Good evening. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pinterest First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. Jane Penner, Head of Investor Relations for Pinterest. You may begin your conference.

Thank you, Brent. Good afternoon, and thank you for joining us. Welcome to Pinterest’s earnings conference call for the first quarter ended March 31, 2020. Joining me today on the call are Ben Silbermann, our President and CEO; and Todd Morgenfeld, our Chief Financial Officer. Now, I’ll cover the Safe Harbor. Some of the statements that we make today regarding our business and financial performance and operations, including the impact of the COVID-19 pandemic, may be considered forward-looking. Such statements involve a number of risks and uncertainties that could cause actual results to differ materially. Our results for Q2 2020 are preliminary and may not be 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 Form 10-Q or 10-K filed with the SEC and available on the Investor Relations section of our 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 letter to shareholders, which are distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com. And now, I’ll turn the call over to Ben.

Good afternoon, and thanks for joining us today. Obviously, the world has changed a lot since we did our last call back in February. On behalf of our entire company, I want to thank all the heroes out there who are helping people through this tough time. Like every person in every business, we’re figuring out how to manage and work through the current health and economic crisis, starting with making sure employees are safe and healthy. It also means ensuring that Pinterest is a valuable resource for people as they adjust to life in this new reality. Over the last month and a half, we’ve learned that our mission of bringing inspiration to everyone’s lives has never been more relevant than it is right now. Over the past weeks, we’ve seen record-high engagement from existing users, resurrected users, and new users. Prior to COVID-19, we saw gains driven by product investments detailed in this quarter’s and past shareholder letters. The stay-at-home orders that began in mid-March significantly accelerated this trend. When the COVID crisis began, we immediately prioritized the safety of our users by helping them find reliable health information during the pandemic. As people start finding practical solutions for challenges created by the crisis, they discovered new ways to use Pinterest and deepened their existing uses of our services. They searched for things like recipes for freezer-friendly meals, ideas for home-schooling, researching home gym equipment, or figuring out how to do haircuts at home. We’re proud that Pinterest is helping people all over the world get through this difficult time. We’re also working with advertisers as they adjust to this new economic climate. The quarter began with a continuation of the strength seen in Q4, but the pandemic began to impact our business in March. As offline stores closed globally, many advertisers slowed or paused their advertising spending on Pinterest. For those advertisers that paused, we’re sharing our insights to help them plan and eventually reaccelerate and reactivate their spend. Pinterest is where consumers have always looked for ideas and to plan their lives, and we’re offering CMOs valuable insights to help them decide how to spend their 2020 budgets. For those advertisers that continue to spend, we’ve seen a shift away from awareness campaigns and towards highly performant ads, an area we’ve invested heavily in over the past year. As a result, our conversion optimization ads and shopping ads are a much bigger part of our product mix today than they were a year ago. These ads are delivering real value to marketers with ROI accountable objectives, particularly as Pinners' engagement with shopping surfaces has increased significantly over the same period. Finally, while we’re working to help Pinners and advertisers during this crisis, we remain firmly committed to our long-term strategies. We continue to invest in our vision to be the home of the Internet’s most inspiring content, to help users discover more ways to use Pinterest in their lives, to let Pinners easily purchase things they find on our surface, and to create value for a more diverse base of advertisers. We have the benefit of a balance sheet that allows us to continue to pursue these outcomes. As you know, we withdrew annual guidance because we have limited visibility to future advertiser demands. That remains the case, but Todd and I will continue to provide as much transparency into our current business as possible as things evolve in the coming months. With that, we’ll turn it over to Q&A. Brent, we’re ready for our first question.

Your first question comes from the line of Ross Sandler with Barclays. Your line is now open.

Hey, guys. Just a couple of questions. First, can you just tell us what you’re seeing thus far in Q2? If we look at your retail advertiser category, how much of the revenue is coming from digitally native e-commerce companies versus retailers that have a big offline store presence? Could you talk about what you’re seeing broadly across retail and CPG thus far in Q2? Secondly, Ben, you mentioned in the letter that usage dipped a little bit in the early days of the quarantine, and you just mentioned that we’re now seeing record engagement. So, does record mean a lot of things, given that you guys are growing? The question is, are MAU growth rates accelerating in April or since late March and into April as a result of COVID relative to the 6% U.S. growth rate and 34% international growth rate in Q1? Thanks a lot.

