Pinterest, Inc.

Good afternoon, and thank you for attending the Pinterest second quarter 2023 earnings conference call. My name is Alyssa, 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 1. I would now like to pass the conference over to your host, Neil Doshi, Head of Investor Relations. You may proceed.

Good afternoon, and thank you for joining us. Welcome to Pinterest earnings call for the second quarter ended June 30th, 2023. I'm Neil Doshi, head of investor relations for Pinterest. Joining me today on the call are Bill Reddy, Pinterest CEO, and Julia Donnelly, our CFO. Now we'll cover the safe harbor. Some of the statements that we make today regarding our performance, operations, and outlook 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 2023 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 forums 10Q or 10K filed with the SEC and available on our Investor Relations 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 presentation, which are distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com. Lastly, all growth rates discussed in today's prepared remarks should be considered year over year unless otherwise specified. And now I'll turn the call over to Bill.

Thanks, Neil. And thank you all for joining our second quarter 2023 earnings call. Q2 was a solid quarter marked by strong growth across our business. We're seeing ongoing momentum, giving us continued confidence that our strategy is yielding results with more potential as we look ahead. We ended the quarter with 465 million MAUs up 8%. Our total revenue was $708 million, growing 6%, or 7% on a constant currency basis. We stayed disciplined with our expenses and delivered adjusted EBITDA of $107 million and an adjusted EBITDA margin of 15%. Before we dive into the key highlights from Q2, I'd like to share more about what we've accomplished over the last year since I joined and why I'm excited for the opportunities ahead. During this time, we've become laser focused on our strategy of building upon our core differentiators and visual discovery to help our users go from inspiration to action. With that focus on our strategic priorities, we've successfully returned to strong user and engagement growth while delivering consistent year-on-year revenue growth and returning to margin expansion despite the downturn in the advertising environment. On the engagement side, we've utilized next-generation AI technologies to surface more relevant and personalized content and improve ad relevance, driven more intent to action, and focused our content strategy to bring actionable content from a range of sources, including users, creators, publishers, and retailers. As a result, monthly active users have grown more than 30 million over the last 12 months. Our users are also coming back more frequently and are engaging more deeply. Engagement metrics such as sessions, impressions, and saves grew substantially faster than our users across all of our regions over the same period. It's worth noting that we have seen these engagement gains over the past year during a period where we have also grown our ad load on the platform, proving that relevant ads, including lower funnel ad formats, can be good content for users in a unique setting like ours with high commercial intent. We continue to see significant benefits and momentum from whole page optimization and ongoing improvements to our ads' quality, targeting, and relevancy. We increased our focus on making Pinterest more shoppable by integrating shopping into the core experiences of our platform. We're now seeing strong growth and engagement with shopping related content on our core surfaces. And for the past four quarters, shopping ads revenue has grown multiples of our total revenue growth. I believe we are just scratching the surface when it comes to monetizing lower funnel behavior on Pinterest. Importantly, we also accelerated innovation on behalf of our advertisers. tripling the number of ad product formats released so far this year versus last, and introducing important measurement solutions that prove our value to advertisers. We're seeing revenue from advertisers who take advantage of these measurement tools grow significantly faster, a positive sign for the future as we increase adoption of these tools among our customer base. We also opened our platform to third-party demand partners, starting with Amazon Ads Platform. To summarize, I'm very proud of what we've accomplished over the last year, and we're just getting started. We look forward to sharing more details and a comprehensive update on our strategy during our investor day, taking place in San Francisco on September 19th. With that backdrop, I'll now move on to the progress we've made in the second quarter, advancing our strategic priorities and driving the business forward. First, I'd like to discuss how we are deepening engagement with our existing users and growing new users in Q2. driven by our AI efforts in relevance and personalization, as well as a clear focus on satisfaction of user intent. In Q2, our global MAUs grew 8%, while our mobile app MAUs, which account for over 80% of our revenue and impressions, grew 16%. In addition, our UCAN mobile app MAUs grew 9%, accelerating from Q1. Our users were also visiting us more frequently. The basket of metrics that we use to measure engagement, such as sessions, impressions, and saves, grew significantly faster than MAUs in Q2 in all regions, consistent with the trends we have