STOCK BRIEF | PINTEREST INVESTOR DAY (PINS)

Key Takeaways

• Pinterest updated Q3 guidance - they now anticipate to grow revenues around 9% YoY in Q3. They also disclosed guidance related to margin expansion, which they first disclosed during their 2Q23 earnings call.

• Pinterest has done a lot of work on their advertising capabilities, particularly towards the bottom of the funnel. Solutions like the API for Conversions (Sept. 2022) and Mobile Deep Linking (July 2023) have increased conversions for advertisers and revenue for Pinterest significantly since they've rolled out. They've also rolled out advertising capabilities and tools which include advanced AI, ad format innovation (Lead ads, Quiz ads, Video and Shopping catalogs), new measurement solutions (API for Conversions, Clean Rooms), revamped Ads Manager / Business Manager features, and generative AI tools for creatives.

• Pinterest is placing extra focus on growing users and deepening engagement internationally, where they are underpenetrated but see a chance to grow ARPU with solutions like aforementioned API for Conversions and MDL, as well as utilizing agency partnerships to grow ad budgets.

• Pinterest will be rolling out a full suite of advertising tools in 2024, similar to Performance Max or Advantage+. This suite of tools will be a "fully automated end-to-end ad offering" where advertisers will simply provide a budget, a goal, and some basic ideas for a creative, and Pinterest will handle the rest.

Bill Ready, CEO

Ready discussed the ongoing changes to the Pinterest platform and provided a roadmap for the priorities ahead and financial expectations.

• Strategic Initiatives

• Lower funnel solutions and first-party signals are working wonders for Pinterest.

• Lower funnel solutions are PINS fastest growing product. Focus on clicks and conversions.

• Want to be a full-funnel solution to users and advertisers.

• Pinterest allows advertisers to engage users across the funnel, offering a unique full-funnel platform.

• Users come to the platform with intent to act. Pinterest delivers 95% relevancy on recommendations, up 10% YoY.

• There's been a 50% increase in click-throughs and saves of viable items in 2Q23 compared to last year, thanks to new lower funnel offerings.

• Pinterest doesn't need to follow consumers around the Internet; users express their commercial intent directly on the platform.

• "That's why today, advertisers have seen a 45% increase in return on ad spend, when using our first-party intent signals compared to retargeting alone."

• AI Capabilities: AI is foundational to Pinterest, now being applied to core use cases for better user experience and advertiser results.

• Prioritizing explicit intent signals helps users avoid triggering content seen across common social media

• Business Priorities
  

• Growing users and deepening engagement

• User growth has accelerated in each of last 4 quarters

• Basket of metrics to measure engagement (impressions, sessions, saves) grew 14% YoY compared to MAU growth of 8% shows deepening engagement.

• Improving monetization per user (ARPU)

• Ad impressions grew twice as fast as engagement, gives confidence that ads can be relevant, engaging content and will help drive long-term ARPU

• Driving profitable growth

• Solving user needs that drive engagement and ARPU

• Responsible capital allocation with disciplined approach to capital return.

Sabrina Ellis, Chief Product Officer

Ellis emphasized Pinterest's unique value proposition, focusing on user demographics, engagement metrics, and the company's strategic initiatives. She highlighted the platform's strong growth in various verticals and its appeal to a diverse and affluent user base. She also discussed new features and technologies aimed at enhancing user engagement and personalization.

• Painting a picture of the Pinterest user base and growth

• 465 million MAUs, nearly 80% coming from outside the U.S.

• 2/3 women and 42% Gen Z

• "In the U.S. alone, we reached 50% of people online who have a college degree. And 57% of women earning over $200,000 a year."

• 4-year CAGR in Europe is 11%, ROW is 18%

• Gen Z is fastest-growing audience - growing at 20% YoY compared to 8% for total user base

• Emerging Verticals and Mobile App

• "The number of monthly active users engaging in men's fashion is up 27% year-to-date. Autos up 22% year-to-date."

