Pinterest, Inc.

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Pinterest Second Quarter Earnings Conference Call. At this time, all participants are in the lesson-only mode. After the speaker's remarks, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. I would now like to turn the conference over to your speaker today, Jane Panner, Head of Investor Relations. Please go ahead.

Thank you, Julie. Good morning and thank you for joining us. Welcome to Pinterest's earnings conference call for the second quarter ended June 30, 2020. Joining me today on the call are Ben Silbermann, our president and CEO, and Todd Morgenfeld, our chief financial officer and head of business operations. Now I'll cover the safe harbor. Some of the statements that we make today regarding our performance operations and outlook, including the impact of the COVID-19 pandemic, may be considered forward-looking. and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. In addition, our results, trends and outlook for Q3 2020 are preliminary and may not be an indication of future performance. We are making these forward-looking statements based on information available to us as of today and we disclaim any duty to update them later unless required by law. For more information, please refer to the risk factors discussed in our most recent Form 10-Q or 10-K filed with the SEC and available on the Investor Relations section of our website. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and letter to shareholders, which are distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com. And now I'll turn the call over to Ben.

Hi, everyone. Thanks a lot for joining the call this morning. Todd and I will be giving some brief opening remarks touching on our results and our four strategic priorities, which are making Pinterest home to the most inspiring content, helping pinners discover more use cases, making Pinterest more shoppable, and scaling our ad business. Then we'll be happy to take your questions. But before going into business results, as we usually do, I just want to acknowledge that this period feels like anything but business as usual for people and businesses here in the U.S. and across the world. First, there's COVID-19, which, in addition to being a global health threat, is impacting how people live and work, including all of us here at Pinterest. We're learning how to operate as a distributed workforce, and in this new climate, we're going to keep making collaboration and efficiency a priority so we can keep delivering for pinners and for our advertisers. In addition, here in the U.S., we're experiencing a historic moment for racial justice, one that's leading companies to look at what they can do better, and Pinterest is no exception. We've made a number of commitments to drive change, from improving representation in our product to increasing the diversity of our workforce, especially in senior roles. I know that this is not how most earning calls begin, but I want to be transparent with all of you and with the public that we're not just focused on what we're doing as a business, but also how we do business. These issues are top of mind with everything we do, and we're going to work hard to do right by all of our stakeholders. Now on to our business results. Pinterest had a strong Q2. In both the U.S. and international markets, more people came to Pinterest looking for inspiration than ever before. We ended the quarter with 416 million monthly active users, representing year-over-year growth of 39%. In particular, we saw strong growth from resurrected users as well as from users under the age of 25 who grew twice as fast as users over 25. These users came looking for ideas as they adjusted to life during a global pandemic. And with new tools like the Today tab, we helped connect them to new use cases, everything from home office setups to recipes to cook at home to different summer activities for kids. We also continue to make our content more inspirational. And one example of this is video, which offers pinners another dynamic and engaging way to discover ideas. During Q2, total daily video views, which include both organic and paid, grew over 150% year-over-year, and we're looking to do more in this space. In addition, we also connected pinners to more shoppable content so they can turn their plans into a reality. We saw catalog uploads from businesses increased by more than 350% from Q1 to Q2, and we've built new features like our Shop tab and the ability to shop from boards to make it easier for pinners to find this content. So in total, we're making a lot of progress in helping pinners find inspiration for their lives. This is work that, in my mind, because of everything happening in the world, is as meaningful and relevant as it has been in the last decade. And here to share more about what all this has meant for advertisers and our overall business, is our CFO, Todd.

