Pinterest, Inc.

Thank you all for joining. I would like to welcome you all to the Pinterest Third Quarter 2024 Earnings Conference Call. My name is Brika and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Andrew Sundberg, Vice President, Investor Relations, and Treasury at Pinterest. Thank you. You may proceed, Andrew.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the third quarter ended September 30th, 2024. My name is Andrew Sonberg, and I'm Vice President of Investor Relations and Treasury for Pinterest. Joining me on today's call are Bill Reddy, Pinterest CEO, and Julia Donnelly, our CFO. This conference call is being webcast, and we are also providing a slide presentation to accompany our commentary. Please refer to our investor relations website at investor.pinterestinc.com to find today's presentation, webcast, and earnings press 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 outlook for Q4 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 later unless required by law. For more information about risks, uncertainties, and other factors that could affect our results, please refer to our most recent Form 10-Q or Form 10-K 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 I'll turn the call over to Bill.

Thanks, Andrew. Good afternoon and thank you for joining our third quarter 2024 earnings call. One year ago at our Investor Day, we shared our business vision and outlined the strategic initiatives that we believe will drive long-term sustainable growth. These initiatives include, one, growing users and deepening engagement per user, Two, making ads relevant content, which allows us to increase ad load and provide a better user experience simultaneously. Three, executing on our lower funnel revenue opportunity. And finally, driving demand through third-party partners, resellers, and international markets as additional levers to growth. We stated that these initiatives, working in tandem, would result in a mid- to high-teens revenue growth kegger, and improving profitability, leading to adjusted EBITDA margins expanding to the low 30% range in the next three to five years. One year later, our operating results validate our continued execution against this strategy and commitment to delivering on the targets that we laid out at Investor Day. When we announced our three to five-year financial targets at Investor Day, we had just delivered Q2 2023 revenue growth of 6%. Since then, on a trailing 12 months basis, as of Q3 2024, we have accelerated revenue growth to 18% and expanded adjusted EBITDA margins by more than 800 basis points year over year. Q3 was further evidence of progress against our strategy as we grew revenue 18% year over year. We've built out a full funnel ads platform with a particular focus on the lower funnel, which continues to be the fastest growing part of our business as advertisers are increasingly seeing Pinterest as a great place to connect with customers, demonstrating high commercial intent. We're also building a fundamentally better product, focusing on the aspects of Pinterest that make us unique to our audience. The ability to find inspiration, curate, and shop all in one place. We are pleased to report monthly active users of 537 million in Q3, another record high, reflecting 11% year-over-year growth. Each quarter of record users provides further evidence that we found our best product market fit in years. Today, I'll focus my remarks on discussing themes that are driving progress against the strategy we laid out at Investor Day, starting with an overview about AI and its impact across our business. and moving on to a more specific quarterly update on users, engagement, and monetization. At Pinterest, AI is a core competency and has played a central role in how we have transformed our business over the last two plus years for both our users and advertisers. As we've leaned into this important technology in recent years, we've generated substantial returns from our investments that have fueled growth across our business. Effectively, all content served on Pinterest, including organic and ads, is powered by AI recommendation models that are trained by our unique first-party signal. And AI is only as good as the signal it acts upon. Our AI models generate over 400 million predictions per second, ranking what our users might engage with every time they come to the platform. These rankings leverage hundreds of billions of user actions like searches, saves, and clicks, They come from over half a billion logged in users who are actively exploring, curating, and refining their tastes. This vast data allows us to create highly personalized and relevant recommendations, introducing audiences to new brands, products, and emerging trends. We have distinctive and explicit expressions of intent, like a user searching for and saving outfits to their vacation board. This provides us with real-time insight into what inspires our users and what they're looking to purchase next, and provides a holistic understanding of user taste based on their past behavior and other users with similar taste. So, while other platforms may see what their users are looking to purchase today, we see what users are interested in purchasing days, weeks, and even months in advance. This is because the users who come to Pinterest are often undecided, but refine