• "Men's fashion products in our catalog have grown 70% year-over-year."

• "Items in the auto catalog by 30% in that same time."

• Mobile app 4-year CAGR is 19% and app users save 2x as much as web users

• User Behavior and Product Features

• "There are 1.5 billion saves every week."

• Newest cohort (joined in last year) are doing almost 2x as many saves as the cohorts before them did in their first year

• "People who save ideas, revisit their profile and retain 28% better than those who don't."

• "Personalization drives a more than 60% increase in saves per monthly active user."

• "Users actively saving with others on collaborative boards show a 14% increase in engage sessions and a 33% increase in saves."

• "Users save Collages at a 2x higher rate than other pins."

• Atomization

• "All new level of saving and curation on Pinterest"

• Ability to cutout parts of a pin and save elements you want, instead of the entire thing

• Can then take snippets and create a collage to visually curate personalized ideas

Malik Ducard, Chief Content Officer

Ducard, who joined Pinterest in December 2021, emphasized the role of content in Pinterest's strategy. He outlined how content is diverse, scalable, and drives engagement and shopability. He also touched on the importance of human curation and how content is evergreen on Pinterest.

• Content Diversity and Formats

• Six different content formats: images, videos, products, ads, atomized content, and boards.

• "70% of our monthly active users have created a board, and there's over 10 billion boards on the platform."

• Human curation at an unprecedented scale.

• "Every time you click and save, Pinterest also learns more about the content itself."

• Video Content and Engagement

• Video is integrated throughout the platform for actionable content.

• Video is "essential" to the network effect of building signal and delivering recommendations to users

• "We've seen our video content corpus grow 170% year-on-year."

• Strategy Shift and Content Sources

• Shifted focus from building a creator ecosystem to expanding sources of content supply.

• "62% saves on Pinterest is on content from outside of a user's home market."

• Content on Pinterest has a longer shelf life.

• "It takes about 13 months for the best ideas to reach their half-life." - 13-month average half life of a pin

• Demographics and User Behavior

• Content travels well across demographics, especially appealing to Gen Z.

• "Millennials are over 30% more likely to save a Gen Z created image than an image from their own generation."

Martha Welsh, Chief Strategy Officer

Martha Welsh, who joined Pinterest in January after nearly 12 years at Google, discussed Pinterest's shopping ecosystem. She outlined the company's shopping experience, strategy, and the synergy between shopping and ads.

• Shopping Experience on Pinterest

• Over 50% of users see Pinterest as a place to shop.

• "96% of searches on Pinterest are unbranded," offering a unique opportunity for advertisers to meet a customer who is in the market, but undecided.

• Shopping Strategy: Past and Present

• Integrated shopping into all Pinterest experiences.

• Users were frustrated and engagement was low when the strategy was to place shopping on its own tab.

• Has resulted in a 50% YoY increase in click-throughs and saves.

• Shifted from trying to be a retailer to partnering with retailers.

• We were trying to drive transactions on Pinterest - now we enable seamless handoffs at the point of purchase.

• Key Investment Areas for Shopping

• Increasing shoppable content.

• Improving shopping recommendations with AI.

• Enabling seamless handoffs between users and merchants.

• Scaling ads.

• Using AI and first party signals to affect personalization and recommendations

• "235% lift in conversion" with the launch of mobile deep linking.

• MDL being used by some of the largest retailers in the world. Sephora, for example.

• "88% increase in outbound clicks to merchants" with Direct Link, currently in beta.

• Partnership with Amazon Ads

• Aiming to unlock budgets from advertisers not yet on Pinterest.

• "50% increase in relevance with ads on search compared to current ads."

• "More than 100% increase in relevance on related pins."

Bill Watkins, Chief Revenue Officer

Bill Watkins, who has been with Pinterest for nearly a decade, discussed the evolution of the company's advertising landscape. He emphasized that Pinterest is at a "moment right now that feels different," signaling a significant leap forward in advertising capabilities.

