Pinterest, Inc.

star followed by a one on your telephone keypad. Again, that is star followed by a one on your telephone keypad. I would now like to pass the call over to your host, Neil Doshi, head of investor relations at Pinterest.

You may proceed. Good afternoon and thank you for joining us. Welcome to Pinterest earnings call for the fourth quarter and full year ended December 31, 2023. I'm Neil Doshi, vice president of investor relations for Pinterest. Joining me today on the call are Bill Reddy, Pinterest CEO, and Julia Donnelly, our CFO. We are providing a slide presentation to accompany our commentary, and this conference call is also being webcast. Please refer to our investor relations website at investor.pinterestinc.com to find today's presentation, webcast, and earnings fresh release. 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 outlooks for Q1 2024 and beyond are preliminary and are not an assurance of future performance. We are making these forward-looking statements based on information available to us as of today, and we expressly disclaim any duty or obligation to update them unless required by law. For more information about risks, uncertainties, and other factors that could affect our results, please refer to our most recent annual report, Form 10-K, and quarterly report, Form 10-Q, 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 measures to the most directly comparable 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. Lastly, all growth rates discussed in today's prepared remarks should be considered year over year unless otherwise specified. And now we'll turn the call over to Bill.

Thanks, Neil. Good afternoon and thank you for joining our fourth quarter and full year 2023 earnings call. In Q4, our team executed well against our strategic priorities, growing users and engagement, gaining further traction with our lower funnel advertising offerings, and delivering on operational efficiency. Our efforts to grow users and deepen engagement continue to yield strong results. Global MAUs hit another all-time record of $498 million, growing 11%, accelerating from last quarter and growing sequentially in all of our geographic regions. Q4 revenue of $981 million grew 12%, marking continued double-digit revenue growth in the second half of this year. And while growing revenue and engagement, we continue to demonstrate operational efficiency and disciplined expense management, resulting in Q4 adjusted EBITDA of $365 million, or a 37% margin, up more than 1,400 basis points from last year. Our strong product delivery in Q4 and throughout 2023, with investments focused in lower funnel offerings like mobile deep linking, shopping ads, API for conversions, and most recently direct links, are delivering sustained ROI improvements for advertisers. This is leading to advertisers growing their budgets with us and has resulted in further acceleration so far in Q1, which is reflected in our guidance that Julia will describe in further detail later in the call. Before I discuss Q4, I'd like to reflect back on the progress we made over the past year. We entered 2023 with a backdrop of a challenging macroeconomic environment and a weak digital ads market. However, we delivered strong execution against the strategic priorities we laid out during the second half of 2022, which enabled us to grow through the downturn and get back to double-digit revenue growth in the back half of 2023. During this period, we made significant investments in AI that drove improvements in our overall platform for users and advertisers, and we significantly accelerated product velocity across our most important priorities, propelling growth last year and laying the foundation for the future. We focused on helping users find new reasons to come back to Pinterest more often. We also invested in the elements that made Pinterest so beloved and unique in the first place, like human curation through saving and organizing content. And as a result, MAUs are growing and users are engaging more deeply with the platform than before. We also made significant advancements on the shopability of the platform. More than half of our users view Pinterest as a place to shop. But historically, it was not easy to click out and go to a merchant site to buy the product you found on Pinterest. Last year, we improved the shopping experience by bringing shopping content front and center into our home feed, search, and related services. As a result, we saw engagement with that shoppable content accelerate as users clicked and saved that content at rates significantly higher than in the past. This was clear evidence to us that people come to Pinterest with intent and will take action when we make it easy for them to do so. On the monetization front, the teams innovated across the entire funnel, with particular emphasis in the lower funnel, as we made it more seamless for users to pivot from inspiration to action through increased shopability. In fact, 2023 was one of our most productive years for ads innovation, as we accelerated product delivery and launched more ad formats, tools, and solutions than ever before, and continued to drive adoption of our lower funnel solutions for advertisers. These include seamless handoffs like mobile deep linking and direct links, new ad formats like Premier Spotlight, travel catalogs and lead ads, and measurement solutions like our API for conversion and clean room integrations. As a smaller player in the overall digital ads ecosystem, adding third-party demand to increase the comprehensiveness of our catalog and the relevance of our ads was a key priority for us. Last year, we announced and launched our first third-party ad partner with Amazon Ads, which is scaling well, and we will continue to advance our third-party demand efforts this year and beyond to bring