their tastes over multi-session commercial journeys before ultimately deciding what to do or buy. This signal creates a flywheel effect. As users engage with our recommended content through curation actions like saving to boards and creating collages, or through clicking and buying behavior, we gather richer data. Incorporating this data into our recommendation algorithms enables us to deliver even more personalized and relevant content, and create a network of product associations, unlike any other platform, that allows us to effectively recommend content to users with similar tastes. Furthermore, in addition to utilizing our proprietary foundation models in areas where we are differentiated, such as computer vision, we are also leveraging our unique first-party signal to fine-tune off-the-shelf large language models for a variety of use cases around organic and ads content serving. This approach has led to phenomenal results. Notably, a 300 basis point improvement in actionable engagement measured by clicks and saves compared to using an off-the-shelf model not fine-tuned with our data. Our unique user signals and deep understanding of individual interests and tastes also allow us to power monetization with highly relevant ads, making the ad useful content for users. We see this clearly across the platform, including on our search surface, where the average ads relevance for top ad slots has more than doubled over the past two years. This means when a user searches for commercial queries like holiday home decor or fall boots, they see more ads that are relevant to their query that they can easily shop. Since our users come with commercial intent, these ads do not interrupt their user journey. Rather, they enhance it. We also leveraged AI to significantly enhance our ads ranking and delivery systems over the past 18 months, leading to compounding efficiency gains for our advertisers across the platform. Additionally, in moments of high intent, our AI-powered whole page optimization enabled us to flex up ad load to serve more relevant ads to our users, allowing ad load and engagement to grow in tandem. All in all, AI is a core competency at Pinterest and at the center of the significant progress we're making across our technology stack, which is enhancing the experience for users and advertisers alike. With that, let's get into Q3 specifically and discuss our work to grow users and deepen engagement. In Q3, we continued to improve the user inspiration to action journey. As a visual search and discovery platform, users come to Pinterest to explore their interests, seek inspiration, and browse items they may like to purchase. They curate and save pins into boards and collages, refining their taste and facilitating future shopping. We've enhanced the actionability of our platform by integrating shopability into all major user experiences and leveraging our computer vision technology to make pins easily shoppable. Users are taking notice of this change, with 66% of weekly Gen Z pinners saying Pinterest is the first or one of the first services they use to shop, up from 54% the year prior. Through curation, we gain valuable insights into product context, enabling us to refine our recommendations and enhance the user experience. Boards and collages are integral to allowing users to curate their taste on Pinterest, and we continue to make steady investments to improve these features. For example, we recently launched a suite of new collage features, including collage remixing, which lets users collaborate, build upon, and use existing collages as a starting point to express their own taste and creativity, thereby reducing the barrier to entry to create a collage. We're also bringing shoppable recommendations to boards. utilizing context from users' own search and save history, as well as our unique product associations, to recommend items that might match their taste and allow them to seamlessly move down the funnel from curation to action. At Investor Day, we also discussed the shifts we made to our shopping strategy, most notably shifting from a model that was trying to compete with retailers for the transaction to being an ad-based model that is a deep partner to retailers. Our go-forward strategy is centered on expanding shoppable content, refining recommendations through improved personalization and relevance, and seamlessly connecting users and merchants. Over the past year, we have made significant progress in executing against this strategy with the goal of making our platform more actionable for users. Notably, for the fourth consecutive quarter, we more than doubled outbound clicks to advertisers year over year as we improved the overall actionability of the platform. Additionally, To improve user understanding of which pens are shoppable, we've added visual shopping indicators to product pens in the US and launched filters like On Sale to help users find products that match their budget and preferences. Finally, we're expanding the availability of our shopping features to a broader audience. We recently expanded Shop the Look, which helps users shop what they see in lifestyle imagery to international markets. We also added Ways to Style, a module that appears on close-ups for women's fashion pens, showcasing inspiration on how to style the item in an outfit and complimentary