• Advertiser Base and Growth

• 2.8x increase in number of quarterly active advertisers; 4-Year CAGR 30%

• EUR and ROW have grown from contributing 6% to 20% of total revenue.

• Large Advertisers vs. SMBs

• 85% of the world's largest 200 brands are currently spending on Pinterest.

• The strategy with large advertisers is about "winning share by driving better results," facilitated by a global full-time sales force and specialized support teams.

• Annual Deals sign that we're becoming a more substantial part of large advertiser budgets, revenue from deals is growing faster than overall revenue

• Just started doing deals on the holding company level last year (2022)

• SMB focus is on "acquisition, retention, and growth."

• Pinterest leverages partnerships with platforms like Shopify to scale efficiently.

• Full Funnel Advertising Solution

• Pinterest now offers "unique and differentiated full funnel solutions" for advertisers of all sizes and objectives.

• In the past they've had gaps in the lower funnel. In past solutions were based off impressions and not clicks, when it could have taken you up to 4 clicks to get to the point of purchase.

• API for Conversions and Mobile Deep Linking two solutions they've rolled out to solve for this

• 2/3 of revenue now takes place in lower funnel

• Global Revenue Breakdown

• 34% optimized for brand awareness (Discovery)

• 66% optimized for clicks or conversions (Decide + Do)

• API for Conversions - GA in Sep '22

• Mobile Deep Linking - GA in July '23

• Direct Links - Beta Aug '23 / GA '1Q24

• API for Conversions

• Direct server-to-server integration between PINS and advertisers

• +28% lift in conversion for adopters

• +31% QTD revenue growth from retailers who adopted API for conversions

• 28% of revenue from all advertisers now uses API for conversions (3Q23 QTD), up from 14% at the end of 2022

• Optimization

• For 95% of campaigns, advertiser goals are clearly set in their ads manager, allowing for better optimization.

• A specialized Performance Solutions team has increased the percentage of campaigns meeting or exceeding goals by 14%.

• 45% increase in ROAS when using Pinterest first-party targeting signals, compared to retargeting alone

Matt Crystal, VP Global Product Management

An 11-year veteran of Pinterest, Matt says he has honestly never been more excited about the company or the future. He discussed the key investments they're making at Pinterest to serve advertisers better.

• Advanced AI to drive advertiser performance

• Shifted ads models to GPU serving, resulting in models 100x larger than before

• First party search ad relevance is up 30% YTD

• "Ads are as relevant and engaging as organic pins."

• Whole page optimization helping ad impressions grow, up 33% YoY

• AI models grew clicks by 18% and conversions by 9%; expect it to grow as Direct Link materializes

• Ad format innovation across the full funnel

• Upper Funnel: New formats like Premier Spotlight and Showcase ads launched

• Lower Funnel: majority of focus has been on lower funnel format innovation

• Lead ads launched in beta in June

• Quiz ads launched last week

• Video and shopping catalogs launched in August

• Catalogs expanded to new verticals; travel catalogs launched earlier this summer; being expanded to Auto

• Mobile deep linking

• Made available to all advertisers in July

• 235% lift in conversion, 35% improvement in CPA

• Direct links

• Migrated CPC campaigns to Direct Links across standard and shopping ad formats resulting in outbound clicks to advertiser website growing 88% and average CPC falling 39%

• Measurement solutions

• API for Conversions and Clean Rooms two most important measurement solutions

• Emphasized the importance of "proving performance" through robust measurement solutions. Pinterest has added 10 new third-party partners for its API for conversions and launched an integration with LiveRamp for clean rooms.