relevant ads that can enhance the user shopping journey. Putting all this together, we were able to achieve year-over-year revenue growth in every quarter in 2023 and get back to double-digit growth in the second half. And we did this while controlling our costs and expanding margins. When we started the year, we laid out a plan to achieve around 200 basis points of adjusted EBITDA margin expansion for the full year. With revenue growth, operational rigor, and cost optimization, we were able to deliver 660 basis points of adjusted EBITDA margin expansion for 2023. I believe that constraints breed creativity, and in this environment, our teams are able to deliver better experiences for our users and our advertisers with clarity, focus, and discipline. Lastly, with a strong executive team, many of whom joined in 2023, we have the right leadership and a strong foundation to execute against our strategic priorities in 2024 and beyond. Now let's take a closer look at the initiatives we launched in Q4 to advance our strategic priorities. During the quarter, we made key updates along the entire Inspiration to Action journey to grow our users and deepen engagement. These investments are paying off. We had our fastest global MAU growth since Q1 of 2021, and we're seeing our best product market fit in years, as evidenced by the strong growth in our Gen Z demographic and the fact that our most recent user cohorts are significantly more engaged than user cohorts from prior years, consistent with what we shared at our Investor Day. Starting with inspiration, we're enhancing the way users find inspiring content and hone in on exactly what they're looking for by making improvements to our core search capabilities. In Q4, we began testing generative AI-based search guides, which help users refine their understanding from broad queries like kitchen ideas into more structured avenues of exploration like rustic farmhouse kitchen or kitchen organization hacks, helping users get closer to the point of action or purchase. Additionally, these generative search guides highlight the advancements we're making in AI on the platform in ways that are additive and authentic to the user and that we expect will lead to continued improvements in engagement and retention. After users search for and find the content they're looking for, we're developing new ways to help users curate that inspirational content. At our Investor Day, we introduced Collages, a new interactive pen format composed of cutouts that users can engage with. Users can tap on an image within a scene to cut out components of the image they love and combine them with other cutouts to create interactive collages of their favorite ideas, all in one place. In addition, users can tap on a cutout within a collage to see its associated products, if available, or the source pin that the object was cut out of. This has the potential to create a flywheel of content creation and engagement, which we're excited about. In Q4, we rolled out the collage functionality to nearly all iOS users globally. I'm pleased that this feature is now broadly available for our users as cutouts and collages are a new frontier of creation on Pinterest and allow users to express their creativity and taste in even more visually immersive ways. It also provides us with great first-party signals on what users are interested in, product associations, emerging trends, and how we can surface more content and products that are aligned with users' evolving tastes. And we're seeing strong early results and positive feedback from our users. They're finding collages highly engaging, with users three times more likely to save collage pins versus other pins on Pinterest, and a majority of collages are created by users who had not previously created a pin. Collages also skew heavily towards shoppable content, with approximately 75% of collages utilizing a product pin, showing the intent our users bring when creating and engaging with content on Pinterest. Moving further down the inspiration to action journey, we're enhancing our board functionality to help users better understand and organize their tastes. Boards are an essential part of the curation flywheel on Pinterest and provide us with important signals on user tastes and preferences, which feeds into our recommendation algorithm and further augments our ability to serve relevant content back to our users. In Q4, we launched our first auto-organization feature. This feature leverages AI to simplify the board creation process by automatically grouping similar pins into suggested boards based on what users have saved in the past. For users who generally don't curate on the platform, this feature resulted in a nearly 30% lift in boards created, highlighting how auto organization can unlock the magic of Pinterest for more users. Finally, we're making it easier for users to shift from inspiration to action and shop products they discover on Pinterest. Over the past few quarters, we've launched shopping modules that help us further capitalize on our audience who come to Pinterest with intent and improve the shopability of our platform. Last quarter, we discussed a few of these efforts for women's fashion and home decor categories, including Shop the Look and Guided Shopping Modules, which surface shoppable product pins based on past saving and clicking history. In Q4, we launched Shop Similar for Mobile in the same categories. While Shop the Look is activated when a user clicks on a lifestyle image, such as a celebrity wearing the latest outfit trends or a beautifully curated living room, Shop Similar is activated when a user clicks on a shoppable product pin from a merchant catalog. It then showcases a carousel of similar product pins across a variety of other brands and price points, complementing the feed of related pins below. We're