STOCK BRIEF | PINTEREST (PINS)

key takeaways

Bill Ready - Pinterest CEO

• On misperceptions of Pinterest and the 2-3 year plan

• Ready says it's underappreciated how fundamentally different Pinterest is than the rest of social media

• Users on Pinterest are in "lean-forward" mode

• Pinterest is a full-funnel platform

• Pinterest is a place of positivity

• "Our revenue actually splits 1/3 upper funnel, 1/3 mid-funnel, 1/3 lower funnel. And there are other places, other ad platforms that you can find, what I would call, a synthetic full funnel where the advertiser sees a full funnel, but it's actually distributed across; multiple different consumer products. I'd say, in the Western world, we're the only place that is a true full funnel from the consumer perspective, where the consumer goes from upper to mid- to lower funnel in the same place."

• "I think that is a huge differentiator for our platform. The fact that it's a -- we can tune for positivity, users after they spend time on Pinterest, 80% plus of users -- multiple studies on this, 80% plus of users say they feel better after having spent time on Pinterest. And the opposite is true of much of the rest of social media that users end up feeling worse after spending time."

• On the ad market

• Pinterest seeing strength in brand advertising

• Full funnel nature of the platform really helping advertisers

• "We talked about how brand advertising has had some strength with us, especially as we're making it more performance tying it into the full funnel. I think it's particularly true when we can do full funnel and say that users that do multiple objectives on our platform tend to see 50% better sales results. And so I think some of that is the full funnel nature of our platform, but we're seeing some pockets of positivity there."

• Ready noted advertisers are still adapting in general

• "I would say that generally, advertisers are still adapting. And so I think advertisers are making decisions closer to time. So there's a sort of shorter lead time. But while I don't know that I can predict any better than anybody else wins sort of the ad market sort of fully normalizes, our bet is not on just sort of riding the tide of the market. Our bet is that we can take market share in that market."

• Ready claims that even in softening ad market, Pinterest benefits on the margin

• Plan is not to ride the ups and downs of the market - it's to grow share

• "So even in a softening market, the last couple of quarters, you've seen us growing faster than most of our peers, if not all of our peers. And I think that's because we're getting much better performance in our ad platform as we're investing in that. And as we're solving for that full funnel, the lower funnel, the intent to action has historically been weaker for Pinterest. And as we're really leaning into that and really leveraging the fact that we have the user in the right mode, the user is here to shop, more than half our users say they come to Pinterest to shop."

• "Our plan is much more about how we grow that market share than it is about just riding the tide of the market."

• On engagement and user growth

• Ready had to answer two main questions when he assumed the role of CEO in 3Q22

• Can Pinterest return to user growth?

• They've returned to user growth and engagement growth

• Third-party data shows them growing engagement + time spent faster than peers over past two quarters

• Can you get users to take action on the platform?

• Ready says it's early days here still

• Need to make shopping a core use case

• Bolstered by changes like mobile deep linking, shopping ads

• "We talked about shopping ads growing 50% year-on-year, new formats that drive seamless conversion like mobile deep linking, which is where you discover a product on our site or in our app, and we link you straight into the retailer's app to the place to go make that purchase. That was 40% of our shopping revenue over the cyber five. And that was a brand-new format that we released in Q3 and Q4. And that was 40% of our shopping revenue. So that's a really good indication that users will take action there."

• On domestic v. international monetization

• No secret that revenue mix at Pinterest is heavily skewed towards U.S. --> revenue is 80/20 U.S./Int'l while MAUs are 20/80 U.S./Int'l

• Ready says the goal in the U.S. is to continue capturing leaked engagement, leaked monetization that occurs when users don't take action on Pinterest but elsewhere

• "So in the U.S. and sort of the developed markets, I think that's more of the story, how do we capture that leaked engagement, capture that leaked monetization."

• Internationally they are working towards increased monetization by doing things like agency partnerships, utilizing third party sales

• "So in the U.S., the intent to action, the better personalization is driving great results. Better personalization works outside the U.S. as well. Outside the U.S., some of it is very nascent in the ad stack outside the U.S. because we're building more connections into more agencies, more tools for partners outside the U.S., we're seeing that start to pick up as well. So we're not going to get to 50% of the revenue outside the U.S. in the next year or 2, but over the long term, I think we'll start to gravitate more towards that kind of place in the long term, as you've seen from other more mature platforms."

