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How Pinterest and Zoom compare to other tech ‘unicorns’ about to IPO

JP Mangalindan
Chief Tech Correspondent
In this Thursday, Oct. 11, 2018, photo Evan Sharp, Pinterest co-founder and chief product officer, poses for a photo in his office beside a wall of pinned photos he has taken at Pinterest headquarters in San Francisco.” (AP Photo/Ben Margot)

2019 is shaping up to be one of the busiest years for tech IPOs in recent memory, with Pinterest and Zoom both set to debut on Wall Street on Thursday.

Pinterest, a digital scrapbooking site, and Zoom, which makes video conferencing software, are both expected to price their IPOs after the closing bell Wednesday.

Pinterest, which set a price range of between $15 and $17 per share at a lower-than-expected $11.3 billion valuation, is losing less money than other companies set to IPO and may even be profitable within two years. Zoom, which plans on listing its shares on Thursday at $33 to $35 at a valuation of $8.9 billion, is one of a few tech companies set to IPO that has achieved profitability.

Pinterest and Zoom are two of least eight tech companies eyeing 2019 for their IPOs, including Slack, Airbnb, Instacart, Palantir, Postmates, Uber.

‘A proven business model’

To be sure, Pinterest’s 265 million monthly active users falls short of social media competitors like Facebook (FB), which has more than 2 billion, and Twitter (TWTR), which has 320 million.

Still, Pinterest’s steady revenue growth and falling losses also make it an attractive buy for some investors. To that end, Pinterest revenues grew 58% from 2016 to 2017 and 60% from 2017 to 2018, while Pinterest generated a net loss of $63 million in 2018 — down from a net loss of $130 million the year prior.

And while the tech company may not be as broad in scope as several others — or even making a profit — two analysts Yahoo Finance spoke to contend Pinterest may be a worthwhile investment.

Source: David Foster/Yahoo Finance

“You have to look at all these companies through a balanced scope: the risk posed by the losses versus the growth potential,” explains Alejandro Ortiz, a research analyst with SharesPost, a San Francisco private trading marketplace. “I think Pinterest has a proven business model, a cult following, and its customers are very loyal to the company and the solution that it provides.”

Pinterest’s losses are far less than Uber, which is also set to go public later this year and lost $1.8 billion in 2018 and Lyft (LYFT), which went public in late March and lost $911 million last year. Given its current rate of falling losses, Pinterest could potentially eek out a profit within the next two years, following Slack, which estimates it will become cash flow positive by January 2020, according to a report from The Information.

On the other hand, Uber and Lyft likely won’t become profitable until 2022 at the very earliest, according to Morningstar analyst Ali Mogharabi.

But short-to-medium term losses are less of a concern for some investors who see the potential upside for the future.

“Investors are more interested in growth potential and growth opportunities of a company IPOing and less so the bottom line and the losses they’re taking right now,” explains Ortiz. “Right now, they’re buying for further growth.”

A profitable ‘unicorn’

While investors might not be overly concerned about losses, Zoom can boast that it is one of a handful of pre-IPO tech “unicorns” (startups that have achieved a $1 billion valuation) that has been profitable.

For Zoom’s fiscal year 2019, which ended this January, the company earned $7.5 million in profits on $330.5 million in revenues, according to the company’s S-1 filing. Airbnb, which reported this January, experienced profitability for the second year in a row in 2018, although it did not disclose specific numbers. And Postmates, which reported more than $1 billion in revenues for 2018 according to Fortune, says that it is profitable on a “per-order” basis, although the company also did not disclose specific figures.

As for Pinterest, Ortiz says, “It’s ... operating on a proven business model with ad revenues. Given there are a lot of players in the ad revenues space, maybe that could be a problem for them in the future, but that doesn’t appear to show in their growth so far.”

Of course, the ultimate judge of these businesses will be the market itself.

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