How much is Pinterest really raking in? (Page 1) ( 8 Comments)

How much is Pinterest really raking in? (Page 1)

We need stats to comprehend Pinterest’s financial map, but what statistics can we provide to justify Pinterest’s $200 million valuation? 

Research analysts and article writers like myself  have used napkin-and-pen math to explain this valuation. In an article by Alexis Madrigal, “Why Pinterest Is Playing Dumb About Making Money,” Madrigal throws down a ball-park figure and provides sufficient working-out and writes that Pinterest’s annual revenue is $45 million annually. Based on basic web stats and figures, I believe there is only a 1 percent chance that Pinterest is making that much bank.

If we consider all possible scenarios and not just the most positive and optimistic of these, I would like to show you why and just how much bank Pinterest is making.

Madrigal comes up with his figure by calculating revenue from its only known source – affiliate fees from Skim Links.

Here are the facts he provides to support his argument:

  • Pinterest has 10 million users
  • The average across the board of these users is that they buy items, around 10 dollars worth through marketing affiliate links on Pinterest.
  • This means that $100.000.000 sales will be credited to Pinterest.
  • This equals close to 4 million in monthly revenue.
  • And this as a result equals 45 million annually

This calculation has two downfalls, two problems that might deem it redundant.

One of these is that no one verified whether Pinterest generates enough traffic to make 10 million transactions a month. The second is that numbers based on such broad and variable suppositions have heaps of variables that will affect the figures and uncertainties that are not determinable unless we get some official figures. Just one of these uncertainties is whether or not each user generates $10 a month. How likely is it?

Let’s look at the first problematic equation. How much traffic should Pinterest generate to affiliate websites to filter 10 million transactions to them each month?

According to the Top 500 Guide: Profiles and Statistics of America’s 500 Largest Retail Web Sites Ranked by Annual Sales, the average transfer rate from website visits to actual sales is low for today’s world of internet retail: 4.3 percent. That means that Pinterest will have to try and muster 232 million visits to come up with a figure like 10 million sales transactions.

How does this figure compare to total traffic directed to all online stores? Data collected by Complete says online stores receive a whopping total of 662 million visits a week, or 2.4 billion visits  monthly. What this means is that for them to justify Madrigal’s estimates, Pinterest must account for close to a whopping 16.1 percent of all online retail traffic. That is borderline impossible. According to Shareaholic, Pinterest is the driving force behind just 3.6 percent of referral (link referral) traffic.

 I think it is safe to say that Madrigal’s numbers extremely overestimate Pinterest’s page views, transactions, and… as a result, its revenues.

When it comes to the second problem regarding revenue models based on assumptions, let me explain further by saying that it is not possible to avoid assumptions when it comes to privately owned and run companies.
However, we can start with smaller, more accurate and all-round better assumptions, and we can use statistical models to determine the uncertainties within them. Instead of  going the full length by making such assumptions as 10 million transactions per month and $10 average transaction size, let’s build upwards by making a model from its parts.
Sales from Pinterest referrals
=
Number of transactions/year x number of active users x transaction size

And so

Pinterest revenue
=
Sales from Pinterest links x percentage of affiliate fees

All the variables in these two equations are undetermined and we have no other choice but to give estimates.

(See Page 2)

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