Pinterest, Inc. Q2 FY2020 Earnings Call

Good morning everyone. Thank you for being here and welcome to the Pinterest Second Quarter Earnings Conference Call. Currently, all participants are in a listen-only mode. After the remarks from the speakers, there will be a question-and-answer session. I would now like to introduce your speaker for today, Jane Penner, Head of Investor Relations. Please proceed.

Thank you, Julie. Good morning, and thank you for joining us. Welcome to Pinterest’s earnings conference call for the second quarter ended June 30, 2020. Joining me today on the call are Ben Silbermann, our President and CEO; and Todd Morgenfeld, our Chief Financial Officer and Head of Business Operations. Now, I’ll cover the Safe Harbor. Some of the statements that we make today regarding our performance, operations and outlook 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. In addition, our results, trends, and outlook for Q3, 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.

Hi, everyone. Thanks a lot for joining the call this morning. Todd and I will be giving some brief opening remarks, touching on our results and our four strategic priorities, which are making Pinterest home to the most inspiring content, helping Pinners discover more use cases, making Pinterest more shoppable, and scaling our ad business, then we'll be happy to take your questions. But before going into business results as we usually do, I just want to acknowledge that this period feels like anything but business as usual for people and businesses here in the U.S. and across the world. First, there's COVID-19, which in addition to being a global health threat, is impacting how people live and work, including all of us here at Pinterest. We're learning how to operate as a distributed workforce, and in this new climate, we're going to keep making collaboration and efficiency a priority, so we can keep delivering for Pinners and for our advertisers. In addition, here in the U.S., we're experiencing a historic moment for racial justice, one that's leading companies to look at what they can do better, and Pinterest is no exception. We've made a number of commitments to drive change from improving representation in our product to increasing the diversity of our workforce, especially in senior roles. I know that this is not how most earning calls begin, but I want to be transparent with all of you and with the public that we're not just focused on what we're doing as a business, but also how we do business. These issues are top of mind with everything we do, and we're going to work hard to do right by all of our stakeholders. Now on to our business results. Pinterest had a strong Q2, in both the U.S. and international markets. More people came to Pinterest looking for inspiration than ever before. We ended the quarter with 416 million monthly active users, representing year-over-year growth of 39%. In particular, we saw strong growth from resurrected users, as well as from users under the age of 25, who grew twice as fast as users over 25. These users came looking for ideas as they adjusted to life during a global pandemic, and with new tools like the today tab, we help connect them to new use cases, everything from home office setups to recipes to cook at home to different summer activities for kids. We also continue to make our content more inspirational, and one example of this is video, which offers Pinners another dynamic and engaging way to discover ideas. During Q2, total daily video views, which include both organic and paid, grew over 150% year-over-year, and we're looking to do more in this space. In addition, we also connected Pinterest to more shoppable content, so they can turn their plans into a reality. We saw catalog uploads from businesses increased by more than 350% from Q1 to Q2. And we built new features like our Shop tab and the ability to shop from boards to make it easier for Pinners to find this content. So in total, we're making a lot of progress in helping Pinners find inspiration for their lives. This is work that, in my mind, because of everything happening in the world, is as meaningful and relevant as it has been in the last decade. And here to share more about what all this is meant for advertisers in our overall business is our CFO, Todd.

