The Pinterest IPO has been one of the most promising in recent memory, but questions remain around whether the online scrapbook company will generate the growth needed to meet high expectations of investors.
Despite adding 291 million active users in the first quarter, which was above estimates of 289.3 million — and a noteworthy increase considering Pinterest’s extensive user base is key for attracting advertisers and securing its revenue stream — shares declined 16.7 percent in premarket trades on Friday after the company reported larger losses than expected in its first quarterly earnings report since the IPO.
Many different factors can cause dips in earnings. Some experts assert the swing for Pinterest is due to heavy investments in hiring post IPO that will correct itself. Others include unpredictable and uninsurable risks. If not addressed, these can have an even bigger impact on stock price. The successful management of risk can be a serious lever for investor confidence and consequently business performance.
Disclosures are only the first step.
S-1 forms openly explain the risks involved in investing in a company, including factors around competitors, privacy and data policies, security and more that can affect operations, revenue and financial results. Pinterest’s detailed S-1 form discloses almost every possible risk that could potentially affect the business: from issues attracting and engaging pinners and creating content tailored to their tastes and interests, to security issues, unauthorized access to user data, risks with third-party sign on tools, changes in internet search algorithms and more.
The vulnerabilities outlined in an S-1 form or 10-K are usually the most likely and impactful risks facing the business and should therefore be prioritized from a mitigation standpoint. This means that while outlining almost every potential risk factor for investors is a great start, there also needs to be a clear set of controls in place to address each threat, should it become reality. In Pinterest’s case, for example, if a security issue goes public, which crisis communications firm gets called to help mitigate the impact on brand reputation? If advertisers pull investment, is there enough diversity in the revenue stream to hedge against significant loss? In the event of a data breach, what is communicated to users? Is there a pre-determined task force to resolve the issue?
Thinking about these things ahead of time and creating plans for each potential event is important for investor confidence and appetite. Demonstrating that leadership understands the risk make-up of the organization and has thought through how to address each threat shows that not only is there a lower risk of a risk event happening, but the business is protected against residual and widespread damage if it does.
The visibility gained through integrated risk management technology equips risk managers with the ability to identify and track all risks, understand how each threat relates to each other, the collective impact on the organization. The best plan can then be put in place to address not only the specific risk event but the cumulative impact of a threat on the organization.
No matter how robust an S-1 form or 10-K, it’s important to remember risk is everywhere and can’t be boiled down into a single document. These documents are designed simply to inform investors of where potential risks lie and the potential for a risk event taking place. They are intended as a guide, not an end-all, be all. There will always be risks that couldn’t have been predicted. But an integrated, enterprise-wide approach to risk management provides the ability to manage all foreseeable risks – and the resiliency to withstand the unexpected.
Discover how Integrated Risk Management can help both public and private brands mitigate and monitor their risks in a way that gives investors and stakeholders peace of mind.