Pinterest, Inc.

Good morning, ladies and gentlemen. Thank you for attending today's Pinterest third quarter 2022 earnings conference call. My name is Tia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to your host, Neil Doshi, head of investor relations. You may proceed.

Thank you. Good afternoon and thank you for joining us. Welcome to Pinterest earnings call for the third quarter ended September 30, 2022. I'm Neil Doshi, head of investor relations for Pinterest. Joining me today on the call are Bill Reddy, Pinterest CEO, and Todd Morgenfeld, our chief financial officer and head of business operations. Now we'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 2022 and beyond are preliminary and are not 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 in today's earnings press release, which are distributed and available to the public through our investor relations website located at investor.pinterestinc.com. Before we jump in, I'd like to note that we've decided to change our format for earnings communications. We will no longer be publishing a shareholder letter so that we can focus on providing key updates on these calls. And now I'd like to turn the call over to Bill.

Thanks, Neil. Hi, everyone. Thanks for joining our Q3 earnings call. I'm proud of our team's execution in Q3 across user growth, monetization, and operating discipline. On the user side, we stabilized the user base and grew sequentially as we returned to seasonal growth trends. Our global MAUs of 445 million were above Q3 2021 as we've largely lapped headwinds from the pandemic unwind and have driven improvements in user engagement. Our US and Canada MALs grew sequentially for the first time since Q1 2021 to 95 million. Despite continued macroeconomic uncertainty, we grew revenue by 10% on a constant currency basis to $685 million for Q3. We delivered adjusted EBITDA of $77 million and adjusted EBITDA margin of 11%. Each of these points demonstrate that our team is operating with heightened focus and discipline, finding ways to grow the business and drive efficiencies despite the difficult macroeconomic environment. My remarks today will focus on three topics. First, How we're making Pinterest more relevant and engaging. Second, how we're driving more inspiration to action, including greater shopability. And third, how we continue to improve our monetization efforts to drive value to our advertising partners. By making Pinterest more relevant to our users, we can increase and deepen their engagement with the platform. We're doing this in multiple ways, including improving the personalization on our core surfaces, leveraging our unique opportunities as a content platform, and broadening our appeal to emerging demographics. On personalization, we're creating much more relevant experiences for users by combining the unique first-party signal on our platform with advancements in machine learning to recommend highly relevant content to users. In Q3, this work was a meaningful driver of our return to seasonal sequential growth in global and U.S. and Canada mouths. It also resulted in year-on-year improvement in engagement as measured by metrics such as sessions, impressions, and saves. In fact, sessions in Q3 grew meaningfully faster than now, which indicates that we are deepening engagement with our users. We believe growing sessions should drive multiple top-line benefits, such as reducing user churn, improving overall monetization, and growing revenue per user. We're also making Pinterest more relevant to users by leveraging our unique, human-curated content and upgrading our overall content ecosystem. In short, we want content that not only inspires users, but also helps them make, do, or buy things. With this goal in mind, here's how we're thinking about human curation and rich media content, which are the two biggest types of content we have on the platform. The human curation at scale that happens on Pinterest is a highly differentiated and valuable source of content generated by our users. While machine learning helps us serve a personalized recommendation for a pair of women's fall boots, human curation and scale makes it possible for us to further suggest the best skirt and sweater options to complete the look, which we can do because those boots or ones like them have been saved as part of outfits on other boards on Pinterest. This type of curation is very unique to Pinterest and is fundamentally different user activity than what typically occurs on other platforms. This creates a highly efficient way to get relevant content for users across our ecosystem. User curated content is a key aspect of our content strategy, and we expect it to remain a significant differentiator. In addition, we're increasingly sourcing rich media content that is uploaded to our platform from a wide variety of sources, including publishers, creators, brands, and users. In Q3, content uploaded to Pinterest accounted for nearly half of our saves, which demonstrates that users are finding this type of content highly relevant and engaging. One of the uploaded rich media formats we're particularly excited about is video. Videos often make it easier for users to get inspired and to make, do, or buy something. This is especially true for Gen Z users. We've been ramping our video efforts over the past couple of years. Last year, we focused almost exclusively on attracting creators to upload videos on our platform. However, we've since learned more about the types of videos that resonate with our users and found that we can also obtain high quality videos and other forms of rich media content from sources beyond creators. This is both highly efficient and effective. While creators are an important part of this equation, a larger portion of our rich media corpus is coming from users, brands, and publishing partners like Tastemade, Refinery29, Chef Club, Jelly Smack, and Blavity. Over the past year, as we've evolved our video upload tools, we've grown our video supply by 3x. Additionally, in October, we announced partnerships with Warner Music Group, Warner Chapel Music, Merlin, and BMG to expand the music experience on Pinterest. Through these deals, users will be able to add popular song tracks through