• On the conversion API and pace of ad growth

• Ready reaffirmed the nascency of Pinterest ad platform

• Pinterest focused on leaning into privacy safe measurement tools like Data Clean Rooms and CAPI --> notes early signs of success they've produced

• "Pinterest ad platform has been nascent relative to others. So there's a tailwind for us just in sort of catching up to where others have been just because it's been a younger, more nascent ad platform."

• "And these are large sophisticated advertisers, they implement our conversion APIs, they're seeing 28% lift on attributed conversions. If you're an advertiser, that's huge. And that's 20% lift in attributed conversions in a -- as we're moving to privacy safe tools. So that's one example of how much opportunity there is. And we've gone from hundreds of advertisers on that to thousands of advertisers getting to that. And we still have a lot more to go."

• Speaking more broadly to the industry, Ready believes Pinterest is uniquely positioned to succeed when Google phases out cookies on chrome/Android

• "Last thing I'd say on this point on ad tech and ad stack, I think that we're -- as an industry, we are still relatively early in the journey to privacy safe measurement and privacy safe advertising. And Apple has made their changes. And that was a big shoe to fall when that happened. Google has spoken publicly about the changes that will come for Chrome and for Android. But they haven't happened yet. When they do, that will be another really big shoe to fall. And when that happens, I think you'll see a much more clear dichotomy between platforms that have intent expressed directly on the platform versus what were the platforms that didn't have intent to express on the platform, and we're really relying on sort of tracking people around the web to know what they're interested in."

• "Pinterest doesn't need to track you around the web to know what you're interested in. People come to Pinterest and tell us what they're interested in. And I think that advantage is shining through more now that we're really investing in the ad platform, really investing in the intent to action. But I think as you have Chrome and Android start to implement their changes with cookies going away, I think that is going to be not just -- from an ad measurement perspective, everybody is in the same boat with the industry rewiring to privacy safe ad measurement tools. Everyone in the same boat on that. The industry is going to go through rewiring to conversion APIs and clean rooms and things like that."

• On the auction market, bid liquidity

• Ready says there's been a fundamental shift over past 2 quarters in terms of their ad supply and effectiveness

• "2 quarters ago, we were supply constrained. We grew supply by 15% plus in Q4, and we did that while increasing ad relevancy and increasing user engagement. So we've laid a lot of foundation with things like whole paid optimization that let us go think of ads as relevant content, particularly in commercial context. So getting engagement overall to double-digit plus big supply unlock to say then supply can grow faster than user engagement because we can think of ad as relevant content in a commercial context lets the supply grow even faster than the overall user engagement."

• Also spoke towards Pinterest leaning into third-party sales, which they currently don't do but would add incremental value to their advertising dynamic

• "So then when we think about how we bring in more demand, of course, first-party sales is always our preference. And we have a great sales team. We will continue to invest in selling directly. But even the largest, densest auctions in the world, augment their auction with third-party demand. There are always gaps in the auction to fill."

• "But what I have said is that I think about third-party demand as a meaningful opportunity for us and one that we can take action on in the near term. I think in our last earnings call, that's like, well, "hey, Bill, the near term mean like it could be '24 or it could be this year." I think of it within this year in terms of something that we can start to ingest more of especially since we already have the proof point with Retail Media Networks and we are no longer supply constrained, and we've done the work on whole page optimization so that we can think about dynamically flexing up ad load when we have relevant adds to display to users in ways that are going to be engagement positive. Those were sort of the prerequisites needed to go do those kinds of deals."

• On AI

• Ready says Pinterest is definitely in the AI/machine learning game

• A lot of the use case on Pinterest is lateral exploration --> aka, product recommendations

• "Pinterest is able to give you really good lateral exploration on that, and the user feedback on that is consistently at 95%-plus relevance."

• Pinterest also upgraded from CPU to GPU, which has greatly evolved their ability to collect data and train algorithms

• "So some tangible examples of this we moved from CPUs to GPUs for anybody that's sort of like deep into this, like we appreciate the importance of that. Like what has that unlocked for us going from CPUs to GPUs. Our models have grown by 100x on the, after switching for CPU to GPU, models have grown 100x. We're processing billions of interactions from users."

• Seeing tangible results from products like Shuffles, which is driving engagement with younger generations (Gen Z)

• Each item in a Shuffles collage is actionable, and AI helps build out recommendation paths and inspire the user to take action

Please call or e-mail with any questions.

Andrew Freedman, CFA

Managing Director
@HedgeyeComm