Thanks, Ben. I want to give some brief color on the trends we've seen to date in revenue, as well as to provide an informal outlook for both revenue and costs in Q3. I'll begin with a summary of the headlines, and then we can go into more detail. Starting with Q2 revenue, we saw advertiser demand improve each month of the quarter. April was the weakest month in the immediate aftermath of sheltering in place. May growth rates improved and June showed further improvement. In July, we've seen a sharp acceleration in revenue to about 50% year-over-year growth through July 29th. We expect that revenue will grow in the mid-30s percent range year-over-year in Q3. This growth rate assumes a deceleration from the strong growth we've seen so far in July. I'll say more about this shortly. First, I'll unpack what we've seen to date and what we currently know to be driving our results. Then I'll discuss our outlook and the significant uncertainties that we're facing. Q2 was characterized by initial softness in advertising demand and then a partial return of that demand. The former was triggered by COVID-19-related lockdowns and the latter by the return of economic activity as those lockdowns eased. We saw ad demand recover across many verticals starting in May, with CPG showing particular momentum in the latter part of June and into July. The retail vertical lagged CPG but has recently begun to recover as well. This was the pattern in both the U.S. and in international markets, but non-U.S. markets recovered a bit faster. On top of the macro-driven recovery in advertising demand, We're seeing a lot of demand for Pinterest ad products in particular. Here's what our advertisers are telling us. First, our ads are working, especially for marketers seeking sales and conversions. The investments we've made in conversion optimization, or OCPM, shopping ads, and auto bid are making it easier for these advertisers to hit their goals. In a world where their balance sheets are at risk, marketers want ROI accountable ads, and we are delivering them. This has bolstered our ability to attract performance-oriented, medium-sized advertisers, a group that emerged as a key driver of our resilience in Q2. Second, The commercial mindset of our users is very attractive right now because many advertisers want to drive online sales and pinners tend to be in-market consumers. The early commercial intent on our platform also informs the insights we share with advertisers. And they are increasingly using these insights to understand leading indicators of demand in this unprecedented environment. In the words of the head of US media at Ford, quote, I received a report that was incredibly interesting from Pinterest. They showed how people's behavior on the platform is changing from the types of behaviors you'd expect during shelter in place, recipes, crafts with kids, baking bread, to planning-oriented behaviors, for example, thinking about vacations. Sure, we can always look at the quant data, Leading Indicators, Traffic Reports, etc. But to get at something that unlocks what people are actually thinking about, even if they're not saying it, is really important. That's where the relationships really come to life between marketers and the platforms, end quote. Finally, advertisers feel Pinterest is brand safe relative to other platforms. In a moment where there is a lot of hostile political conversation happening on social media, advertisers are looking for new places to put their dollars. We benefited from this in July. As I noted earlier, we expect that revenue will grow in the mid-30s percent range year over year in Q3, which implies a deceleration from the roughly 50% year over year growth rate we've seen quarter to date through July. Let me unpack this. One month may not be representative of the full quarter, and there is significant uncertainty for the following reasons. First, cases of COVID-19 are rising, and any new lockdowns would likely have a negative impact on advertiser demand. Second, our main seasonal moment in Q3, back to school, will likely look very different this year as schools across the U.S. embrace distance learning. This could lower both engagement and advertiser demand. Third, it's not clear if or how long the tailwind we've experienced in July from advertisers boycotting social media will last. Finally, revenue growth in August and September 2019 was stronger relative to July 2019 when a product change briefly lowered our conversion optimization revenue. So year-over-year comparisons will be harder for the remainder of the quarter. I also want to address our costs before opening it up for Q&A. On our Q1 call, I said we expected to grow operating expenses year over year in the second quarter, but we just reported a slight decline in this number. This was the result of implementing cost savings measures more quickly and our work-from-home model to a larger extent than we originally expected. We continue to invest for growth across our key strategic priorities of content, ads diversification, use case expansion, and Shopping. To that end, we grew headcount 21% year over year and 5% sequentially during the second quarter. We expect to grow OPEX in Q3 both sequentially and year over year to pursue the long-term vision of the company while continuing to monitor and to respond to the ever-changing environment. I hope this detail has been informative and helpful. With that, I can turn it back to the operator, and we can begin to take some questions.

Thank you. As a reminder, if you'd like to ask a question, press star 1 on your telephone. To withdraw your question, press the pound key. Please wait while we compile the questions. Your first question comes from the line of Lord Wansley with Deutsche Beck. Please go ahead.