Sure. Ross, why don’t I start with your second question on engagement, and then Todd will talk about the outlook in Q2 and some of what we’re seeing in retail and CPG. As mentioned in the shareholder letter, when the pandemic first started, we saw an initial dip in engagement as people got prepared, and then we saw steadily rising engagement. We saw that across both brand-new users, roughly 50% of the engagement we saw was from people that were new to Pinterest. We also saw significant growth among existing users and resurrected users. Across all fronts, we saw really strong engagement. We’ve talked in past calls about how we look at a basket of different metrics. Across all those metrics, we saw pretty significant increases. For example, searches were up more than 60% year-over-year. New board creations, which indicate that people are using Pinterest for new use cases, were up 60% year-on-year. Pinner views on their own boards were also up 60%. We continue to see strong growth in the usage of video, which has been a longstanding trend. As we look forward into April, there are probably two aspects. First, we expect overall for there to be a slowing of that growth just as people spend less time online. At the same time, the indicators of sustained user engagement, such as people creating new boards or doing searches across multiple use cases, look really strong. So we do expect to retain some of that engagement, but not at the same rate. It’s an unprecedented situation, so we don’t know exactly how that will play out. But we’ve been really excited about the growth we’re seeing. Todd, I can turn it over to you.

Yes, sure. So, Ross, I heard a couple of questions. One was an update on what we’re seeing in the early part of Q2 through April? Secondly, a little more color on the vertical impact? I’ll take those in turn. On the revenue side through the course of April, we’re still in a highly uncertain environment driven by COVID-19. What we wanted to do on this call was share what we know and what we’ve actually experienced rather than project things we don’t yet know, given the uncertainty in the market. We had a very strong start to Q1 that persisted through January and February. However, as noted in the letter, we had a sharp deceleration in year-over-year growth trends that started in earnest in mid-March. That sharp deceleration persisted through March, and we began to see stabilization in our year-over-year revenue growth in early April. That stabilization persisted through the course of the month and into early May. To quantify that further, our revenue for April on a year-over-year basis declined 8%. It’s important to note that, around Q2 last year, we talked about Easter timing. A year ago in April, Easter provided a little more than an extra week of benefit. So on a normalized basis, we’re probably a point or two better than the 8% decline noted or experienced in April. On the vertical piece, the impact has been uneven across the verticals where we’re present. This is not surprising, as the impact of the pandemic has varied across verticals as well. Our major verticals, CPG and retail, which you highlighted, experienced uneven demand. In the CPG space, items like food and beverage and health and beauty saw relatively better demand early in the crisis, but even those advertisers faced supply chain difficulties impacting their spend. In retail, the impact was pronounced. Omni-channel retailers with closed stores had significant pullbacks in spend, whereas direct-to-consumer brands grew relatively faster. In fact, our direct-to-consumer advertising cohort grew significantly faster than the rest of the business. However, historically, those advertisers are not a huge part of our revenue mix. We also noticed that the most impacted verticals like travel, automotive, and restaurants made up a smaller portion of our exposure. Hopefully, this answers your questions regarding recent revenue trends and the vertical exposure. One more point worth noting is that we have these joint business partnerships, which aren’t contracts to spend, but indications of spending intent. We saw the number of those deals grow significantly in Q1 this year compared to last year, and the dollars covered by those agreements more than doubled year-over-year. So that’s an indication of spending intent across our advertising base, and this trend persisted even through April, where we continued to sign some of those deals. I wouldn’t want to over-index on what that means since none of those deals are a contractual obligation, but we’re actively involved with major retailers and seeing positive intent.

Thanks a lot, guys.

Your next question comes from Mark Mahaney with RBC. Your line is open.

Thanks. Let me try two questions. The new users that are coming on, is it too early to know what their experience is going to be like, their level of engagement compared to prior cohorts? Secondly, how would you characterize your mix of awareness versus performance advertisers? Lastly, when you talk about OpEx growth outlook in Q2 being lower than in Q1, do you mean that on a GAAP or a non-GAAP basis? Thank you very much.

