Shares of Pinterest Inc. surged 25 percent in their debut on April 18, giving the online scrapbook company a market capitalization of $15.8 billion and signaling increased investor appetite for new tech listings.
The successful debut bodes well for the U.S. IPO market as it readies for the much-awaited listing of ride-hailing giant Uber Technologies, particularly after smaller rival Lyft Inc.’s struggles to hold onto its gains since its flotation earlier this month.
“All of the gyrations that you read about in the press and the drama that you read about in other cases, we can certainly fall victim to a lot of those things if we are distracted by the news cycle or things that are short-term by nature,” Pinterest Chief Financial Officer Todd Morgenfeld said in an interview.
“But we’re focused on building the best version of Pinterest we can over the next several years.”
Investors are hopeful that Pinterest, the most high-profile social media company to list in the United States since Snap Inc in 2017, will have a strong run in the market, given the company’s ability to grow revenue and increase its user base.
Its shares opened at $23.75, well above the $19 they were priced at, and touched a high of $24.99 in its first hour of trading.
“When you see an initial pop in price like this it’s a pretty clear indicator interest is strong out of the gate,” said Chris Larkin, senior vice president of trading at E-Trade Financial Corp.
April 18 also saw a successful debut by U.S. video conferencing firm Zoom Video Communications, which soared 80 percent above its IPO price of $36.
“It is a very favorable market at the moment,” Zoom Chief Financial Officer Kelly Steckelberg said in an interview. “Investors really see the opportunity for Software As a Service companies.”
Pinterest allows users to search for topics from home improvement projects to travel tips, with results often showing handy infographics.
It also lets users create themed social “boards.” It earns money through advertisements, which are placed among the “pins” or posts that users upload on the site.
In 2018, the company recorded a net loss of $63 million on revenues of $756 million. It expects to report 291 million global monthly active users as of March 31, an increase of 22 percent from a year earlier.
Pinterest was showing a clear path to profitability but was overvalued, said Haran Segram, professor of finance at NYU Stern School of Business.
The IPOs of Pinterest and other loss-making unicorns—startup companies with valuations of at least $1 billion—have presented a predicament for investors.
While they do not want to miss out on popular companies with fast growth, they also have to weigh the risks of businesses with unproven economics.
Pinterest’s IPO was underwritten by a 12-member team led by Goldman Sachs and JPMorgan.
By Aparajita Saxena