Great. Thanks for taking the question, too, if I can. First, just Drilling into the higher engagement in the shareholder letter, you said new users are engaging more this year than last year. Wondering how are new users specifically engaging differently, maybe with the shopping functionality, and then for that matter, how are existing users engaging with the shopping functionality? And then just second one, as you look at more CPC advertisers running through automatic bidding and seeing improving ROIs, Are you seeing them increase budgets? Any sense for what percent of your advertisers spend is on an open budget basis these days? Thanks a lot.

This is Ben. Thanks for the question. Why don't I tackle your first question about user engagement, and then I'll turn it over to Todd around kind of all those on budgets. So the question was, how are new users engaging differently? And in particular, how are they engaging with some of the shopping services? So we find that the use cases that people are coming to Pinterest for are broadly similar in that people are looking for ways of establishing new habits, especially in a time of change. So many of our core use cases around making the home more livable, personal well-being and fitness, those continue to be themes. Although, as I mentioned in the opening remarks, we're seeing particular strengths in the growth of folks that are under the age of 25. The second part of the question was, How are these users engaging with some of the new shopping features? And we're seeing good engagement, although it still remains early. We've shipped shopping-only surfaces, and engagement with those surfaces is up 50% in the first half of 2020. And we're also seeing more product-only searches, which have grown by 8x in 2020. As you know from previous calls, our strategy in Shopin is to make these services, but to also make sure that they're filled with highly relevant products. And the two things we're doing to drive that are increase the number of merchants who have uploaded their catalog. We saw a sharp increase in the number of catalog feeds uploaded, 360% sequentially. And then to use machine learning and computer vision technology to make sure that we're matching the right products to inspiring scenes. I hope that gives some color on shopping engagement and user engagement broadly. Todd?

Sure, and on the second part of your question on automatic bidding, we start with why auto bid matters. Before automatic bidding, advertisers had to constantly manage their bid strategy in a dynamic auction. Now, the auto bid tool does this for them, and it aims to get advertisers the most clicks at the lowest possible cost per click for our CPC or traffic objectives. while spending their entire budget. We made a lot of progress on that during Q2. The last time we talked, about 50% of our traffic objectives were flowing through auto bid, and now about 80% of CPC revenue is going through auto bid. And so budget utilizations have remained high for auto bid traffic objectives, and basically we're better able to clear existing budgets and deliver more efficient cost per click and generally higher click-through rates. So, in other words, the advertisers are seeing a better return on their spend through auto bid and we're taking the friction out of the process through better tooling. What I would say is, and one example of that is Arm & Hammer Baking Soda where for a do-it-yourself home science project campaign for kids, they were driving 77% more efficient cost per clicks on 23% higher Click-through rates. And so that's a specific example of how this can work for an advertiser. In general, what that's meant is we're better able to deliver against the budgets that are in the system today. And as advertisers are seeing these sorts of good returns and performance, we would expect over time for there to be more budget in the system. It's worth noting, in addition to the traffic objective auto bid that we did launch, as we said we would a couple months ago, auto bid for our OCPM objective a few weeks ago, and we're seeing very good early traction there, too.

All right. Thank you.

And your next question comes from the line of Russ Sandler with Barclays. Please go ahead.

Hey, Todd. Thanks for all the color on July and 3Q. Can we just talk a little bit, like last call I think you had talked about how some of your biggest retail advertisers had like a capacity versus demand mismatch and that they were pausing their budgets before that normalized. So are some of those folks coming back now that we have these high growth rates in July and in 3Q, where does that stand? And then I guess Is it possible to parse, based on your conversations that you're having with advertisers, how much is actually coming from the boycott issue versus all these great product initiatives that you're doing within the ad stack? Is it like half from boycott, half from Pinterest product initiatives? And any color there would be helpful as well, just in terms of framing this recovery that you're seeing. Thanks a lot.

