the way.

Clearly, in the year 2020, the pandemic obviously threw a massive wrench in everything and for a second, I too held my breath for tech companies.

But it luckily shook out the right way for us, as I understand it, tech firms throughout the mayhem evolved to drive incremental use cases for the users and that was what won out.

Pinterest (PINS), a U.S. media sharing and social media service designed to enable saving and discovery of information on the internet, was an unheralded beneficiary of this outsized pivot to lockdown and quarantines.

In fact, it was only just before the public health crisis that I believed this firm was languishing big time, unable to outperform against the big boys, but good enough to be faintly relevant.

Well, they became comparably relevant on a global scale from March 2020, and they have taken their path of opportunity and ran down it.

So how successful are we talking about?

Pinterest grew total revenue 76% year over year in 2020 with adjusted EBITDA margins of 42%.

That’s homerun stuff right there after only being able to expand in the high teens pre-virus environment.

The huge gap up in performance is also here to stay with upper management envisioning the next quarter as growth of “low 70s percent range year over year in the first quarter.”

Not too shabby, right?

Certainly, it’s an understatement to say that 2020 was the ultimate acid test to whether a public tech company could stand on its two feet or not.

No doubt they were aided by a giant sea swell of stimulus money which they are more than happy not to apologize for.

So, what’s the game plan now for the Pinterest crew?

The public health crisis uncorked the pathway to international revenue after focusing on “mature” markets for the first part of its history.

In 2020, international business grew 145% year over year on the back of strong advertising demand. International markets now represent 17% of total revenue.

The company rolled out a function able to take advantage of the “insight” into selling to consumers.

Sales and marketing teams built an insights-led go-to-market program over the course of 2020 that helped Pinterest deliver against Q4 seasonal comps.

This development helps make Pinterest more attractive to advertisers because they can understand their verticals better.

Let’s run down a few examples to show the use cases.

The LEGO Company created a holiday campaign based on popular search terms on Pinterest, seeing increasing search trends for creative kids’ gifts allowed the LEGO company to optimize and serve ads at the right moment ahead of the holiday season.

Another example is the luxury coffee company, Nespresso. They partnered with Pinterest teams to unearth key consumer trends around the holiday season, including search trends and consumer habits around holiday gifting, coffee recipes, and seasonal flavors.

With a better understanding of both auction dynamics and Pinner behavior, Nespresso delivered effective advertising campaigns that also showed positive results in a third-party brand study.

As 2021 does feel like another shelter-at-home year, I would warn investors to keep their powder dry for this one because the comparisons for mid-end 2021 will be tough to beat.

I do believe after a period of consolidation; Pinterest’s stock price will be back in full-out bullish mode.

There is just too much runway out there if you consider, these are the early innings of Pinterest transforming from an image company to a video-centric company.

There has been a significant uptick in video views and uploads. And PINS is beginning to expand that by enabling users to publish directly onto the platform.

This change will drive digital experiences for users, both in the U.S. and internationally, with some of the less mature web content ecosystems the U.S. relied upon.

That's a significant focus and makes the product more useful.

And they certainly did make the platform more useful in 2020 with enormous surge in product search that went up about 20 times last year alone.

PINS is also at the stage of supporting a diversified advertiser base and is really focused on making it easier for mid-market advertisers to manage SMBs to scale their spend.

But as they fine-tune automation, these SMB and mid-tier contracts will turn into Fortune 500 contracts like many of the larger tech sharks out there.

On the risk side, privacy issues could disrupt their rise as privacy measurements are diminished which could lessen their attractiveness to ad buyers.

This company is still a pure ad seller company where the user is the product ala Facebook.

Also, there is the risk that lockdown and quarantine measures are dismissed, and the world opens up which could damage the incremental use case for PINS that was so strong during lockdowns.

It’s hard to view that new sneaker in the shop window when the shops are closed, and I predict a 10% correction if investors feel the world is about to open up unfettered.

However, the long-term runway is healthy for PINS and I do expect a slow grind up as the company switches to predominate video and ad companies pile money into their platform because of the “brand safety” of PINS in a world where the internet is increasingly becoming a murkier place to deploy capital blindly.

 

 

2020 MADE PINS RELEVANT