Gavin Baker+ Your Authors @GavinSBaker Husband, Becky Painter. CIO, Atreides Management. Former PM, Fidelity OTC fund. No investment advice, views all my own. Mar. 24, 2019 4 min read + Your Authors

1) Going through the Pinterest $PINS S-1 (as one does on Sunday mornings). Failure to disclose DAUs is both surprising and a mistake. They are focusing on weekly actives (WAUs) at 57% of MAUs. Suspect this is because ARPU on a DAU basis is already better than $TWTR, $SNAP.

2) Very stale data from *long* ago shows that Pinterest DAU/MAU ratio was roughly 10%. If that is still directionally correct, then Pinterest is doing $90ish in 2018 US ARPU per DAU vs. $TWTR at $50 (up 8% YoY), $SNAP at $10 (up 15%) and $FB at $146 (up 33%).

3) Even if DAU/MAU is now 20%, their ARPU is still roughly on par with $TWTR despite a much less mature ad tech stack and ecosystem. Number of advertisers matters – to show the right ad to the right person at the right time, you need lots of advertisers in the system.

4) Someone thought better to look at ARPU on a MAU basis where Pinterest is at $9.04 in 2018 (up 47% YoY), $TWTR is at $20 (advertising only, up 20%), $SNAP is at $12.50 (unknown growth given SNAP doesn’t regularly disclose MAUs) and $FB at $189 (up 30%ish).

5) This looks like a lot of “upside” potential, but ARPU per MAU is a meaningless metric when DAU/MAU ratios on different social properties range from 5%ish to 80% ($SNAP). Failure to disclose DAUs will create needless controversy and make comparative analysis difficult.

6) Unfortunately, I think Pinterest either got terrible advice from their bankers or overrode their bankers. It would have been much better to disclose DAUs and explain why they monetize so much better than $TWTR and $SNAP. Honesty is always the best policy.

7) Pinterest *should* have higher ARPUs than $TWTR and $SNAP given there is more “intent” on Pinterest. Beyond the intent embedded in many of the Pins, there are likely more commercially relevant searches per DAU on Pinterest than any other social property (the Cowen survey).

8) Search is the purest expression of intent. This is why $GOOGL has by far the highest ARPU per DAU and likely has at least 10x higher ARPU per unit of “time spent” searching vs. time spent on $FB (looking only at ).

9) There are 2b text based searches and hundreds of millions of visual searches on Pinterest per month. While $FB is doing over 60b searches per month (also a stale number), I suspect there are more search queries per DAU on Pinterest than on $FB.

10) $FB is doing roughly 1.3x daily search queries per DAU and I suspect Pinterest is more like 2.4-3x daily search queries (image and text) per DAU (if DAU is 10% of MAUs).

11) Crucially, the searches on Pinterest are more monetizable as the overwhelming majority of searches on $FB are for people. Even looking at searches per MAU, I suspect Pinterest more has monetizable searches per MAU than $FB (w/ these searches being a proxy for intent).

12) Would’ve rather seen Pinterest disclose DAUs, explain why they have more intent and therefore a higher ARPU vs. disclosing a new WAU metric that makes it impossible to compare them to competitors. And if that’s the plan for the roadshow, then it should have been in the S-1.

13) Biggest issue for Pinterest is Instagram and its ever expanding surface area and engagement. The Instagram “save to collection” feature was a sneaky assault on Pinterest and Instagram has an infinitely more evolved ad tech stack/ecosystem.

14) Also fascinating to see that Pinterest is running a 68% gross margin vs. $FB at 84%. This has led to lots of commentary about how “expensive” AWS is relative to owning your own infrastructure. But one must consider the capex savings of AWS to do this analysis properly.

15) I am going to arbitrarily invent a new metric: “capex adjusted gross margin” which I define as ((revenue-COGS-excess capex over depreciation)/revenue) as a *very quick and dirty* way to assess using AWS/GCP/Azure vs. owning infrastructure for consumer internet co’s.

16) This is 68% for Pinterest (capex=depreciation) and 66% for $FB in 2018. Pre the massive ramp in capex to harden $FB’s platform in 2018, $FB was at 78% in 2017 and 79% in 2018. So better for $FB to own infras. vs. use AWS over the last 3 years on average, but it’s close.

17) And Pinterest seems to believe they can further leverage AWS spend. If it is this close between Pinterest and $FB, every other company on earth should *run* to the cloud given the massive scale of $FB’s spend relative to other companies.

18) Sidenote: it is a mistake for social media co’s to start with brand advertising. So seductive initially but debilitating in that focusing on brands delays building the targeting and measurement tools needed by performance advertisers (larger mkt on internet).

19) Better to start with performance and then engage with brands. Especially given that even brand advertisers increasingly want more metrics. At some level, all advertising is performance advertising. Nice to see that Pinterest now at 66% performance ads.

20) Very curious to see where Pinterest prices. I'm sure they are hoping to raise the rumored range.

You can follow @GavinSBaker.


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