Thanks, Ben. I want to give some brief color on the trends we've seen to date in revenue, as well as to provide an informal outlook for both revenue and costs in Q3. I'll begin with a summary of the headlines and then we can go into more detail. Starting with Q2 revenue, we saw advertiser demand improve each month of the quarter. April was the weakest month in the immediate aftermath of sheltering in place. May growth rates improved and June showed further improvement. In July, we've seen a sharp acceleration in revenue to about 50% year-over-year growth, through July 29. We expect that revenue will grow in the mid-30s percent range year-over-year in Q3, this growth rate assumes a deceleration from the strong growth we've seen so far in July. I'll say more about this shortly. First to unpack what we've seen to date and what we currently know to be driving our results, then I'll discuss our outlook and the significant uncertainties that we're facing. Q2 is characterized by initial softness in advertising demand and then a partial return of that demand. The formula was triggered by COVID-19 related lockdowns and the latter by the return of economic activity as those lockdowns eased. We saw ad demand recover across many verticals starting in May, with CPG showing particular momentum in the latter part of June and into July. The retail vertical lagged CPG, but has recently begun to recover as well. This was the pattern in both the U.S. and in international markets, but non-U.S. markets recovered a bit faster. On top of the macro driven recovery in advertising demand, we're seeing a lot of demand for Pinterest ad products in particular. Here's what our advertisers are telling us. First, our ads are working, especially for marketers seeking sales and conversions. The investments we've made in conversion optimization or OCPM shopping ads and auto bids are making it easier for these advertisers to hit their goals. In a world where their balance sheets are at risk, marketers want ROI accountable ads and we are delivering them. This has bolstered our ability to attract performance-oriented medium-sized advertisers, a group that emerged as a key driver of our resilience in Q2. Second, the commercial mindset of our users is very attractive right now because many advertisers want to drive online sales and Pinterest tends to be in-market consumers. The early commercial intent on our platform also informs the insights we share with advertisers. They are increasingly using these insights to understand leading indicators of demand in this unprecedented environment. In the words of the Head of U.S. Media at Ford, 'I received a report that was incredibly interesting from Pinterest. They showed how people's behavior on the platform is changing from the types of behaviors you'd expect during shelter-in-place, recipes, crafts with kids, baking bread, deploying oriented behaviors, for example, thinking about vacations. Sure, we can always look at the quant data, leading indicators, traffic reports, etc. But to get at something that unlocks what people are actually thinking about, even if they're not saying it is really important. That's where the relationships really come to life between marketers and the platforms.' Finally, advertisers feel Pinterest is brand safe relative to other platforms. In a moment where there is a lot of hostile political conversation happening on social media, advertisers are looking for new places to put their dollars. We benefited from this in July. As I noted earlier, we expect that revenue will grow in the mid-30s percent range year-over-year in Q3, which implies a deceleration from the roughly 50% year-over-year growth rate we've seen quarter to date through July. Let me unpack this. One month may not be representative of the full quarter and there's significant uncertainty for the following reasons. First, cases of COVID-19 arising and any new lockdowns would likely have a negative impact on advertiser demand. Second, our main seasonal moment in Q3, back-to-school, will likely look very different this year as schools across the U.S. embrace distance learning. This could lower both engagement and advertiser demand. Third, it's not clear if or how long the tailwind we've experienced in July from advertisers boycotting social media will last. Finally, revenue growth in August and September 2019 was stronger relative to July 2019, when a product change briefly lowered our conversion optimization revenue. So year-over-year comparisons will be harder for the remainder of the quarter. I also want to address our costs before opening it up for Q&A. On our Q1 call, I said we expected to grow operating expenses year-over-year in the second quarter, but we just reported a slight decline in this number. This was the result of implementing cost savings measures more quickly and our work-from-home model to a larger extent than we originally expected. We continue to invest for growth across our key strategic priorities of content, ads diversification, use case expansion, and shopping. To that end, we grew headcount 21% year-over-year and 5% sequentially during the second quarter. We expect to grow OpEx in Q3 both sequentially and year-over-year to pursue the long-term vision of the company while continuing to monitor and respond to the ever-changing environment. I hope this detail has been informative and helpful. With that, I can turn it back to the operator and we can begin to take some questions.

Thank you. Your first question comes from the line of Lloyd Walmsley with Deutsche Bank. Please go ahead.

Great. Thanks for taking the question. Two if I can. First just drilling into the higher engagement, in the shareholder letter you said new users are engaging more this year than last year. Wondering how are new users specifically engaging differently maybe with the shopping functionality? And then, for that matter how our existing users are engaging with the shopping functionality? And then, just second one. As you look at more CPC advertisers running through automatic bidding and seeing improving ROIs, are you seeing them increase budgets? Any sense for what percent of your advertisers spend is on an open budget basis these days? Thanks a lot.