in the early stages of ramping, and in our experiments, Shop Similar drove double-digit lift in both outbound clicks and checkouts. I've spent the last few moments discussing the key product updates we've made across the funnel to help users find the content that inspires them most and take action on it. The billions of intent signals we get from this on-platform search, click, and curation behavior gives us the unique ability to see trends in real time and predict consumer trends for the upcoming year through our annual Pinterest Predicts report. We've had an 80% success rate in predicting future trends four years in a row. Some of our 2024 predictions are already making their way into the cultural conversation through publications like Vogue and Glamour UK as celebrities and users embrace Pinterest predicts trends like eclectic grandpa fashion looks or Western Gothic home design. Blue Beauty, which predicts Gen Z and millennials will embrace blue hues in their makeup routine, is taking off on Pinterest right now, with searches related to this trend growing 125% since the report was launched. This year we're incorporating Pinterest Predicts activations for both consumers and advertisers. In December, for the first time, we took our Predicts trends to real life, opening the doors to our first ever Predicts pop-up shop in New York, showcasing immersive displays and shoppable items inspired by the trends. Our predictions allow advertisers to plan ahead for new consumer interests, ensuring their products and ads are ready to meet ramping demand. Advertisers can also sponsor co-branded Pinterest Predicts content on our platform to reach targeted audiences. Pinterest Predicts is a great example of our ability to harness user behavior to show compelling trends and content that drive user engagement and provide advertisers with actionable insights they can't find anywhere else. With that, I'd like to turn to our second strategic priority, improving monetization per user, and discuss how we're driving success for advertisers. Throughout 2023, we've been focused on driving performance for advertisers by rolling out our lower funnel tools, which include mobile deep linking, the API for conversions and clean rooms, and most recently direct links, which launched at the end of Q3 and ramped in Q4. The percentage of revenue from advertisers who have adopted at least three of these tools increased from 2% at the beginning of 2023 to 13% at our investor day in September to 23% by the end of the year, marking strong progress toward our goal to be a meaningful performance player in the digital ads market. One of the key product enhancements we've rolled out within the lower funnel suite is direct links, which creates a more seamless handoff for advertisers. Direct links take users to an advertiser's product page in just one click, significantly reducing friction and improving the ability to take action. Direct links also require little to no work by the advertiser to adopt and now cover 80% of our lower funnel revenue, up from 60% in October. We expect coverage to continue to increase over the course of Q1. The increased performance and value we were able to drive for advertisers in Q4 was particularly impressive. We more than doubled the amount of clicks we drove to advertisers year over year, a substantial increase during a retailer's most important time of year, and we were able to do so while driving high quality engagement. Retailers are finding significant performance improvement with this format. For example, Urban Outfitters saw a 132% increase in outbound clicks and a 57% decrease in cost per click with a direct links enabled campaign. This is strong, tangible evidence that we are creating significant, real value for advertisers. This value creation comes in the form of increased clicks, lowered CPCs, and therefore higher return on ad spend from our lower funnel products. Each time we have launched products that created meaningful advertiser value, we have seen budgets shift in our direction in the months and quarters that followed, as advertisers were able to see and measure sustained performance. Given that we launch these products throughout the year, with direct links rolling out most recently during the holiday shopping period, much of the value capture from these new products is still in front of us, given the lag between value creation and value capture. We've seen the same value creation versus value capture adoption curve play out in our business already, with larger, more sophisticated retailers taking advantage of products like mobile deep linking and API for conversion, and subsequently growing their spend with us. The cumulative effect of the significant improvement in Pinterest's lower funnel and performance ads capability over the last 18 months is that we are increasingly moving from advertisers' experimental and social budgets to their performance budgets, which tend to be larger and more resilient. With our improved lower funnel solutions, we know we're driving more clicks and conversions, but performance is only as good as an advertiser's ability to measure it. Moreover, as the industry goes through additional privacy-centric changes this year, with the expectation that a major browser will be deprecating third-party cookies, there is heightened urgency from agencies and advertisers to drive adoption of future-proofing measurement tools. From a targeting perspective, we believe we are well positioned relative to others due to the first-party signals we capture through user intent expressed directly on our platform. We are a lean-forward platform, and relevant ads are content to our users. From a conversion visibility and measurement standpoint, we have a broad suite of solutions which are becoming indispensable for performance advertisers to measure and optimize