Great. Ben, do you want to talk about the new users and engagement? I can take the second two on brand and performance and expense guidance.

Sure. On new users, we continue to see really similar behavior across those users. Many reasons for new users coming to Pinterest were directly related to COVID-19, such as meal preparation, enhancing home livability, or interests in home and garden topics. The engagement trends from those new users look promising, indicating that they’re taking actions that in the past had been predictive of long-term use. Now, the situation is different, so we have to wait to see what that looks like. We’re also seeing strength from younger users. We’ve mentioned in prior calls that we’re seeing rapid growth in the population of users under 25, which is a positive sign indicating we’re expanding into a new demographic. Todd, do you want to discuss the performance mix and OpEx?

Yes. On the formats, we’ve previously noted that we are a majority performance business and a minority brand/awareness business in terms of revenue contribution. Our investment in a full funnel ads business reflects the mindset our users bring. When users come to Pinterest, they do so with commercial intent, planning to execute something in their real lives. This leads to discovery and inspiration, ultimately leading to purchases. Moreover, advertisers are increasingly focused on ROI accountability in their spending. As a result, we heavily invested in our ads product to build measurable value for conversion-oriented advertisers. We observed trends in our conversion optimization and shopping products growing faster than the rest of the business, reflecting attributable conversion growth that has spiked through the quarter into April. We’ve been investing in three ways: our tools and automation, creative and formats, and better measurement where we show more conversion activity against different attribution windows and improved offline-to-online conversion matching. All of this, along with ongoing tag integration work, has led to a stronger performance business. We continue to be predominantly performance-oriented in terms of mix, with the majority of our business being performance versus brand/awareness. Significant improvements were recorded in our conversion optimization and shopping product formats over the quarter. Hopefully, that addresses what we’re seeing in formats. Regarding OpEx growth, we're focused on the long-term opportunity in front of us. We believe in Pinterest's potential and are committed to investing in four primary areas: inspiring content, more use cases for users, an improved shopping experience, and diversifying our advertiser base. We will continue to invest in these strategic pillars, and we have a solid balance sheet with $1.07 billion in cash and $500 million of undrawn revolver to support these pursuits. Additionally, we will prudently manage the growth of our investments in line with the current environment and existing strategies. To clarify about the OpEx, that was a non-GAAP comment.

Okay. Thank you very much.

Your next question comes from Mark Shmulik with Bernstein. Your line is open.

Yes. Hi, thanks for taking my question. I’m interested in the performance, particularly some of the bottom-of-the-funnel initiatives you’re working on. Recently, you launched the stop, shop, and search, shop from Pin initiatives. I’d love to understand a little more about the traction you’re seeing there. Is there any response from advertisers? Anything like that would be helpful? Secondly, as you think about your resources and resource allocation, we’ve heard from others about shifting resources to where there’s demand today, which seems to skew towards direct response performance. Do you have any insights to share on that? Thank you.

Sure. To start with shopping, we outlined in previous calls that we have a three-part shopping strategy. First, we want to grow high-quality inventory, with two projects focused on that: our catalog uploader and our partnership with Shopify, which is live in the U.S. and Canada. We’ve seen catalog uploads increase by about 140% sequentially, welcomed both traditional omni-channel retailers as well as emerging brands. Regarding user traction, we measure it by the engagement with new shopping surfaces, like shop from boards and shop from search. By the end of February, Pinners engaging with shopping content had surged by 44%, with organic traffic to retailers increasing by over 2x, approximately 2.3 times. We’re thrilled that Pinners are finding more value in shopping, and advertisers and retailers are seeing this reflected in the traffic. Lastly, the shopping revenue is growing quicker than the rest of the business mix, almost doubling year-over-year in Q1. We’re enhancing performance-oriented and conversion-focused initiatives, such as measurement, with continues improvements in our tag integrations, which are up to 2x. Additionally, we see significant opportunities for our automated products and bidding automation which Todd mentioned earlier. We’re excited to extend that to conversion objectives in the future. Our resource allocation reflects our ongoing focus on converting user activity to revenue. While there’s a pragmatic focus in the current environment, we will continue to follow our strategy of enabling more conversion-like activity. So, it’s not a drastic change; we’re doubling down on what we already have been pursuing.

