A recent article from Reuters states that Pinterest is valued around $1.5 billion, after raising around $100 million in financing. Pinterest is in the long line of dot com companies that have received massive valuations (and been able to receive massive amounts of funding) without turning a profit. This trend has been occurring in the tech industry for decades, and some say that it is actually beneficial for the growth of new startups – they have the ability to focus on creating a product or service that people use instead of worrying about how whether or not they can afford to keep the business afloat. The ultimate goal is to start making revenue, bet acquired, or go public.
The conversation that everyone is having with Pinterest is the same one that people have been having with other “hot” dot com and tech businesses like Facebook (which is now a public company and must rely on Facebook ads for most of their revenue), Instagram (which was acquired by Facebook for $1 billion) and YouTube (which was acquired by Google for $1.65 billion). Large companies are always willing to pay a premium to acquire startups, which is why I think it’s possible that someone out there is willing to pay $1.5 billion for it. However, is it worth that much?
From a literal standpoint, no, it probably is not. However, take into account more than just the monetary income that Pinterest could ever hope to generate and that price might be worth it. Take Instagram and YouTube for example. Facebook and Google did not purchase those companies because they thought they would be able to make back the money that was spent to purchase them in the short run. However, there are synergies between Facebook and Instagram, and Google and YouTube that do not appear on a balance sheet but are vital to each company. If a company does decide to purchase Pinterest, it will be for that reason, not because they expect it to turn a profit.