Pinterest is reportedly in talks to raise a new round of funding. (Pinterest )
SAN FRANCISCO — Pinterest reportedly is in talks to raise a new round of funding at a $2-billion to $2.5-billion valuation, making it one of the most highly prized young startups to come out of the Bay Area in recent years.
The deal has not been finalized, according to the Wall Street Journal. A Pinterest spokeswoman declined to comment.
Pinterest raised $100 million in May in a deal that valued the San Francisco company at $1.5 billion. It's one of a growing number of billion-dollar Bay Area start-ups that have seen soaring demand for their shares even after Facebook's rocky debut on Wall Street.
The cool reception to Facebook has lowered Internet valuations across the board, but demand for the brightest prospects has remained heated, analysts say.
"Only a relative handful of companies are getting these high valuations," University of Florida finance professor Jay Ritter said. "It's a winner-take-all environment. If you've got the platform or the technology that everyone wants to use, you have won the market. And the winning companies get the spoils of victory."
Many of these companies are scoring high valuations even though they have yet to build businesses or generate revenue. Investors are gambling on "potential value," Ritter said.
IPODesktop.com's Francis Gaskins says investors are placing too much stock in that potential. He called the latest reported Pinterest valuation a "stretch."
"There seems to be a valuation bubble for private tech companies in Silicon Valley," Gaskins said. "I think a lot of it is based on the expectation of growing into their billion-plus valuations. It's not clear that Pinterest has much actual revenue now, and ultimately in the [initial public offering] market, it does come down to top-line revenue growth and how soon to break even."
Lise Buyer, principal at Class V Group, an IPO advisory firm, said venture capitalists size up the situation before slapping a high valuation on a startup.
"If the number is correct, one could assume the valuation reflects a combination of factors including the company's undeniable success to date, presumably some solid conversations about a long-term, sustainable business model, and of course the number of investors that would like to participate in the enormous marketplace Pinterest has unearthed and fostered," Buyer said.
Social media investor Lou Kerner says Pinterest has earned the high valuation. People across the country flock to Pinterest to pin images to virtual boards. Pinterest's monthly unique user visits shot up to more than 28 million in December, up from 7.5 million a year earlier, according to research firm ComScore. Investors are counting on surging traffic to deliver big revenues down the line.
"Pinterest is rapidly emerging as another major social network, their niche being sharing 'what I like,'" Kerner said. "Pinterest usage and engagement continue to grow at impressive rates. We've seen the other major social networks [Facebook and Twitter], both further along than Pinterest, grow to valuations of $68 billion and $9 billion, respectively. So at $2 billion or $2.5 billion, there is still lots of upside for investors."