Pinterest, Inc.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings conference call for the third quarter, ended September 30, 2020. Joining me today on the call are Ben Silberman, 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 Q4 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 Forms 10Q or 10K 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.

Thanks, Jane. Hi, everyone. We appreciate you joining today. By now, many of you have seen our shareholder letter, so I'm just going to offer brief comments about the quarter. Todd's going to follow up with some additional details, and then we'll open it up to questions as soon as we can. I'll start by saying that we're happy with our performance this quarter. Q3 started with a lot of unknowns because of COVID-19, but we were able to focus on what we could control, and that's executing our strategic priorities that we set at the beginning of the year, bringing on the most inspirational content, making Pinterest more engaging and useful, serving and diversifying our advertiser base, and finally making Pinterest more shoppable. All of this led to strong results. Monthly active users grew 37% year over year to $442 million, and revenue grew over 58% year on year. We're seeing a number of our investments paying off, like growing our international presence in places like Western Europe, and our progress with automation to make it easier for small and medium-sized advertisers, and finally making Pinterest more shoppable. We also launched a number of new products, like tools to help creators reach new audiences and bring even more inspirational content onto Pinterest, and more recently, a new suite of merchant tools to help retailers reach more customers this holiday season and beyond. Overall, we accomplished a lot. Now, obviously, there's still a lot of unknowns in the future because of COVID-19, but I'm confident about our team's ability to innovate in the midst of all this change. And I want to give a quick thank you to the entire Pinterest team for their hard work in an unpredictable year. I'm proud of the resilience the team demonstrated and excited about the opportunities that lie ahead. With that, I'll turn it over to Todd, who will give more color about our business performance. Todd?

Thanks, Ben. I want to give some brief color on the trends that we saw during the third quarter, as well as to provide an informal outlook for both revenue and costs going into Q4. I'll begin with a quick summary of the headlines, and then we can go into more detail. As Ben mentioned, we grew overall revenue 58% year over year. We also generated a positive 21% adjusted EBITDA margin. Monthly active user growth remained strong, with all major regions once again growing in the double digits. We did experience a modest monthly active user uplift at the end of the quarter related to iOS 14 updates. Younger users in particular turned to Pinterest to find inspiration for customized backgrounds. We estimate this single use case drove an incremental 4 million monthly active users globally. Looking ahead, we expect these 4 million MAUs are more likely to churn in Q4 given that digital wallpaper is a relatively transient use case. Additionally, we expect our business to maintain its momentum in Q4, with revenue growing around 60% year over year. We saw much more demand for advertising services than we expected in Q3. There were three primary drivers of this strength. First, the investments we've made over the past year in technology and in sales coverage are continuing to pay off, and the returns exceeded our expectations in Q3. Over the past year, we've invested in conversion optimization or OCPM ads, shopping ads, and auto bidding to help diversify our advertiser base. And we also expanded our sales team in Western Europe to monetize our engagement there. These investments continue to pay off. Specifically, auto bid was a meaningful contributor to the strength in Q3, especially for small and medium-sized businesses. And our international business grew 145% year over year, now representing 16% of total revenue, up from 10% of revenue in Q3 of last year. Given the enormous opportunity ahead of us, we'll continue to invest opportunistically to best serve printers, merchants, and advertisers. The returns from these investments may not always be linear, but we do believe we have a strong roadmap ahead in 2021 and beyond. Second, beyond our own investments, the macro environment was very supportive in Q3. Advertising demand improved overall, and we saw both brand advertisers and large retailers that had paused spend in Q2 return to our platform. We also saw continued strength from the conversion-oriented small and medium-sized advertisers who gravitated to Pinterest in Q2 because of the native commercial intent of our users. and because of the ongoing secular shift toward e-commerce that has been accelerated by the COVID crisis. Our sales team was able to lean into these favorable conditions in Q3, helping to introduce advertisers to new tools and features and operating with high efficiency overall. Our go-to-market effectiveness has also been bolstered by the unique insights that we're able to provide to advertisers. Advertisers increasingly depend on these insights to understand leading indicators of consumer demand in this environment, which earns us both mind share and ad spend. Third, we continued to benefit from marketers who are prioritizing positivity and brand safety. Advertisers tell us that Pinterest is brand safe relative to other consumer internet platforms, and we benefited from this in Q3. though it's still not clear how sustainable this trend will be, particularly after the US election is over. Turning to our informal outlook for Q4, I want to provide some color here as well. We expect that our momentum will continue in Q4 as many of the Q3 drivers persist into the holiday season. These include the positive trends driven by our investments in conversion and shopping ads, automation, and international sales coverage. There are also two external unknowns that could impact our business. First, the impact of the COVID situation remains hard to predict, both on user engagement patterns as well as on advertiser demand. In addition to ongoing uncertainty related to continued disease spread and lockdowns across the globe, our visibility in the Q4 is further limited by uncertainty about the impact COVID will have on seasonal engagement and ad spend. Pinners may likely plan for the holidays differently, and it's hard to know how marketers will respond to these changes. The second unknown is the tailwind we've experienced from the advertiser boycott of social media that began in July. On one hand, this group of advertisers accelerated their spend on Pinterest in Q3. On the other hand, the attractiveness of a positive, brand-safe consumer platform may wane somewhat after the US election cycle is over in November, so some of that spend may wane too. To be clear, we think the positivity of Pinterest is a long-term competitive advantage for many reasons, but it's just difficult to predict near-term advertiser behavior, particularly in an election season. Finally, our current understanding of how both of these unknowns will play out is limited, given that Q4 advertiser demand is typically back-end loaded in quarter. Finally, before opening it up for questions, I want to touch briefly on expenses. We continue to navigate a more remote working environment while maintaining investments in the long-term strategic priorities of the company. We took the steps to end the future lease obligation for the company during the quarter. To put a finer point on this, we believe a more distributed workforce will give us the opportunity to hire people from a wider range of backgrounds and experiences. In Q3, we grew headcount 19% year-over-year at a similar pace to last quarter. As we look to Q4, we expect to modestly grow total non-GAAP operating expenses compared to the third quarter. We will continue to invest in our key strategic priorities, including content, engagement, advertising diversification, and shopping. Thank you to the teams at Pinterest, our advertising partners, and all of the people that come to Pinterest to find inspiration. And with that, we can open it up for questions.