Sure thing. I know last time we talked a lot about the macro environment. And because we grew the business initially on the back of larger omnichannel retail and CPG, we had exposure as some of those advertisers pulled back. We talked a lot about how non-essential retailers were suffering from store closures and essential retailers were sold out. And so that was a tough mix for us when they were pulling back for very different reasons. We have seen Some recovery, I would say it started with CPG and we've seen a lot of momentum there. On the retail side, it's the growth and the return of spend has lagged CPG, but it has come back to some extent as stores have reopened and as essential retailers have figured out their supply chain issues. I've been more encouraged by what I talked about in the opening remarks, remarks about The strategic investments that we've made in our product and in our strategy to diversify our advertiser base into the mid-market through improved tools, measurement and formats, driving resilience in the quarter and growth. And so I would say we've seen three things drive the performance both in Q2 and through July. One is the macro recovery that you talked about that extends across non-essential and essential retail and more notably in CPG. The second is all of the strategic investments we've made in our business and in our product, which has touched or been more exposed to the mid-market segment that we've been talking about for a while in the spirit of driving ads diversification and more relevant content on the platform through conversion activities. The third thing you noted was around the boycotts. And what I would say about the boycotts is it's been a tailwind. But we do believe the majority of our growth in July has been driven by advertising demand stemming from those strategic investments and the ad products that we've made over the last year and a half. It's not really clear how sustainable that boycott tailwind is. The boycott has given us an opportunity to win some budgets and to educate advertisers about how and why Pinterest is different. And while other platforms are at the center of political and free speech debates, People come to Pinterest to think optimistically about their futures, and that's especially relevant today as we provide a respite from what could be one of the most contentious political news cycles in history. Being a service where people envision and plan their lives also creates opportunities, particularly as advertisers seek positive platforms to build their brands and to drive sales. So we're seeing some evidence of more advertisers choosing Pinterest for this reason in July. It's really hard for us to say how sustainable or significant the trend is. We are tracking spend from advertisers who are participating in the boycott, but we don't know how much of that spend would have come to us anyway because many of those advertisers do spend on both platforms over time versus incremental spend due to the boycott. So we can't really quantify the impact precisely at this point.

That's super helpful. Thanks.

And your next question comes from the line of Eric Sheridan with UBS. Please go ahead.

Thank you so much for taking the question. Maybe two if I can. One big picture one. If we go back even to the IPO, you guys framed the investments you needed to make to reposition the company against your e-commerce initiatives and capitalizing on the international opportunity. Trying to tease out how far along we are in the investment cycle, versus now where you're starting to see some benefit from those investments running through the top line and what that might mean over the medium and long term for leverage in the model and how we should be thinking about that. And then, Todd, maybe just one housekeeping, just following up on Ross's question with respect to the commentary in Q3. Just because from the outside in, it's hard to conceptualize this. Is there any way to frame what the headwind is in August and September? Because, you know, obviously the guidance does imply that I think from the outside in, it's tough to understand what that headwind or comp might look like. Thanks so much.