shoppable products from our catalog. In summary, we are successfully executing a strategy we shared at our Investor Day to drive curation and actionability. As a result, we are seeing steady improvement across the basket of engagement metrics we measure, including the ratio of our weekly active to monthly active users, as well as an exciting increase in the mix of user sessions that include actionability like curation and outbound clicks. This increasing mix of intent-based and lower funnel user actions is directly aligned with our efforts to make Pinterest more shoppable for users and a true full funnel platform for advertisers as well. Next, I'd like to discuss how we are improving monetization by increasing Pinterest's value and performance for advertisers. We delivered strong revenue growth in Q3, up 18% year over year, driven primarily by strength in our lower funnel revenue for the third quarter in a row. As we've discussed before, we've been in the process of transforming our advertising product to be a true performance platform where advertisers can meet our users across the purchase funnel. While shopping has long been a core use case on Pinterest, advertisers historically lacked the tools to effectively drive and measure performance on Pinterest. To address this, we've rolled out multiple lower funnel products over the past 18 months, all of which compound on each other and become more powerful when used together. Our multi-quarter lower funnel product rollout began in earnest with tools to drive more seamless handoffs. In mid-2023, we launched mobile deep linking, enabling a one-click transition to an advertiser's mobile application, particularly beneficial for large retailers with deep consumer penetration of their mobile app. We followed this offering with the release of Direct Links, our one-click handoff to an advertiser's mobile or desktop website from Pinterest. Combined, MDL and Direct Links cover 100% of our lower funnel revenue today. and have significantly improved both the shopping experience on Pinterest and advertiser performance. With Q3 being the fourth consecutive quarter, we've more than doubled the clicks to advertisers year over year. The success of these tools is evident in our strong lower funnel revenue growth over the last three quarters, as advertisers increasingly allocate budget to us after seeing performance gains on our platform. We initially began to see value capture in the form of increasing budget allocation from our largest, most sophisticated advertisers who benefited from mobile deep linking and leveraged advanced measurement tools to understand the increase in ROI we were driving. With some of these large advertisers, we've reached more than 5% of their total ad budgets or 10% plus of their digital ad budgets. While Pinterest was traditionally limited to smaller experimental budget pools, we are now taking share in performance budgets that tend to be larger and always on. For the past three quarters, as more advertisers have implemented measurement tools to see the impact of direct links, we've started to see the next tranche of large retailers, those in the $1 to $30 billion sales range, follow suit and increase their spend. With both of these advertiser segments, we see more headroom to grow share of wallet into 2025 and beyond as advertisers see increasing gains to their lower funnel campaigns through the continued benefits of MDL, direct links, shopping ads, and resilient measurement. We also expect our new automation offering, Performance Plus, to propel an even greater portion of spend from these advertisers as we make campaigns easier to create and more performant, compounding on the lower funnel improvements we've rolled out over the past 18 months. Diving deeper into automation, after months of beta testing, we officially launched Performance Plus for general availability on October 1st. PerformancePlus brings together AI-driven budgeting, bidding, and targeting functionalities while reducing the effort required from advertisers. Recognizing that giving up control can be challenging for certain marketers, we've gone through multiple levels of alpha and beta testing to validate the effectiveness of automated campaigns in simplifying the experience for marketers and delivering superior ROI. The results are clear. Advertisers need 50% fewer inputs to set up a campaign and on average see a 10% better cost per action. Moreover, advertisers who use Performance Plus for their shopping ad campaigns on average see a 20% plus cost per action improvement. While we're only five weeks into the general availability launch of Performance Plus campaigns, we're pleased with the early signals from advertisers as they begin to adopt the automation suite. This is especially true for the smaller and medium-sized advertisers who have historically struggled to build successful campaigns on Pinterest. Beyond its initial suite of automation tools, Performance Plus is expanding to include new creative and bidding features. Performance Plus Creative, which also went into general availability in early October, helps advertisers create and optimize their ad creatives across formats, including generative AI backgrounds on shopping ads, Beta testing has demonstrated a 14% average increase in conversion rate and a 9% lower cost per action for