observed the last four quarters. To help bring this to life, I'd like to share a few examples of how we are driving engagement on the platform, starting with how we are implementing AI to better serve our users. Nearly a year ago, we began moving to next-gen AI capabilities, enabling us to use recommender models that were 100 times larger than before. We combined our first-party proprietary data with our AI-based computer vision and search technologies to improve the perceived relevance for recommendations on related pins, driving perceived relevance up by nearly 10 points from a year ago to 94%. This means that when users are searching for something on Pinterest, We're returning results that they find relevant and helpful, and we're doing this with a very high degree of accuracy. More recently, as we've continued to focus on what our users really want from us, we've incorporated into our AI models more signals from our platform. As an example, in the first half of this year, we unlocked further engagement gains by incorporating propensity to share into our AI recommender models. By recommending content that users are more likely to share, we improved retention of our core users and we grew revisits from dormant users as they are more likely to engage with recommended content from people they know. In Q2, another source of engagement gains came from the launch of our new guided browsing experience designed to help episodic users rediscover existing use cases and find their next project or passion on Pinterest. This experience adds a set of horizontal images across the home feeds grid where we can show more content based on the user's intent. The valuable signals we get from this new browsing module helps optimize the user experience for previous or new use cases and deliver more relevant shopping experiences. We've seen a meaningful lift in revisitations as a result. As we continue to focus on improving the inspiration to action journey for users across our platform, we're seeing users explore more interests outside of our core home, food, fashion, and beauty verticals, with strong growth in the number of MAUs engaging with emerging verticals such as men's fashion, autos, health, and travel in the first half of this year. Lastly, we continue to see strong growth with Gen Z users on Pinterest, who in Q2 were our largest contributor to overall engagement growth, and the fastest growing cohort, growing double digits and accounting for a larger portion of our overall mix. In particular, we found that our Gen Z users consistently engage more deeply on the platform than our older cohorts, as measured by their saves and close-up activity on the platform. Next, I'd like to discuss how we are improving monetization by making Pinterest more valuable for advertisers as a full funnel platform. These ad offerings allow us to reach a broader set of advertisers to diversify and grow our revenue base and also help us deliver improved results to our advertisers based on their performance criteria. First, let's start with how we are innovating at the lower end of the funnel, where we are helping retailers gain customers, not just transactions. In July, we brought our mobile deep linking product, or MDL, to general availability, opening up this highly performant offering to more advertisers. MDL is a great fit for retailers who want to drive users to purchase an item on their mobile app and has been a significant driver of our shopping ads revenue growth over the past nine months. By taking what we've learned through MDL, we are planning to expand our lower funnel offerings to include more seamless one-click site handoffs in the back half of this year. This gives retailers who don't have a standalone app or prefer to do a one-click handoff directly to their site the flexibility to choose what works best for their objectives. Travel catalogs are another format we debuted in the quarter, allowing advertisers to reach users who are in the midst of planning, organizing, and taking action on their travel dreams. It's built on our product catalog technology and automatically turns each listing into a dynamic product pin with relevant booking information such as hotel name, pricing, images, and descriptions. As an example, TUI, One of the world's leading tourism groups based in Germany added travel catalogs to their full funnel strategy to drive more users to their available hotel listings. In Q2, their campaign yielded strong results with a six times higher outbound click-through rate and an 80% lower outbound cost per click than they were seeing in previous conversion campaigns. Furthermore, we made good headway with helping advertisers measure the efficacy of their campaigns on Pinterest. Since introducing our conversion API in Q4, we've steadily grown the percentage of revenue from advertisers who adopted our conversion API solution. In addition to innovating on the lower funnel, we've also continued to innovate on upper funnel ad formats to build on our strength in that segment of the market and meet advertiser demand. In June, we made our premier spotlight ad format, which is our upper funnel takeover video ad unit on our search surface, available for all advertisers. we're seeing early adoption from a large number of brand advertisers, such as Max, formerly known as HBO Max, and Comcast Xfinity. Similar to last quarter, in Q2, we continued to drive a more than 30% increase in our global ad impressions, or monetizable supply, due