Sure. So on the first, Ben may have some more color on this as well from a strategic perspective, but I think your questions were more around leverage in the model. And I want to go back, as you rightly noted, we talked a lot about How shopping will evolve online. And I think in this environment, that's been accelerated. So I'm very happy that we identified entering the year that we were going to prioritize shopping even more than we had historically, which is prescient. Our investments in e-commerce and shopping most notably have been improving the user experience. So helping people find new ideas and bring them into their lives by discovering new products. And that's been enabled, as Ben mentioned, by better catalog ingestion and improving the high intent shopping service experience for users on Pinterest. From a shopping advertising perspective, we noted that a lot of our growth came from conversion optimization and shopping ads, which are closer to online sales and conversion activity in an ROI accountable world. The financial contribution of shopping ads right now is still early days. We're focused mostly on allowing users to find new things and bring them into their lives and improve that organic shopping experience, knowing that over time we'll start to see more contribution, revenue contribution from shopping as we continue to improve the experience and convince advertisers that that early intent on the platform is something that they want to promote against. So I wouldn't, if you're thinking about shopping being a driver in the near term, I would think of it as more of a contribution next year and beyond. On the international side, we made a lot of investments over the last year plus in building out, in particular in Western Europe, more direct coverage and related sales support functions outside of the U.S., but mostly in the English-speaking countries outside of the U.S. and Western Europe. We were hiring pretty aggressively in those markets leading into the COVID-19 shutdown, and we found that those investments have been paying off nicely, and I think you've seen that in our results where in the last quarter we grew international revenue 72% despite all the industry headwinds. We'll continue to build that out. I would say that there's still a lot of opportunity even in those markets where we have been making investments and scaling the business. We also have other unmonetized and large growing user bases like in Latin America that over time we will also monetize. So a lot more to come there in terms of leveraging the model. In terms of the decel, we did want to, you know, I tried to point out in the opening comments that there's just a lot in front of us right now. We don't know what the back to school environment will look like. It will be different. We know we've got this headwind that I called out from a much weaker July a year ago than we had this year. And there's a lot of uncertainty around COVID as we go into the fall. So, you know, my expectation is that we will see some moderation in that growth. And frankly, as Ross pointed out around the boycott, we don't really know how much is there and how sustainable the spend that we are getting from the boycott might be. And so we try to capture all that in the mid-30s guidance.

Great. Thanks for the comment.

And your next question comes from the line of Michael Levine with Pivotal. Please go ahead.

Congrats on the results, guys. I'd love to hear a little bit more. I know you were talking about the traction you were seeing on the shopping feed front. I mean, how much is this Shopify versus how much is this actually you guys just getting to the right point to better facilitate the product catalog upload? And is there any reason not to think as we look into the seasonally stronger Part of the year. I mean, shouldn't this show even further acceleration into Q4?

Thanks, Michael. I can start off. So the question was, you know, how much of the progress that we're seeing on shopping is being driven by partnerships like the one we have with Shopify? And then how do we expect it to kind of move forward in the future? So Shopify, you know, we're very happy and very early on in that partnership. For those who haven't joined us previously, that partnership allows a Shopify merchant with one click to set up a presence on Pinterest and upload their catalog. I would say that it's still early days and it's one of several partnerships that are important to us. And if you just take a step back, Pinterest's long-term vision for shopping is to really build a full funnel experience. So we want to take people from the moment of inspiration when they first get an idea and then play them all the way through so they can identify products that can make that inspiration a reality and eventually purchase. And that's going to be a long-term road. We're very focused right now at the top and the middle of the funnel. So we're improving the amount of inventory we have and we're building surfaces that keep Pinterest an inspiring place but when the time is right, push people to identify the products they really want to buy. And that's the value proposition we want both for retailers who really don't have a lot of ways of getting new customers early in the consideration cycle, and for pinners who really think inspiration first, and then they think about what they want to buy as we go down. Part of the next question was how should we expect that to evolve? There are obviously a couple macro tailwinds. There's just been an acceleration in e-commerce driven by COVID, and we also continue to build the product. But in terms of quantifying how that will progress, over the short term, I don't think we have a quantification. Over the long term, we believe that we're still very early in that shopping journey and how to lead to this previous answer.

And your next question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.

Thanks for taking my question. Todd, I just wanted to go back to the 3Q guidance. So when you called out one of the factors could be cases of COVID rising and more lockdowns. I guess with e-commerce surging and the micro side of the business improving so much with more advertisers, etc., Why are you sort of of the view that a faster surge in COVID or lockdown could have a material impact in the business just so we can sort of understand maybe, you know, advertiser contribution or any advertiser exposure? And then secondly, in the guide, what are you sort of assuming on the pace of reopening in the U.S.? Thanks.