This is Ben, thanks for the question. Why don’t I tackle your first question about user engagement, and then I'll turn it over to Todd around kind of all those on budgets. So, the question was how are new users engaging differently? And in particular, how are they engaging with some of the shopping surfaces? So, we find that the use cases that people are coming to Pinterest for are broadly similar, in that people are looking for ways of establishing new habits, especially in the time of change. Many of our core use cases around making the home more livable, personal well-being, and fitness continue to be themes. Although, as I mentioned in the opening remarks, we're seeing particular strengths in the growth of folks that are under the age of 25. The second part of the question was, how are these users engaging with some of the new shopping features? We're seeing good engagement, although it still remains early. We've shipped shopping-only surfaces and engagement with those surfaces has increased up to 50% in the first half of 2020. We're also seeing more product-only searches, which have grown by 8x in 2020. As you know, from previous calls, our strategy in shopping is to make these surfaces appealing but to also ensure that they're filled with highly relevant products. The two things we're doing to drive that are to increase the number of merchants who have uploaded their catalog, and we saw a sharp increase in the number of catalog feeds uploaded, which is up 360% sequentially. Then to use machine learning and computer vision technology to ensure that we're matching the right products to inspiring themes. I hope that gives some color on shopping engagement and initial engagement. Todd?

Sure. And on the second part of your question on automatic bidding, we start with why auto bid matters. Before automatic bidding, advertisers had to constantly manage their bid strategy in a dynamic auction. Now the auto bid tool does this for them and it aims to get advertisers the most clicks at the lowest possible Cost per Click or CPC or topic objectives while spending their entire budget. We made a lot of progress on that during Q2. The last time we talked about 50% of our traffic objectives were flowing through auto bid. Now about 80% of CPC revenue is going through auto bid. Budget utilization has remained high for auto bid traffic objectives, and basically, we're better able to clear existing budgets and deliver more efficient costs per click and generally higher click-through rates. So, in other words, the advertisers are seeing a better return on their spend through auto bid, and we're taking the friction out of the process through better tooling. What I would say is, and one example of that is ARM & HAMMER baking soda, where for a Do-It-Yourself home science project campaign for kids, they were driving 77% more efficient cost per clicks on 23% higher click-through rates. And so that's a specific example of how this can work for an advertiser. In general, what that's meant is we're better able to deliver against the budgets that are in the system today. As advertisers are seeing these sorts of good returns and performance, we would expect over time for there to be more budget in the system. It's worth noting, in addition to the traffic objective auto bid that we did launch, as we said, we would a couple months ago, auto bid for our OCPM objective was launched a few weeks ago, and we're seeing very good early traction there too.

All right, thank you.

And your next question comes from line of Ross Sandler with Barclays. Please go ahead.

Hey, Todd, thanks for all the color on July and 3Q. Can we just talk a little bit like last call, I think you had talked about how some of your biggest retail advertisers had like a capacity versus demand mismatch and that they were pausing their budgets before that normalized. And so, are some of those folks coming back now that we have these high growth rates in July? And in Q3, where does that stand? And then, I guess, is it possible to parse based on your conversations that you're having with advertisers? Like how much is actually coming from the boycott issue versus all these great product initiatives that you're doing within the ad-stack? Is it like half from boycott half from Pinterest product initiatives and any color there would be helpful as well, just in terms of framing this recovery that you're seeing? Thanks a lot.

