Why is Pinterest Valued At $5 Billion with Zero Revenue?

Pinterest has just exceeded its own already sky high valuation, which already couldn’t be justified by any traditional financial valuation metrics like revenue multiples. A multiple of zero is still zero. Investors have simply just paid an even higher multiple of zero for a stake in Pinterest.

But Pinterest’s $5 Billion valuation in its new funding round is rational and has nothing to do with Pinterest’s non-existent financial performance. (By way of comparison, for a mere $2 Billion, the VCs could have just bought restaurant giant Red Lobster). Instead, Pinterest’s $5 Billion valuation had everything to do with supply and demand for the few properties that can boast hundreds of millions of users, even non-paying ones, given that large tech companies have proven willing to pay enormous prices for tech companies like Pinterest in an acquisition bidding war. And Pinterest is one of only a handful of consumer tech companies with that kind of reach.

Pinterest’s prior investors were able to play off new investors against what potential acquirers have indicated they were willing to pay to acquire Pinterest.

“A Yahoo bid to acquire Pinterest could easily approach $10 Billion later this year once Marissa Mayer has her $10 Billion+ in Alibaba IPO proceeds burning a hole in her purse,” concluded PrivCo Founder Sam Hamadeh. That would give Pinterest’s new investors this week a tidy 100% return on their investment in about six months.

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SOURCE: PrivCo Private Company Alerts