Thanks. Yeah, so thanks for the question, Brian. So in retail, what we're seeing right now I mean, first of all, I don't know. We really don't. There's so much uncertainty in the market that we don't have clear visibility on exactly what COVID-19 means for omnichannel retail spend on our platform. What we know is that in mid-March through the end of March, we saw a rapid deceleration in their spend on the platform because of two things. One was stores started to close. And the second is that for essential retailers, they were sold out and they had supply chain issues. So advertising was Thank you for joining us. Just that uncertainty in general is something we need to factor in. What we're hearing from retail advertisers, they have a shorter leash on their budget commitments right now. There are store closures in place and possibly more coming. While we're still signing large joint business partnerships and seeing a lot of traction with those advertisers, the spend commitments tend to be smaller, more dynamic, and more flexible in this environment. So it's just harder for us to look out very far beyond where we are in the moment. I kind of harken back to what we've been trying to do over the last few months, which is to, in our communications, be very clear about what we're seeing in the business in the moment at a time of heightened uncertainty, which is why we've given a lot more disclosure about recent performance and monthly updates like we have over the last couple of months. and we've withdrawn our annual guidance because in this environment it just doesn't feel prudent. And that's because of the dynamic flexibility and uncertainty in some of these spend commitments and dialing back of larger long-term commitments from some of these retail partners.

Got it. That's helpful. Thanks, Todd.

And your next question comes from the line of Justin Post with Bank of America. Please go ahead.

Great. A few questions. Obviously, very strong international ads, over 100 million over the last year. Where are those user locations? Are they in high-value areas for monetization, like in Europe? More detail on that would be helpful. And then I noticed in your outlook, at least for 3Q, you didn't mention Apple IDFA changes. Do you expect any impact from that as you look out over the next year? and then maybe one more on just the catalog evolution. Where are you? Are you still very early in that? And how would that show up in the user experience? Maybe explain that a little bit to people. Thank you.

Thanks, Justin. So I heard three questions in there. I think I can take the first one on international user growth and then I heard one on IDFA for Apple and catalogs that perhaps Ben can start and I can pile on it if it's helpful. On user growth, the U.S. was our slowest growing geography at 13%. We saw, obviously, international markets overall grew 49% in the quarter to 321 million users. And our growth in every non-U.S. region exceeded U.S. growth. So it's very strong growth in our monetizable English-speaking countries outside of the U.S. and in Western Europe, where we've been making... We have seen rapid growth and the highest growth rates continue to be in our least mature markets, which is unsurprising. But we are seeing exceptionally strong growth across all geographies. I still expect that we'll be able to monetize a significant majority of our users over the next couple of years. And we are doing exactly that in English-speaking countries outside of the U.S. today and in Western Europe. And as we've said historically, the next region for us would be Latin America, which we would expect to begin monetizing probably six months from now.

Great. Chet and I heard two other questions, one about IDFA and the second about catalogs. So on IDFA, you know, based on what Apple has shared, we do expect the new opt-in requirement for IDFA sharing will decrease our ability to measure conversions from iOS apps. So as a result, we're continuing an investment strategy we started last year to increase our tag presence, build first-party measurement tools, as well as investing in alternative sources of signal and measurement, things like EnhanceMatch. We also have the ability to leverage on-platform signal as people engage primarily with commercial content. So it's something we have our eye on, and it fits into a longer-term theme that we've been talking about for a few quarters about really investing in measurement solutions so advertisers can understand the return on their spend. The second question was around catalogs. And as we mentioned before, we've been extremely excited about progress on shopping in general and catalog uploading in particular. So we mentioned that catalog feeds grew 350% quarter on quarter. That's up 10x, half over half. Now, that's starting from a very low number, but still the progress has been really encouraging. We also have our VMP program, our verified merchant program, and we're seeing both healthy growth there and healthy retention. So all signs are good, but the reason I say we're early is because there's still a lot of stores out there, and we're continuing to invest to make sure that we ingest the catalogs, we understand what's in that catalog, and we can give users a great experience. And I think that was the second half of your question, kind of how do we see the experience. You know, what Pinterest have always told us is they want Pinterest to primarily start with getting inspired with an idea. It could be an image that causes them to think about how they might want to dress differently or a video about setting up a home gym. And they want to work backwards to that inspiration to figure out what are the products that can turn that vision into a reality. So the experience that we envision is that people engage as they do today. They look for inspiration. They say the things they're excited about. They think of interest as the place to plan for their future. But we can actually begin to take them down the path of making that into reality. So in a scene, we can show them the products that are inside of it. They can visit a retailer's page and see their catalog and all the products within it. Thank you so much for joining us. is how do I reach a customer who doesn't yet know exactly what product she's looking for? And we believe that one of the key ways to do that is to reach them at the moment of planning and inspiration and to work backwards from there.