to engagement gains and dynamically flexing ad load when a user is expressing intent through whole page optimization. We are also leveraging next-gen AI on our ad products and we're seeing a profound impact in our ads capabilities. In Q2, we expanded our use of GPU serving from core engagement AI models to our ads delivery models, which enabled us to use models that are 100 times larger than before in ads, as well as organic. The cumulative impact was a 5% reduction in cost per action and over 10% lift in click-through rates. I'm very proud of our team's execution on the modernization side. but we are still early in our ad platform evolution. I believe third-party partnerships can be additive by expanding the depth of advertisers, bringing more relevant ads, and improving our auction density. We announced our first third-party partnership with Amazon Ads in April. This partnership has strong synergies as Pinterest has significant commercial intent and consumer desire to go from inspiration to action. while Amazon ads can bring more shoppable content with a great consumer buying experience. As I said on our last call, a partnership of this scale will be a multi-quarter implementation with the most meaningful revenue impact likely being in early 2024. However, we have recently begun testing live traffic with Amazon ads. We are very pleased with the pace of implementation in Q2 and the early results of our testing in Q3 so far. Looking at our overall progress on shopping, we're quite excited at the momentum we're generating. We're building a powerful flywheel that is driving increased engagement among our users and delivering greater value to our advertisers. We're utilizing next-gen AI models with our first-party signal to recommend brands and products that are aligned with user preferences, and this is resonating with users. In Q1, we continued to grow the overall distribution of shoppable pins or products you can take action on on the home feed, And in Q2, we've expanded this to all of our core surfaces. Users are actively engaging with this content, with click-through rates and saves of shoppable pens growing over 50%, accelerating from the 35% we saw in Q1. In Q2, we also launched a new automated Shop the Look module for home decor and fashion pens that utilizes AI to recommend similar shoppable products tied to our merchant catalogs. In our early A-B tests, Shop the Look is unlocking greater value for merchants as its high intent traffic drove a 9% increase in conversions. And these innovations continue to manifest in robust shopping ads revenue, which continue to grow at a pace meaningfully faster than our overall revenue rate. Now, I'd like to discuss our focus on operational rigor. As we've said in the past, we're instilling a culture where we are more focused on what drives results for users and advertisers and being more rigorous with our expenses, ultimately making us a more durable company. We've been able to accelerate our pace of innovation while also being disciplined on expense management, resulting in positive outcomes for our users, advertisers, and shareholders. In Q1, we took steps to reduce our expenses and drive greater efficiencies in our business, including right-sizing our workforce to align talent to our strategic priorities and restructuring our real estate portfolio. In Q2, we identified further cost efficiencies leading to operating expenses that were lower than we guided to. Later in the prepared remarks, Julia will share our latest outlook on expenses and margin expansion for the year. Finally, I'd like to talk about our progress in making Pinterest a more positive place on the internet. Our commitment to fostering a more positive environment resonates with advertisers. We believe our relative brand safety remains a driver for advertisers to invest more and spend on Pinterest. Our efforts and positivity also resonate with users. For example, we're building inclusive AI technology like skin tone diversification that helps users personalize their experience and see themselves on Pinterest. In Q2, we improved the skin tone diversification of our core feeds, which led to engagement wins. We want others to join us on our mission to make the internet a more positive place. In June, we created the Inspired Internet Pledge in collaboration with the Digital Wellness Lab at Boston Children's Hospital. The pledge is a call to action for tech companies and the broader digital ecosystem to unite with the common goal of making the internet a safer and healthier place for everyone, especially young people. Before turning the call over, I wanted to say a few words about our new CFO, Julia Donnelly, and why I'm so excited to partner with her going forward. We ran an extensive search for a CFO, and I know Julia is the right leader and partner to help our team grow and scale Pinterest. Prior to joining, Julia was VP of Finance and Accounting at Wayfair, where she was responsible for the entire global finance and accounting organizations, as well as investor relations and corporate development. She is a strategic, disciplined, and highly regarded executive with an impressive background leading all aspects of finance within an innovative, high-growth public company. Her leadership and deep experience across e-commerce, media, and technology will be invaluable as we position ourselves for the next chapter at Pinterest. I'll now turn the call over to Julia to provide an update on our Q2 financial performance.