Lakehouse Capital: Pinterest ($PINS) Investment Case
In their fund letter, Lakehouse Capital introduces Pinterest as the most recent addition to their Global Growth Fund, presenting it as a differentiated opportunity in the digital advertising space. Lakehouse Capital, known for identifying companies with strategic advantages in networks, loyalty, and intellectual property, views Pinterest as an undermonetized platform undergoing a significant transformation. The letter emphasizes the company’s unique positioning as a visual discovery and shopping platform with strong commercial intent, distinguishing it from traditional social media. Lakehouse’s decision to invest in Pinterest reflects their conviction that the company is finally unlocking its monetization potential under new leadership, offering attractive risk/reward at current valuations.
Investment Highlight: Pinterest
Business Overview
- Visual search and discovery platform for exploring interests, seeking inspiration, and browsing products
- 578 million monthly active users (MAUs)
- 67% female user base with over 40% Gen-Z demographic
- Bill Ready (formerly President of Commerce, Payments & Next Billion Users at Google) serving as CEO since 2022
Market Position
- Unique positioning geared towards discovery, organization, and direct shopping
- Roughly half of US users visit to “find or shop for products” – greater than 2x any other social media platform
- Functions more as a utility with less frequent usage but much higher commercial intent
- Currently captures only 1% share of overall digital advertising market
- Strong commercial intent provides valuable signals to advertisers
Performance Analysis
- Platform Transformation Under New Leadership:
- CEO Bill Ready appointed in 2022 with mandate to improve “shopability” and monetization
- Significant progress in developing more sophisticated ad tools
- Strategic push towards performance-based ad formats (direct response) versus brand awareness advertising
- Focus on improving return on ad spend (ROAS) to unlock greater share of advertiser budgets
- Monetization Progress:
- Largest, most sophisticated advertisers now spending 5-10% of their advertising budgets on Pinterest
- Particularly encouraging given Pinterest’s current 1% share of digital advertising market
- Performance ad budgets typically much larger and more consistent than experimental brand awareness spending
- Product Innovation – Performance+ Suite:
- Released October 2024 as suite of AI-powered advertising tools
- Automates and streamlines budgeting, bidding, and targeting functionalities
- Cut campaign creation time in half
- Meaningfully lowered cost per action for advertisers
- Adoption cycle expected to be multi-year event with continued innovation and improvements
Market Dynamics and Opportunities
- Historical struggle to fully monetize commercial intent now reversing
- Differentiated, scaled platform with significant untapped potential
- Performance-based advertising unlocking larger, more consistent advertiser budgets
- Strong product-market fit for commercial discovery versus entertainment-focused social platforms
- Well positioned to capture incremental share of advertising budgets in years ahead
Valuation and Capital Allocation
- Relatively undemanding valuation at 18x earnings
- Over 10% of market capitalization held in cash
- Attractive risk/reward profile at current valuation levels
Risks
- Historical challenges with monetization despite strong user engagement
- Dependency on successful execution of Performance+ adoption cycle
- Competition from established social media platforms expanding commerce capabilities
- Less frequent usage pattern compared to traditional social media (though offset by higher intent)
- Multi-year transformation still in progress under relatively new CEO leadership
- Need to continuously improve ROAS to justify increased advertiser spending
Other Key Points
- Strategic advantages in networks, loyalty, and intellectual property
- User base demographics (female-skewed, Gen-Z heavy) attractive for certain advertiser categories
- Platform designed for lower-funnel conversion rather than upper-funnel awareness
- Management committed to continuous innovation and product improvements
- Significant room for market share gains given current 1% of digital advertising capture
Lakehouse Capital views Pinterest as a differentiated discovery platform with underappreciated monetization potential, citing its unique commercial intent, sophisticated new ad tools under experienced leadership, and early traction with major advertisers as key factors. They believe Pinterest is well positioned to capture meaningful incremental advertising market share over the coming years, with the risk/reward enhanced by an attractive valuation and strong cash position.