• Ease of use and automation

• Ads manager is easier and faster to use

• It takes 40% fewer clicks to create a campaign this year vs last

• Launched Business Manager in August; allows agencies to understand overall performance and get more value from Pinterest; committed to fixing the most common friction point here

• Invest in automation, 85% of our global revenue runs on automated bidding/budgeting

• Creative tools to generate ads

• Launched an alpha version of creative split testing product in June; allows advertisers to test creatives side by side so they can optimize their campaign performance

• Launched Creative Studio a few days ago - uses generative AI to produce inspiring ad imagery, creative studio allows to create more engaging - over time will be tailoring content to users own unique interests.

• Future Outlook

• Crystal gave a sneak peek into 2024, revealing plans for a "fully automated end-to-end ad offering" that will integrate all focus areas into a single product. This will allow advertisers to simply provide a budget, a goal, and some seed creative, and Pinterest will handle the rest.

• "in 2024, we'll launch a fully automated end-to-end ad offering that ties all 5 of these focus areas together into a single seamless product for our advertisers. This product will be Pinterest version of Advantage Plus or Performance Max. Advertisers will be able to provide us with a budget, a goal and some seed creative and we'll do the rest. We'll manage bidding, targeting and dynamic creative at scale. All in service of delivering the best possible performance for our advertisers."

Bill Watkins, Chief Revenue Officer, Part 2

Bill Watkins reiterates Pinterest's commitment to delivering what advertisers have been asking for, emphasizing the focus on several key areas.

• Lower Funnel Initiative

• Shopping Ads: This format is the "most lowest funnel format," growing at 47% YoY and contributing to 14% of global revenue.

• Mobile Deep Linking (MDL): Launched in July, MDL has seen "phenomenal results," boosting conversion rates by 235%.

• Direct Links: Recently in beta, this feature has increased clicks to advertisers by 88%.

• ALL revenue needs to be supported by API for conversions, and team is laser focused on driving adoption

• Nearly 60% of revenue today adopts one of these products, but only 13% adopts the full solution. That's up from 2% at the beginning of the year.

• Full Funnel Video Solution

• Spotlight in the upper funnel (awareness), shoppable video in the lower funnel (conversions)

• 39% of revenue from video ads vs 32% for overall digital ad market

• Nearly half of video ads revenue from lower funnel objectives

• Diversification Across Verticals

• FY2022 revenue growth: Travel +73% / Automotive +43% / Financial Services +35%

• Autos full funnel story

• Success with premier spotlight, never had an auto catalog to go after tier 3 auto dealer budgets

• Financial Services

• Pinners are planners

• Switching moments for institutions (leveraging new lead ads)

• International Growth

• Massive TAM internationally; need to bring Pinterest's market share in EUR and ROW to same level as UCAN

• Two part plan to grow internationally: drive adoption of shopping ads and API for Conversions. Will result in ARPU growth

• 60% of spend in the US flows through agencies, but in Europe that's 80%

• UK ARPU $2.5 / German $2.24 (Europe $0.91)

• Revenue from International Agency Deals growing +39% YoY YTD (Strategy: increase agency deals)

• Sales and Partnerships

• Watkins talks about driving growth through partnerships, both with third-party demand sources like Amazon and through agency deals.

• Pinterest has access to 87% of global TAM - now they need to chase remaining 13%

• ROW resellers that have a fully-staffed salesforce trained to sell Pinterest and ready to monetize in new markets

• When we do launch in those markets, we will have fully staffed/trained sales teams to begin monetizing from day 0.

Jeremy King, Chief Technology Officer

King spoke about the impact AI is having not only on the outwards performance of Pinterest, but the benefits on the back end as well.

• AI at Pinterest

• AI is fundamental to Pinterest, not a fad.

• Pinterest has an exceptional AI team that leverages unique signals and a world-class platform.

• Pinterest employees = Golden State Warriors from 2014-2022

• Scaling AI

• Been able to scale AI models 100x with double-digit impact in engagement

• Not normal to grow something 100x and reduce its cost

• In 1H23, AI Model improvements drove:

• +30% YTD 1P search relevance

• +33% YoY ad impressions

• +18% lift in the number of clicks

• +9% YTD lift in conversions

• User Engagement and Inclusive AI

• +60% lift in saves by incorporating intent signals into image understanding models.

