If you’re like me when it comes to buying magazines, you
enjoy reading the articles, but it is the pictures that grab your attention and
the object upon which you place most of your attention. So what if you could take all of the images
available to you from GQ to Vogue to Crate & Barrel and other apparel and
home furnishings magazines, and place them all in one easy to access, organized
space? Now imagine that space is
controlled with the single click of a mouse.
This is exactly the concept that is brought to life by Pinterest.
With 29 Million unique users during the month of December
2012[1],
Pinterest is the third most-visited social network after Facebook and Twitter[2]. Within the e-commerce sphere, however,
sharing across Pinterest beats out Facebook with 41% of shares occurring through
Pinterest, compared to 37% of shares through Facebook.
To see how different social media sites influence various
aspects of the web, click the here.
Pinterest’s greatest value proposition, perhaps, arises
in the type of content Pinterest users share with one another. Whereas most e-commerce sites are dominated
by electronics, which offer retailers very low profit margins, Pinterest is
dominated by products like apparel and home furnishings, which can have margins
of up to 50%. “Across the web, the average sale resulting from a
Pinterest user following an image back to its source and then buying the item
is $180, according to research from e-commerce firm RichRelevance, compared
with $80 for Facebook users and $70 for Twitter users[3].” Monetizing
the value added to these retailers appears to be the best opportunity for
Pinterest to generate revenues.
Assuming each of Pinterest’s 29 million users buy one
product per year as the result of clicking through Pinterest, and Pinterest
collects $2.00 on average for each one of these purchases, they would generate
approximately $135M in revenue. Pinterest
has a highly fixed cost structure, with most of their expenses coming in the
form of human capital (designers and programmers) and IT infrastructure. Assuming Pinterest employs 200 designers and
50 developers at an average annual salary of $100,000, their personnel expenses
account for $25M in annual cost. IT
infrastructure, which I estimated to be $10M based on the current size of the
business as compared to my own company, accounts for the remaining cost. Based on these figures, Pinterest has the
ability to currently generate approximately $100M in annual profit, which equates
to a 74% margin!
Pinterst’s high operating leverage (fixed costs) and rapid
growth in acceptance and usage, combined with its ability to drive purchase
decisions based on the organized manner in which the site displays high quality
and profitable products, makes it in a prime candidate for a $1B plus
valuation. In fact, the time of this
writing, various outlets are currently valuing Pinterest at ~$2.5B.
No comments:
Post a Comment