a new user experience, which we believe will enable users and creators to engage more deeply and creatively with the platform. Finally, we're working to expand the relevance of our platform to emerging audiences, specifically Gen Z, by building products and experiences that resonate with them. Over the past three years, growth from our global Gen Z demographic has outpaced growth from all other demos, and Gen Z users continue to grow despite the pandemic unwind and SEO headwinds. In Q3, Gen Z grew double digits year over year, accelerating from Q2. This trend supports our thesis that Gen Z gets something on Pinterest that is distinct from what they get on other popular platforms, namely a place to discover with intent and purpose and to explore their creativity. Nowhere was this more clear to us in Q3 than in the enthusiastic reception of Shuffles, our standalone collage-making app, which is available on an invite-only basis to iOS users. The vast majority of Shuffles users are in the Gen Z demo, and we've been watching with interest as they find novel ways to use Shuffles, such as remixing each other's Shuffles to collaborate on ideas, like creating the perfect Stranger Things Halloween costume. We continue to iterate and learn from this beta launch and plan to add new features and functionality to Shuffle as we make it more widely available. Next, I'll discuss our approach to driving more inspiration and intent to action. At the highest level, we believe shopping on Pinterest drives and informs the core experience of the service, rather than being distinct from or bolted on to that core experience. This is supported by the fact that more than half of users we've surveyed view Pinterest as a place to shop. Over time, we expect to make every product that a user encounters on Pinterest shoppable, even when that product may be in a scene or other user-generated content. This means pins on all our surfaces should be shoppable, not just the ones on a designated shop tab. While we have computer vision capabilities, machine learning, human curation at scale, and over 1 billion items in our product catalog, we also need to continue growing our product catalog to enable more of these shopping experiences. To that end, we released our API for shopping to general availability in Q3 across all of our shopping-enabled countries, which include the US and our largest markets in Europe, Latin America, and APAC. Our API for shopping makes it easier for merchants to upload their catalogs and metadata, while also sending real-time data on SKU-level pricing and inventory. On the discoverability side, we're leveraging both machine learning and the first-party signals we get from the unique human curation on Pinterest. If you're looking for a mid-century modern couch, we should be able to show you tables, rugs, and lamps to complete that room based on how millions of users have saved and organized home decor content. I think this is a superpower for us as we become the home for digital taste-based shopping. Finally, we have an opportunity to become an even more trusted partner to retailers by helping send more traffic, attributable conversions, and customers to their businesses. We can deliver high quality shopping experiences in partnership with retailers by creating frictionless handoffs with the merchant for things that people want to buy. For example, we're piloting a hosted checkout program with Shopify that allows users to check out directly with the merchant while on Pinterest. We're also testing mobile deep linking that takes users straight to the retailer's app and checkout page. Our efforts on personalization, relevance, and shopping are also instrumental in creating more value for advertisers. Pinterest is a unique place for advertisers because our users seek inspiration and discovery with intent and purpose. This has a number of implications. To begin with, we have on-platform first-party signals like searches, saves, and board curation that translate into highly valuable and monetizable customer insights for advertisers and resilient on-platform ad personalization and optimization. In addition, we have full funnel ad solutions as users come to us throughout the stages of the purchase journey. We've built our ad platform so advertisers can meet users at every stage of their purchasing journey as they move from ideation, where brand advertising is most effective, to consideration, where a traffic campaign makes sense, to taking action where conversion objectives are optimal. Revenue from our ads align with these three objectives, with approximately one-third of our revenue coming from each. Moreover, we're making ads more performant on Pinterest through insights-led selling, better automation, and improved tools, measurement, and formats. Our results show that this is working. Approximately 90% of our active advertisers now use automated bidding. And in Q3, our attributed conversions grew over 20% year on year, driven by improvements we've made in ads optimization and conversion visibility. Before I hand over to Todd, I want to share my thoughts on how we operate the business. 2022 was a year of elevated investment for Pinterest as we leaned into a number of initiatives that we believe will drive durable long-term growth. Additionally, the team and I have gone through an extensive review of our portfolio of initiatives to be sure we're focused on the highest yielding activities. The benefits of that additional investment and heightened focus are coming through in product impact, particularly in engagement and revenue. We're also focused on driving efficiencies in the business. As we discussed on the last call, we intend to return to meaningful margin expansion next year and have already started those efforts. Lastly, we have a strong balance sheet with roughly $2.7 billion in cash and cash equivalents, and our business continues to generate strong free cash flow. Our primary use of capital is to invest in the business to drive continued growth. In addition, Todd and I continue to evaluate our broader capital allocation strategy, including a plan to manage dilution from stock-based compensation. Now I'll turn it over to Todd to discuss our financial results and guidance.