Your next question is from Justin Post with Bank of America. Your line is open.

Great, thank you. Just two quick questions. How tied is ad spend on Pinterest to events? I understand that you explained it’s mostly performance-based, but how does that correlate to events? Additionally, I recall last year’s Q2 saw acceleration around the IPO in April and a very robust Easter. Is that affecting your comps at all as you look at what you provided for April? Thank you.

Yes. On the first question regarding ad spend tied to events, what I would say is we’ve observed a distinct difference from other platforms. Users arrive at Pinterest with a planning mindset and commercial intent, often planning far in advance of events or seasonal moments. My point refers to seasonal moments that might be delayed in this environment. Calendar-driven moments typically drive personal and family planning events. Regarding your second question about last year’s Q2 dynamics, there were key strengths around seasonal moments like Easter. Last year, Easter occurred later in April and provided benefits to Q2 revenue growth. Consequently, this year, it has been heavier in Q1 relative to prior years impacting our year-over-year growth. The headwind we experience from adjustments related to Easter timing is likely a point or two of our growth headwind for April.

Great. And maybe one follow-up. During events like weddings or get-togethers around Easter, how might that affect advertising activity?

The dollars tend to follow individuals in their planning activities. That’s why we see varied spending. People like to plan various occasions based on ordinary events, so spending patterns can shift significantly. As indicated earlier, engagement initially dropped as people prepared to shelter in place but has since rebounded remarkably, reaching record levels. This indicates users are adapting to this new environment, seeking guidance on how to operate at home, offering new advertising opportunities for brands targeting home-related activities, such as NordicTrack for fitness or cuisine-focused brands. Thus, we expect advertising activity will reflect the evolving consumer behavior and interests.

Your next question comes from Lloyd Walmsley with Deutsche Bank. Your line is open.

Thanks. Todd, regarding recent trends and the 8% decline, given a larger decline in March, implies January and February growth was approximately 44%. Does that sound accurate? Secondly, about automatic bidding, as you roll that out for conversion objectives, how impactful could that be? What percentage of business today targets conversion optimization? How should we think about translating improved performance from automated bidding into increased spend and budgets? Any insights would be helpful.

Regarding your first question, your math corresponds positively with the growth trend seen in January and February; it hovers in the low to mid-40s, with essentially accelerated growth from January to February due to an extra day. We experienced impacts beginning early in March. Regarding automatic bidding on our conversion optimization product, it’s still early to gauge its impact since we haven’t rolled it out yet. We have seen positive effects on traffic objectives with substantial increases in budget utilization and clicks per budget. However, we anticipate that once rolled out, it should yield similar enhancements for conversion objectives. But until then, it remains uncertain.

Okay, thank you.

Your next question comes from Heath Terry with Goldman Sachs. Your line is open.

Great, thanks. Could you give us a sense of the makeup of your performance advertisers? There’s a broad spectrum of advertisers, and a lot of gray area exists. Could you help us understand the spectrum in terms of size, delineating between premium advertisers with access to Pinterest salespeople versus those who might fall into a remnant category? Also, in this environment, which of these categories are most active, and where are you observing fluctuations in returns?

Heath, I can take a cut at this, and Todd can add as well. It revolves around the performance advertiser composition and how we see behaviors differing among them. We primarily began with larger omni-channel retailers, many of whom were the first to pause ad spending when they closed stores. When they do reactivate, they tend to focus on performance objectives initially while deferring branding objectives. They naturally gravitate toward products like OCPM or traffic objectives, pushing their ROI accountability. We’re diversifying efforts toward mid-market advertisers, who oftentimes are sophisticated but don’t have dedicated sales reps. Our investments this year have been primarily geared towards supporting these advertisers, aimed at providing tools and automated options to facilitate scaling their business. A prime example is Kiehl’s, which saw a 47% increase in clicks with the same budget and a higher CTR due to the efficiency gained from those product enhancements. While we don’t have many remnants, performance objectives have grown more quickly due to the macroeconomic context, with brand budgets decreasing costs per conversion and enabling better conversion values through fewer advertisers competing for the same conversion objectives. Thus, we take the influx in performance-heavy advertisers as a promising trend to support our long-term goals.