Sure. I know last time we talked a lot about the macro environment because we grew the business initially on the back of omnichannel, larger omnichannel retail and CPG, we had exposure as some of those advertisers pulled back. We talked a lot about how non-essential retailers were suffering from store closures and essential retailers were sold out. That created a tough mix for us when they were pulling back for very different reasons. We have seen some recovery; I would say it started with CPG and we've seen a lot of momentum there. On the retail side, growth and the return of spend has lagged CPG, but it has come back to some extent, as stores have reopened and as essential retailers have figured out their supply chain issues. I've been more encouraged by what I talked about in the opening remarks, about the strategic investments that we've made in our product and strategy to diversify our advertiser base into the mid-market through improved tools, measurement, and formats, driving resilience in the quarter and growth. I would say we've seen three things drive the performance, both in Q2 and through July. One is the macro recovery that you talked about that extends across non-essential and essential retail and is more notable in CPG. The second is all of the strategic investments we've made in our businesses and in our product, which has touched or been more exposed to the mid-market segment that we've been talking about for a while, in the spirit of driving ads diversification and more relevant content on the platform through conversion activities. The third thing you noted was around the boycotts. What I would say about the boycotts is that it's been a tailwind, but we do believe the majority of our growth in July has been driven by advertising demand stemming from those strategic investments in the ad products that we've made over the last year and a half. It's not really clear how sustainable that boycott tailwind is. The boycott has given us an opportunity to win some budgets and to educate advertisers about how and why Pinterest is different. While other platforms are at the center of political and free speech debates, people come to Pinterest to think optimistically about their futures. That’s especially relevant today, as we provide a respite from what could be one of the most contentious political news cycles in history. Being a service where people envision and plan their lives also creates opportunities, particularly as advertisers seek positive platforms to build their brands and to drive sales. So, we're seeing some evidence of more advertisers choosing Pinterest for this reason in July, but it's really hard for us to say how sustainable or significant that trend is. We are tracking spend from advertisers who are participating in the boycott, but we don't know how much of that spent would have come to us anyway because many of those advertisers do spend on both platforms over time, versus incremental spend due to the boycott. So we can't really quantify the impact precisely at this point.

That's super helpful. Thanks.

And your next question comes from the line of Eric Sheridan with UBS. Please go ahead.

Thank you so much for taking the question. Maybe two if I can. One, big picture. If we go back even to the IPO, you guys framed the investments you needed to make to reposition the company against your e-commerce initiatives and capitalizing on the international opportunity. Trying to tease out how far along we are in the investment cycle versus now where you're starting to see some benefit from those investments running through the top line? And what that might mean over the medium and long-term for leverage in the model? And then Todd, maybe just one housekeeping just following up on Ross' question. With respect to the commentary in Q3, just because from the outside, and it's hard to conceptualize this. Is there any way to frame what the headwind is in August and September? Because, obviously, the guidance does imply a pretty heavy detail from the trends in July into the back part. Just, I think from the outside, it's tough to understand what that headwind or comp might look like? Thanks so much.

Sure. On the first point, Ben might have additional insights from a strategic viewpoint. Your questions seem to focus on leverage in our model. As you pointed out, we've discussed the evolution of online shopping extensively, and I believe this trend has accelerated in our current environment. I'm pleased that we recognized at the start of the year that we needed to prioritize shopping more than ever before. Our investments in e-commerce, particularly in shopping, have enhanced the user experience by helping people discover new products and incorporate them into their lives. This improvement has been fueled by better catalog ingestion and an enhanced shopping surface experience for users on our platform. In terms of shopping advertising, much of our growth has stemmed from conversion optimization and shopping ads, which align closely with online sales and measurable ROI. Currently, the financial impact of shopping ads is still in the early stages. Our main focus remains on enabling users to discover new items and enriching their organic shopping experience, with the understanding that we will begin to see more revenue from shopping as we enhance the experience further and encourage advertisers to engage with early intent on the platform. If you view shopping as a near-term driver, it may be more appropriate to see it as a contributor in the next year and beyond. On the international front, we've made significant investments in the past year, especially in Western Europe, enhancing our direct presence and sales support outside the U.S., particularly in English-speaking countries. We have been aggressively hiring in those markets leading up to the COVID-19 shutdown, and these investments have paid off well. This is reflected in our results, where we reported a 72% increase in international revenues last quarter, despite challenges in the industry. We will continue to focus on expanding in those areas, as there remains considerable opportunity even in markets where we have already invested. Additionally, we have large user bases in regions like Latin America that are not yet monetized, which we will tap into over time. There is much more to come in leveraging our model. Regarding the deceleration, as I mentioned earlier, we are facing many variables right now. The back-to-school environment will not be the same, and we are aware of the headwind from a considerably weaker July last year compared to this year. There is also considerable uncertainty surrounding COVID as we approach the fall. I anticipate a moderation in growth due to these factors. Furthermore, as Ross highlighted concerning the boycott, we are uncertain about the sustainability of the spending arising from that situation. We aim to account for all these factors in our mid-30s guidance.