And your next question comes from the line of Mark Schmulich with Bernstein. Please go ahead.

Yes, hi, thanks for taking the question. A couple, if I may. The first, so user growth seems very strong and led, it sounds like, by a lot of, kind of, call it the non-traditional core demos, namely, like, men and Gen Z. So is this a specific, like, internal objective to grow into those demos? And if so, can you share a bit of approach, like, how the approach has been? How much of this is organic versus, you know, concentrated efforts you guys are making? And then, you know, any colors you can share on how users are kind of trending in July. We've heard some of the other names talking about warning signs about engagement headwinds as markets tend to reopen. But any color you can share there would be appreciated.

Thank you. Yeah, I can start. In terms of user growth, as you mentioned, we did see two areas of real strength. Folks that were coming back to the platform who may have tried it at an earlier point but paused their usage. and then special strength in Gen Z, so folks that are under 25 years old. Now, our approach to growth has typically focused on use cases. So the reason when we talk through our four strategic priorities, we say we really want to make interest useful for as many use cases as possible is that's the lens that our users take. And so when we think about growing users, we think about how do we make it more useful in use cases that folks care about. For Gen Z, while some of the use cases are the same, there are a few that are different. There's a little bit less focus on cooking, for example, and there's more focus on crafts and art. And then in terms of common things, people are still looking for some of our core verticals like beauty, fashion, things to make their home more livable. So we're really taking that approach, and some of the investments that we've made to improve adoption use cases run the gamut from the Today tab which kind of guides people in an editorial way to things that we think are relevant right now to better machine learning and recommendations so as people share what they're interested in, we can guide them to an adjacent use case to making Pinterest just a better tool to go deeper in those use cases. We've launched features like allowing you to add a date to a board, allowing you to add more project planning tools. And that's the core of how we think about it today. Now, the second question, and maybe Todd can chime in, was really around growth looking forward in July, and it might be worthwhile to take a little bit of a step back and talk about the engagement that we're seeing. We've obviously seen an acceleration with COVID, and we think that's partly because folks are at home more, but it's largely also because people are rethinking and they're looking for inspiration in how to rethink some of their day-to-day habits, everything from cooking at home to their home itself. And so we see a lot of the users we might have expected to come in the fall actually been pulled forward into July. We're monitoring those engagement stats and the things that we look at, such as the number of searches people perform, the number of boards they create, they look really healthy compared to what we've seen in the past. And so we'll be monitoring that. This is obviously an unprecedented situation. We expect some pullback, but we still think that they're going to settle out well above pre-COVID levels.

Anything to add, Todd? The thing I would add from a – yeah, so I think that's the right overall perspective. But I think to this audience, one thing that I did want to point out is because we've had this conversation over the last year – Q2 tends to seasonally be our weakest quarter. So Q1 to Q2 user growth tends to be by far our seasonally weakest quarter. As Ben mentioned, people are typically beginning to go outside of their homes and do things offline. And then we historically have seen user growth sequentially grow stronger in Q3 as people come back inside. They start planning for back to school. They start their holiday planning. And this year, people never left their homes. So it's, as Ben mentioned, very unprecedented, but because people didn't leave their homes and we've seen this possible pull forward of user growth into Q2 that we typically would have seen in Q3, I would expect that sequential user growth going into Q3 would add about half the typical number that we've seen over the last couple of years of new MAU ads into Q3. I think, you know, it's very difficult to say exactly how these cohorts perform, but given the dynamics that we're seeing, I would expect significantly lower sequential user growth going into Q3, probably half the number that we've seen over the last couple of years.

