What's going on?
On Monday, social media platform Pinterest filed initial public offering (IPO) papers that revealed its upcoming share sale will value the company at around $10-11 billion – less than its valuation in 2017 (tweet this).
What does this mean?
Pinterest’s scrapbook approach lets users “pin” and share images of their favorite recipes, cats, and bridal bouquets. Like other trendy IPO candidates in 2019, the company is still making a loss: $63 million last year. But that’s down from $130 million in 2017 – and Pinterest is growing its users and sales, increasing the latter by 60% in 2018.
Pinterest’s last private fundraising round valued the company at $12 billion. Valuations usually go up over time, especially when financial results are improving – so Pinterest’s lowball IPO price might give potential investors pause…
Why should I care?
For markets: Better a pop than a pinnacle.
Pinterest’s conservative valuation might be intended to discourage investors who bought stock in its last private fundraising round from selling, keeping them on board longer while they wait for the stock price to rise. And with an IPO’s success often judged by the stock’s day-one performance – especially in the US – a lower starting price leaves plenty of room for improvement. If public investors think Pinterest is worth $12 billion later this month, they may well snap it up and give the stock a first-day boost.
The bigger picture: Go shorty, it’s your birthday.
Following its own IPO two weeks ago, ridesharing company Lyft is questioning investment bank Morgan Stanley’s role in helping pre-existing Lyft investors “short” (i.e. bet against) its stock. After a company goes public, existing investors are often “locked up” – unable to sell their shares for a certain period of time. But shorting could allow those investors to profit if the stock price falls, as Lyft’s did on the day after its IPO. Morgan Stanley denies deliberately providing existing Lyft investors with shorts – which at one point represented more than 38% of the company’s stock.