Great. Thanks for the color.

And your next question comes from the line of Michael Levine with Pivotal. Please go ahead.

Congrats on the results, guys. Love to hear a little bit more, I know you're talking about the traction you were seeing on the shopping feed front. I mean, how much is this Shopify versus how much is this actually you guys just getting to the right point to better facilitate the product catalog upload? And is there any reason not to think as we look into the seasonally stronger part of the year, I mean, shouldn't this show even further acceleration into Q4?

Thanks, Michael. I can start off. So the question was how much of the progress that we're seeing on shopping is being driven by partnerships like the one we have with Shopify, and then how do we expect it to kind of move forward in the future? So, Shopify, we're very happy and very early on in that partnership. For those who haven't read this previously, that partnership allows a Shopify merchant with one click to set up a presence on Pinterest to upload their catalog. I would say that it's still early days and it's one of several partnerships that are important to us. If you just take a step back, Pinterest's long-term vision for shopping is to really build a full funnel experience. We want to take people from the moment of inspiration when they first get an idea, and then play them all the way through so they can identify products that can make that inspiration a reality and eventually purchase. And that's going to be a long-term road. We're very focused right now at the top and in the middle of the funnel. We're improving the amount of inventory we have and we're building surfaces that keep Pinterest an inspiring place. But when the time is right, we'll push people to identify the products they really want to buy. That’s the value proposition we want, both for retailers who really don't have a lot of ways of getting new customers early in the consideration cycle, and for Pinners who really think inspiration first, and then they think about what they want to buy as we go down. Part of the next question was, how should we expect that to evolve. There are obviously a couple of macro tailwinds. There's just been an acceleration in e-commerce driven by COVID, and we also continue to build the product. But in terms of quantifying how that will progress, over the short-term, I don't think we have a quantification. Over the long-term, we believe that we're still very early and that shopping journey, as Todd alluded to in his previous answer.

And your next question comes from line of Brian Nowak with Morgan Stanley. Please go ahead.

Thanks for taking my question. I just wanted to go back to the 3Q guidance. So, when you called out one of the factors could be cases if COVID rising and more lockdowns. I guess with e-commerce surging and your micro side of the business improving so much with more advertisers, etc. Why are you sort of of the view that a faster surge in COVID or lockdown could have a material impact in the business? So we can sort of understand maybe advertiser contribution or any advertiser exposure. And then secondly, in the guide, what are you sort of assuming on the pace of reopening in the U.S.? Thanks.

Thank you for your question, Brian. In retail right now, we really don't have clear visibility on how COVID-19 will affect omnichannel retail spending on our platform due to the high level of uncertainty in the market. In mid-March, we noticed a significant decline in spending on our platform for two main reasons: stores began to close, and essential retailers faced stock shortages and supply chain issues. Advertising became ineffective when stores were closed or when products were unavailable for delivery. I can't predict what the fall will bring regarding potential lockdowns, but we're observing an increase in cases and the possibility of slower store reopenings, which could lead to decreased economic activity and general uncertainty. Retailers and advertisers are currently exercising caution with their budget commitments because of store closures, with the potential for more closures ahead. Although we're still establishing large joint business partnerships and seeing strong engagement from advertisers, the spending commitments are generally smaller, more flexible, and dynamic in this environment. This makes it difficult for us to project too far into the future. We've been focused on clearly communicating our current business status during this time of uncertainty, which is why we've been providing more disclosures about recent performance and monthly updates. We have also withdrawn our annual guidance because it doesn't seem wise to make long-term commitments in this unpredictable environment, given the need for flexibility and the uncertainty surrounding spending from our retail partners.

Got it. That's helpful. Thanks, Todd.

And your next question comes from the line of Justin Post with Bank of America. Please go ahead.