Great. One follow-up: looking at the mix of performance advertisers focusing on minimum bid advertising, how much would you say falls into that remnant category? As more premium performance advertisers enter the mix, how has that impacted minimum bid advertisers?

I think you're inquiring about the minimum cost per acquisition and whether advertisers can achieve profitability with these budgets. Given the nature of the auction, no one wants to pay more than demand dictates. Nevertheless, as we expand our number of advertisers, more have the capability to maximize lifetime value from an acquisition. We aim to increase liquidity while enhancing the value proposition. Our investment in areas, such as automated bidding enhancement and machine learning, will automatically provide more efficiency for advertisers across the board.

Great, thank you very much.

Your next question comes from Stephen Ju with Credit Suisse. Your line is open.

Okay, thank you very much. One of the interesting disclosures at the preannouncement indicated that there was minimal travel-related sector revenue. Given that this has been a major use case for your users, how is it that the lack of travel sector presence has become less of a headwind? What’s causing advertisers to hold back currently, and what will you do to onboard them as we eventually recover? Secondly, you mentioned hundreds of merchants lined up to join the shopping program. From an operational angle, what is the typical timeline for onboarding an interested party after they decide to start spending with Pinterest? Thank you.

Yes, Stephen. Your first question pertains to travel. Most travel expenditures tend to focus on last-click acquisitions. Think of Expedia advertising on Google; they build their presence there. We see the value in catching consumers early during their travel planning and inspiration journey, which differs from how most travel advertisers operate. It’s important to note that we don’t prioritize travel when considering promoting purchasing activity. There’s a more significant opportunity in our core shopping verticals, which is why shopping and conversion-driven events remain a focus. In response to your second question about onboarding timelines, we continually strive to minimize friction. We’re proud of our progress in facilitating onboarding, reflected in the uptick in catalog uploads as our partnerships with Shopify have facilitated mid-sized retailers onboard without altering their site code. Advertisers can seamlessly select options for measurement and catalog uploads. We need to not only ease technical integration but also grant larger advertisers ample time to engage after addressing challenges posed by store closures. Removing friction while onboarding merchants and enhancing the effectiveness of our first-party measurement is a strategic priority for us moving forward.

Your next question comes from Doug Anmuth with JPMorgan. Your line is open.

Thanks for taking the question. I wanted to revisit performance-based advertising. Recently, we’ve seen ad businesses that are primarily performance-based report less of a slowdown. Why do you think that there’s such variation in the deltas, and do you think it's based on the verticals in which your advertisers operate, or perhaps it’s attributable to the earlier stage nature and smaller advertiser count?

It varies with the mix of advertisers we have. Some performance-based advertisers are impacted by verticals that face significant challenges. Additionally, larger advertisers are likely to experience more pronounced effects due to store closures. Having a robust long-term strategy allows us to diversify the number of advertisers we have on board, reducing reliance on any single vertical or advertiser size.

Thanks, Ben.

Your next question comes from Michael Levine with Pivotal Research. Your line is open.

Just another further question on the shopping feed side. When advertisers choose not to participate, what is the pushback? I’m intrigued by Google announcing their PLA program. I wonder if this is something you can leverage as more entities participate in cataloging their feeds?

The primary objections we hear have shifted over time. Initially, they revolved around the ease of catalog and measurement integration. As we improved this process, we saw more retailers on board. Now, for larger advertisers, the obstacle largely involves awareness and timing to execute integration properly. Worth noting is that many omni-channel retailers are currently facing dire circumstances with closed stores, and it restricts their spending. However, we view Google’s decision to expand PLAs by making them free as validation for our strategy. Our goal is to attract high-quality inventory and connect it with users in a browsing state, leveraging the growth initiated by industry movements.

There are no further questions at this time.

In that case, I think we’re ready to close the call, and I’ll hand it back over to Ben.

I just want to thank everyone again for taking the time to join us. We appreciate the questions and we look forward to continuing the conversation down the road. Have a good day.