• +70% increase in user saving pins from all 4 skin tone ranges.

• AI for shopping

• Signals from multi-session shopping journeys will supercharge personalization capabilities

• AI has delivered 7% increase in visual shopping relevance; Shop the Look increased conversions by 10% on fashion and home pins.

• Generative AI

• Can improve back-end search, content understanding, taxonomy

• Improve internal productivity - coding copilots, data labeling

Julia Donnelly, CFO

Julia joined this summer as CFO. Julia spoke about the outlook for Pinterest over the next few years, the main financial priorities to drive growth, and how Pinterest plans on utilizing 3P partnerships.

• Historical Performance

• 35% revenue CAGR since IPO.

• Mid-teens LTM adjusted EBITDA margin, up from breakeven at IPO.

• Outlook

• Revenue growth will be at the high end of the high single-digit range for 3Q23. This is up from the HSD % growth guidance given previously.

• 400 basis points YoY adjusted EBITDA margin expansion for full year 2023.

• "We are a growth company. We believe we can grow revenue faster than the overall market, with multiple ways to get there, resulting in a mid to high teens revenue CAGR over the next 3 to 5 years. We also believe that we can continue balancing investments in the business to drive long-term growth and also flowing profitability through to the bottom line, resulting in an adjusted EBITDA margin stepping up into the low 30s percent range in 3 to 5 years."

• Revenue Growth Drivers

• Only represent 1% of the market in UCAN and even less in EUR / ROW

• Current outlook for the ad market over the next 2 years is roughly 10% growth

• Five drivers of revenue:

• Global MAU growth

• Engagement growth

• Ad load

• Ad pricing tailwinds

• Third-party demand and international

• "We have a large attractive user base of over 465 million MAUs."

• Global User and Engagement Growth

• Focus on user growth in underpenetrated markets in EUR and ROW

• EUR / ROW user growth will focus on underpenetrated markets; EUR will grow faster than UCAN, and ROW will grow faster than EUR

• UCAN grew 3% YoY in 2Q23, EUR grew 6%, and ROW grew 10%.

• Engagement will grow faster than MAUs

• "We expect to grow users at a rate consistent with recent quarters."

• Ad Load & Pricing

• Increasing ad load can increase engagement.

• "Pinterest is the rare business where the interest of users and advertisers are aligned, relevant ads on Pinterest or content."

• Conversions are worth more than impressions; the average eCPM for lower funnel ad formats in Q2 was meaningfully higher than the average eCPM for upper funnel formats

• 3P Demand Strategy

• 3P demand helps improve ad relevance; helps increase ad load, and move mix shift to shopping ads

• 3P demand strategy will be accretive to revenue growth

• International

• ROW ARPU has increased 6x in last 3 years; right now we're focused most on U.K. monetization, then EUR, then ROW

• "We will grow ARPU and also grow users, apply our third-party demand strategy, replicate tenets of our U/Can strategy, including lower funnel and API for conversions, leverage reseller partnerships to drive increased ad budgets, and strategically target the largest market opportunities in rest of world, such as Australia, Japan and LatAm."

• Profitability

• Renewed focus on cost discipline.

• Largest sources of leverage to come from sales and marketing and R&D.

• "We expect the largest sources of leverage to come from the sales and marketing line."

• Capital Allocation Framework

• Four pillars:

• Investing in product and technology innovation

• Balance sheet optimization

• Dilution management

• Preserving flexibility for opportunistic and disciplined M&A

• Announced a $1 billion share buyback authorization to offset dilution. Going forward, they expect average annual dilution of 2-3%.

• "We now have a disciplined capital allocation framework in place to be diligent stewards of our capital."