Great, a few questions. I guess, obviously very strong international ads over $100 million over the last year. Where are those user locations? Are they in high-value areas for monetization like in Europe or more detail on that would be helpful? And then I noticed in your outlook for at least for 3Q, you didn't mention Apple IDFA changes. Do you expect any impact from that as you look out over the next year? And then maybe one more on just the catalog evolution, where are you? Are you still very early in that? And how would that show up in the user experience? Maybe explain that a little bit to people. Thank you.

Thanks, Justin. I heard three questions in there. I'll address the first one about international user growth. The U.S. was our slowest growing area at 13%. International markets grew by 49% this quarter, reaching 321 million users, and every non-U.S. region grew faster than the U.S. We've seen particularly strong growth in our monetizable English-speaking countries outside of the U.S. and in Western Europe, where we've heavily invested in monetization and are seeing good results. Our highest growth rates are in our least mature markets, which is expected. However, we are observing very strong growth across all regions. I believe we will be able to monetize a significant majority of our users in the next couple of years. We're currently doing this in English-speaking countries outside the U.S. and in Western Europe. Historically, we indicated that Latin America is the next region we expect to start monetizing, likely in about six months.

Great. Justin, I heard two other questions, one about IDFA and the second about catalogs. So, on IDFA, based on what Apple has shared, we do expect a new opt-in requirement for IDFA sharing will decrease our ability to measure conversions from iOS apps. As a result, we're continuing an investment strategy we started last year to increase our tag presence, build first-party measurement tools, as well as investing in alternative sources of signal and measurement and things like enhanced match. We also have the ability to leverage on-platform signals as people engage primarily with commercial content partnerships. So it's something we have our eye on and fits into a longer-term theme that we've been talking about for a few quarters about really investing in measurement solutions so advertisers can understand the return on their spend. The second question was around catalogs, and as we mentioned before, we've been extremely excited about progress on shopping in general in catalog uploads in particular. We mentioned that catalog feeds grew 350% quarter-on-quarter; that's a 10x or half over half. That's starting from a very low number, but still the progress has been really encouraging. We also have our VMT program, our Verified Merchant Program, and we're seeing both healthy growth there and healthy retention. All signs are good, but the reason I say we're early is because there's still a lot of stores out there and we continue to invest to make sure that we adjust these catalogs, we understand what's in that catalog, and we can give users a great experience. I think that was the second-half of your question on how do we see the experience. What Pinners have always told us, is they want Pinterest to primarily start with getting inspired with an idea. It could be an image that causes them to think about how they might want to dress differently, or a video about setting up a home gym. They want to work backwards from that inspiration to figure out what are the products that can turn that vision into reality. So the experience that we envision is that people engage as they do today. They look for inspiration, they save the things they’re excited about to a feed board. They think that Pinterest is the place to plan for the future. But we can actually begin to take them down the path of making that a reality. In a sense, we can show them the products that are inside of it. They can visit a retailer's page and see their catalog and all the products within it. They can compare items to find the things that are right for them. That end-to-end experience is the big opportunity in online shopping. We feel like, once you know exactly what you're looking for, there are excellent options for you to find the lowest price with the lowest shipping, but the problem that’s still really hard for a retailer is, how do I reach a customer who doesn't yet know exactly what product she's looking for? We believe that one of the key ways to do that is to reach them at the moment of planning an inspiration and to work backwards from there.

And your next question comes from the line of Mark Shmulik with Bernstein. Please go ahead.

Thank you for the question. User growth appears to be very robust, particularly among nontraditional core demographics such as Millennials and Gen Z. Is there a specific strategy in place to enhance growth in these groups? If so, could you provide some insights into your approach? How much of this growth is organic compared to your targeted efforts? Additionally, could you share any information about user trends in July? Some other companies have mentioned potential challenges with engagement as markets reopen. Any information you provide on this topic would be helpful. Thank you.