And your next question comes from the line of Douglas Anmuth with J.P. Morgan. Please go ahead.

Thanks for taking the questions. Todd, I was hoping you could give us some color just around what you're seeing in terms of overall advertiser numbers or growth and how that's translating into auction density. And then just related, can you just help us understand some of the volume price trends that you saw during 2Q and then how that's inflected early in the third quarter so far? Thanks.

Great. Thanks. Thanks, Doug. So a couple of things. I'm going to go back to this theme because I think it's important. What we've been hearing is that ads need to be ROI accountable in this environment and that advertisers value the commercial planning mindset of our users and the focus on online sales and conversion objectives like OCPM and shopping. So our investments in tools like auto bid, catalog upload, tag adoption partnerships, and now emerging tools for agencies, those things are driving more advertisers to the platform. So we've seen Our advertiser growth in terms of number of advertisers accelerate again year over year and spend from mid-market and managed small and medium business advertisers who benefit from those tools, measurements, and formats investments grow significantly to now nearly half of our total revenue. So I've been very excited about the strategy that we've been laying out and talking about with you all over the last year. We're seeing that unfold now in terms of the advertiser count and traction in the mid-market. I would expect, Doug, that over time that translates into more auction density as more advertisers are on the platform seeing positive results that's enabled by the tools that we've built and the measurement solutions that we're rolling out. In Q2, it's a bit of a different dynamic because demand was – You know, through from April, May, and June was different than what we're experiencing today. We did see our ad impression count grow 17% in Q2, and our effective CPMs, our pricing, go down 11%. It was driven mostly by the demand picture, which was, frankly – Okay, any comment on how that's, you know, what's happening there to take you to the 50-ish percent growth in July? Well, it's certainly gotten a couple things. So we've definitely seen a return of demand, and that has been across awareness objectives or brand advertisers and in performance objectives. And the auto bid product improvement that we made for traffic objectives and have now rolled out to our conversion optimization objectives has created more pressure on the auction, and we've seen both clear much better. It's been, I think, a healthy dynamic all the way around. The picture has definitely improved through every month from April, May, and June, and then an inflection point in July.

Great. Thank you, Todd.

And we have time for one more question coming from the line of Heath Terry with Goldman Sachs. Please go ahead.

Great, thanks. I was wondering if you could give us a bit of an update on the technology side of things, specifically what you're seeing in the development of visual search. And to the extent that Jeremy has now sort of been there a little over a year and surely has his feet well under him at this point, sort of where his priorities lie, would appreciate sort of any sort of insights and perspective you can share on those.

Sure. So, you know, we continue to invest in computer vision as a core technology. And, you know, there's sometimes an impression that computer vision only touches kind of one product, such as the lens product, which lets you take a photo. But it actually improves the relevance all around the product itself. So when we talk about shopping and being able to match images to products, computer vision aids with that. When we talk about recommendations, it helps with that as well. We continue to make a large investment in machine learning more broadly and computer vision specifically. In terms of some of the areas that Jeremy's looking at, look, there's a mix. There's obviously what we call our technical foundations, and we've been working on building a lot of our core platforms in a way that are more scalable, but we see an opportunity to continue to unify the way that we rank and look at both organic content and our advertising content. And that really is about the fundamental alignment that we know from the user's perspective exists between their goal, which is to get inspired and turn those things into something in real life, as well as the advertiser's goal, which is to inspire new customers and get people all the way to a transaction. That continues to be a core focus, as well as making sure we're building efficient infrastructure and also making sure that the service remains reliable and scalable as we grow.

Thanks, Ben.

And I will now turn the call back over to Jen Penner for closing remarks.

Thanks, everyone. That concludes our Q2 2020 earnings conference call. I'm going to turn the call over to Ben for some closing remarks.

Thanks, Jane. I just want to thank everyone for taking the time to join us. I definitely appreciate your questions. And as always, we look forward to staying engaged with you in the future. Have a great day.

This concludes today's conference call for the Pinterest second quarter earnings. You may now disconnect. Thank you.