advertisers utilizing Performance Plus Creative. For example, Ruggable, an online retailer known for its innovative washable rugs, used Performance Plus Creative to automate ad creation from their extensive product catalog. In addition to the significant time and effort savings from automation, they drove a 37% better click-through rate compared to their standard shopping campaigns. Our second key investment area is bidding, with features designed to enable advertisers to bring more inventory onto Pinterest and find value across a broader swath of their catalog. For the largest advertisers, we built in the optionality to bid at the item level of their product catalog, so advertisers can have more granular controls to bid at different price points. For the next tier of advertisers, we introduced performance plus ROAS bidding, which automatically optimizes bids based on performance or customer value in order to maximize return on ad spend. While ROAS bidding is currently in beta, in our alpha tests, most advertisers saw at least a 15% increase in return on ad spend by using performance plus ROAS bidding. We expect performance plus ROAS bidding to exit beta testing and be more broadly available to all eligible advertisers in Q1. Underlying our lower funnel improvements are our efforts to implement our resilient measurement solutions. Conversions API, or CAPI, remains our highest priority within the suite of measurement solutions as it enhances conversion visibility for advertisers and, in turn, can be used to tune and optimize their spend for future performance. We increased our CAPI coverage again this quarter and also introduced CAPI Connect, a lower touch adoption method for advertisers with fewer in-house developing resources to further simplify the process. We are also promoting the adoption of other resilient solutions depending on an advertiser's preference. For example, many of our large retail partners have implemented clean rooms with us to improve their conversion visibility and measurement models. By providing a wider range of durable measurement solutions, we are aligning with advertisers' needs and meeting them where they are. As a result, advertisers utilizing one or more of our privacy-centric measurement tools now make up over half our total revenue or two-thirds of our lower funnel revenue specifically. We continue to make progress across the lower funnel suite, one of our key investment areas in the business, and look forward to sharing more progress in the quarters to come as this suite of solutions continues to roll out. Next i'll touch on our global partnership efforts which are meant to fill in gaps in our auction and expand our international presence. we've made great progress, since we discussed these partnerships at our investor day a year ago. Starting with our third party demand partnerships we announced in September that as a start to our international expansion. We expanded our relationship with Amazon ads from the US to now include Canada and Mexico as well. Next, our Google partnership continues to grow as we test, learn, and expand to new regions, including both under-monetized and previously unmonetized markets. Both of these partnerships have continued to build sequentially throughout the year, and we expect that trajectory to persist into Q4. Turning to our reseller partnerships. Throughout this year, we have turned on multiple new partnerships to expand our sales coverage across our international footprint. Resellers complement our first-party sales efforts and our third-party demand partnerships and are now helping to drive revenue in over 30 under-monetized markets. We expect these partnerships to ramp in our rest-of-world markets and a steady progression throughout the next few quarters. Finally, with the holiday season right around the corner, I'd be remiss not to discuss some of our most exciting launches to help users shop and help advertisers drive sales during the most important retail period of the year. For users, we're taking the work out of holiday shopping by introducing gift guides, curated by celebrities, brands, publishers, and tastemakers with shoppable gift ideas available to users right in their feed. For advertisers, we've launched a suite of new tools powered by machine learning to better help advertisers highlight their holiday shopping discounts. The first tool is promotions. which allows advertisers to showcase promotions like free shipping, site-wide sales, and buy-one-get-one offers to users based on their taste and preferences. The test results have been promising. For example, Spanx was an early adopter of our new promotions feature and saw a 2x increase in click-through rate on their recent campaign. Second, we launched new deal ad modules, making ads with special offers more visible to users with a carousel format, helping brands stand out during sale moments. These enhancements help users easily find that perfect gift they've been looking for and helping advertisers connect with our high-intent user base. Overall, I'm pleased with the progress we are making across a number of initiatives, many of which were in the early stages of development at our Investor Day a year ago. And I'm even more optimistic about what's ahead. With that, I'll turn the call over to Julia to share more details about our financial performance.