Pinterest has been making stock market news lately, especially after reporting its 2020 fourth quarter earnings of the financial year that ended on December 31, 2020. The report was released during a conference video between Pinterest top executives Doug Clark, the Head of Investor Relations; Ben Silbermann, Pinterest’s President and Chief Executive Officer; Todd Morgenfeld, the company’s Chief Financial Officer and Head of Business Operations; and analysts from different financial institutions like Barclays, UBS, and J.P. Morgan among many others.
In the fourth quarter of Pinterest’s financial year that ended on December 31, 2020, the company reported that it earned revenues amounting to $706 million, far exceeding the estimated revenue of $645.9 million. That is a rise of 76% from the same time in 2019.
Now, the social media platform is back in the stock market news, this time because of the way its stock popped. On Thursday, February 11, 2021, Pinterest’s shares surged 7.3% after the investor world received reports that it had held talks with tech giant Microsoft regarding a potential acquisition.
According to The Financial Times, Microsoft approached Pinterest with a proposal of a possible deal, though we have since learnt that the talks are no longer active.
It should be noted that at the current price of $85.53 per share, Pinterest’s stock price is up 32% so far in 2021 and 258% by this time last year. This is reportedly the reason that made it difficult for the two companies to agree on an acquisition price.
Microsoft has been slammed by industry critics for overpaying for acquisitions like Skype and LinkedIn among others in the past, and the tech giant does not want to repeat those mistakes by overpaying for Pinterest.
Microsoft was reportedly tempted by Pinterest’s surging user growth, as the company reported in its Q4 earnings report early this week that it added 100 million users in the last fiscal year.
On a brighter or darker side, depending on how you look at it, if the deal went through, it would no doubt face regulatory scrutiny. This is because there have been increasing concerns from government officials about the growing power of large technology companies through acquisitions with Facebook getting grilled by the Federal Trade Commission (FTC) and being at the receiving end of the suggestion to sell off its Instagram and WhatsApp businesses. The US government feels that too much power held by these big tech companies has the ability to sway public opinion via social media.
It is easy to see why Microsoft would be interested in Pinterest. Apart from adding over 100 million people last year, the company posted strong Q4 earnings that exceeded expectations and rounded up a profitable FY2020.
Monthly active users on the site were up 459 million, a total that is up 37% year over year. This also beats the estimated number of users by a few millions, which was 448 million.
Adjusted Earnings Per Share (EPS) of the company’s stock swung to a profit in Q4 to $0.43, higher than the expected $0.33.
Additionally, adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) came in at $299 million, versus the estimated $223 million. And their margin, EBITDA margin, 42% versus 19% year over year. Pinterest’s revenue, in turn, soared 48% year over year to $1.7 billion.
Microsoft, meanwhile, has been on the hunt for rapidly expanding social media sites that could help fuel the growth of its Azure cloud computing service. Pinterest currently uses Microsoft’s cloud competitor Amazon Web Services (AWS) for its cloud infrastructure needs.