Pinterest isn’t your typical social media company. The company describes itself as a visual discovery engine, and there’s hardly anything else like it on the web. Pinterest has more than 250 million monthly active users sharing images of home decor, fashion trends, articles, recipes, and much more, and all of those users have created more than 175billion pins. But how does Pinterest make money from all of that content? The bulk of the company’s revenue comes from Pinterest’s advertising sales on its platform. In 2018, Pinterest generated $756 million in sales, up 70% from 2017. The company says that more people use its service to find or shop for products than on social media networks and that advertising is native content on its platform. Additionally, the majority of the pins that are saved on Pinterest has actually been created by businesses. That great news for advertisers because Pinterest users are the primary decision-makers when it comes to buying services and products for their household. 83% of all women ages 25-54in the U.S. are Pinterest users, and the company calls them deciders because they’re the ones calling the shots for household expenses. But even as Pinterest’s advertising revenue grows, the company is still losing money. In 2018, Pinterest lost $63 million, which was a huge improvement from its loss of $130 million in 2017. So if Pinterest brought in $756 million in sales, but lost $63 million, where did all that money go? Much of it went to expenses for sales and marketing, which totaled $260million in 2018. Additionally, Pinterest spent about $252 million on research and development and about $242 million for its costs of revenue expenses, which include web hosting, mobile app expenses, and employee salaries. When you add all that up, along with additional general and administrative expenses, Pinterest spent more than $830 million in 2018. While Pinterest is still working towards turning a profit, the company has managed to increase its average revenue per user. In the U.S., Pinterest’s most lucrative market, average revenue per user jumped 47% in 2018 to $9.04. Pinterest has lots of opportunities to grow its international sales as well. The majority of its users are outside of the U.S. and the company’s average revenue per international user increased by 22% in 2018. The challenge for Pinterest will be to convince more advertisers to spend their money on its platform instead of on popular social media sites like Facebook and Instagram. So far, Pinterest’s sales and user growth have shown that this company can compete in the ultra-competitive digital advertising space. And with Pinterest’s unique way of blending content with ads, the company may not be far off from turning its visual discovery engine into a profitable business. Thanks for watching this video! If you have a company you’d like to see us break down, mention it in the comments section below. Be sure to like the video and subscribe to get more videos like The Motley Fool.
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