the value of their spend. This is why we've been heavily focused on adoption of our API for conversions and cleanroom solutions and providing more third party measurement solutions for advertisers. On API for conversions, we've laid the groundwork for more adoption in 2024, including reducing the setup time for advertisers through interface updates, while integrating with 24 partners like LiveRamp, Adobe, and Salesforce. Additionally, sophisticated advertisers are seeing the value of investing in clean rooms to measure campaign performance on Pinterest. Recently, a large CPG partner enabled measurement through clean rooms and found that their Pinterest campaign drove a 16-point lift in incremental sales. We also offer a suite of first party and third party measurement tools to plug into advertisers measurement system of truth, whether it's brand and conversion with studies platform metrics and insights or highly sophisticated media mix modeling and multi touch attribution studies. As we've discussed on previous earnings calls we're going through a critical shift in the industry and a top priority for our company is growing the adoption of these alternative measurement solutions this year. To do so, we've implemented new adoption goals into our Salesforce compensation structure to encourage further advertiser penetration. We're growing our performance optimization team who can help with technical selling, and we're continuing to explore deeper partnerships with agencies and integrations with additional partners. In addition to format and measurement innovations, we remain focused on bringing AI-based automation to the forefront of our campaign creation experience. We have many of the components in place for a fully automated ad system, including automatic bidding, campaign budget optimization, and whole page optimization, which enables us to surface more relevant and performant ads when a user expresses commercial intent. These tools drive better results in aggregate for our advertisers. For example, automatic bidding covers 85% of our revenue, and whole page optimization is resulting in greater efficiencies across our full funnel. Reducing the time and effort for advertisers on campaign setup while improving ROI is top of mind moving forward, and we'll see a steady progression of increased automation and easier ad platform functionality throughout this year as we continue to build out these products. Next, I want to provide an update on our third-party demand efforts. Consistent with the timeline we laid out at our Investor Day, Amazon Ads in the U.S. is live on search and related services, and as of this quarter, we are testing it on the home feed. In addition, we always said we would have multiple partners and that third-party partners would be an important component of our overall international expansion. Today, I'm pleased to announce our next third-party ads integration with Google. This partnership will focus on monetizing several of our currently unmonetized international markets by enabling ads to be served on Pinterest via Google's Ad Manager. We went live a couple weeks ago, and this is starting to ramp. Third-party ad demand is scaling as we anticipated, and while it was not a significant revenue contributor in Q4, we are now seeing it contribute more meaningfully to our growth this quarter, and we expect that to continue going forward. Our third strategic priority is continued focus on operational rigor and discipline. As I mentioned before, I'm proud of our team's execution here, as our operating expenses declined year over year, and we grew our EBITDA margins by over 1,400 basis points. Julia will provide more details on our future profitability outlook later in the call. Lastly, I want to spend a few moments discussing a topic that's of utmost importance to this company and to me personally. Since joining Pinterest, I've talked extensively about Pinterest as a positive place online and how maintaining this positivity is a pivotal component of our ethos as a company. It's also a meaningful differentiator for our platform and a core part of our strategy for growing users and advertisers. Users, especially Gen Z, often crave respite from social media and see Pinterest as a positive alternative. Advertisers for their part want to be present in a positive, brand-safe environment that can also deliver performance. I recently had the opportunity to speak alongside key thought leaders at the inaugural Youth Online Safety Summit hosted by Common Sense Media, a leading advocacy organization working to ensure that the internet is healthy, safe, and empowering for young people. It was an honor to be able to speak alongside the Surgeon General Vivek Murthy about how Pinterest is working to build an alternative social media business model, one that is focused on positivity. We're not perfect, and we don't have all the answers. Like the rest of the industry, we have a long way to go, but it is my intention to make Pinterest a safe place for everyone, especially young people. We're one of the few places online that is about focusing on your own life versus just observing the lives of others, about making plans for what you intend to do, We've taken a radically different stance than our competitors, and we're seeing it pay off in the emotional well-being of our users and in our business outcomes. These principles are at the heart of our technology, our AI, and our policies, and we are being accountable and transparent about how we're doing and sharing our learnings across the industry. Our company mission is to bring everyone the inspiration to create a life they love, and our work to make Pinterest a positive corner of the internet is an integral part of how we embody our mission every day. Now, I'll turn the call over to Julia to share more about our financial performance.