Yes, I can start. In terms of user growth, as you mentioned, we did see two areas of real strength. Folks that were coming back to the platform, who had tried it at an earlier point, but caused their usage, and then a special strength in Gen Z, so folks under 25 years old. Now our approach to growth has typically focused on use cases. The reason when we talk through our core strategic priorities, we say we really want to make Pinterest useful for as many use cases as possible, is that’s the lens that our users take. When we think about growing users, we think about how do we make it more useful in use cases that folks care about. For Gen Z, while some of the use cases are the same, there are a few that are different. There's a little bit less focus on cooking, for example, and there's more focus on crafts and art. Then, in terms of common things people are still looking for, some of our core verticals like TV, fashion, and things to make their home more livable. So, we're really taking that approach and some of the investments that we've made to improve the adoption of use cases run the gamut from the today tab, which guides people in an editorial way to things that we think are relevant right now, to better machine learning and recommendations. As people share what they're interested in, we can guide them to an adjacent use case and make Pinterest just a better tool to go deeper into those use cases. We've also launched features like allowing you to add a date to a board or allowing you to add more project planning tools. That’s the core of how we think about it today. Now, the second question, it might be worthwhile to take a little bit of a step back and talk about the engagement that we're seeing. We've obviously seen an acceleration with COVID, and we think that's partly because folks are at home more, but it's largely also because people are rethinking and looking for inspiration on how to rethink their day-to-day habits, everything from cooking at home to their home itself. We see a lot of the users we might have expected to come in the fall actually have been pulled forward into July. We're monitoring those engagement stats. The metrics we look at, such as the number of searches people perform and the number of boards they create, look really healthy compared to what we've seen in the past. So, we'll be monitoring that because this is obviously an unprecedented situation. We expect some pullback, but we still think that they'll settle out well above pre-COVID levels. Anything to add, Todd?

I believe the overall perspective is correct. However, I want to highlight that Q2 has historically been our weakest quarter. The user growth from Q1 to Q2 is usually our weakest due to seasonal trends. As Ben noted, this is when people often start to go outside and engage in offline activities. We typically see a rebound in user growth in Q3 as people return indoors and begin planning for back-to-school and the holidays. This year, however, people remained in their homes, which is unprecedented. As a result, we may have experienced a pull forward of user growth into Q2 that we typically see in Q3. I anticipate that sequential user growth in Q3 will add about half of what we've normally observed in recent years regarding new monthly active user additions. Although it's challenging to predict the performance of these cohorts, I expect significantly lower sequential user growth going into Q3, likely around half of what we’ve experienced in the past few years.

And your next question comes from the line of Douglas Anmuth with JP Morgan. Please go ahead.

Thanks for taking the questions. Todd, so maybe you could give us some color just around what you're seeing in terms of overall advertiser numbers or growth, and how that's translating into auction density. Then just related, can you just help us understand some of the volume price trends that you saw during Q2? And then how that's inflected early in the third quarter so far? Thanks.

Great, thanks, Doug. I want to emphasize something important. We’ve been hearing that advertisers need to see a return on investment in this environment, and they appreciate the commercial planning mindset of our users, as well as the emphasis on online sales and conversion goals like OCPM and shopping. Our investments in tools such as auto bid, catalog upload, tag options, partnerships, and emerging tools for agencies are attracting more advertisers to our platform. We've experienced an acceleration in advertiser growth year-over-year, with significant spending increases from mid-market and managed small and medium businesses that benefit from these tools, measurements, and formats. This segment now makes up nearly half of our total revenue, and I'm excited about the strategy we've been discussing for the past year. We're seeing positive results in terms of advertiser accounts and traction within the mid-market, which I expect will eventually lead to increased auction density as more advertisers achieve favorable outcomes. The tools and measurement solutions we’re implementing are enabling this growth. In Q2, the dynamics were different, with demand throughout April, May, and June not matching what we’ve seen lately. We did notice a 17% increase in ad impressions in Q2, while our effective OCPMs decreased by 11%. This was largely driven by healthy demand, attracting more performance-focused advertisers interested in conversion optimization and shopping objectives, which we believe will continue to draw more people to the platform. We observed this trend in Q2.

Okay. Any comment on what's happening there to take you to the 50%-ish growth in July?

Well, it's certainly gotten a couple of things. We've definitely seen a return of demand, and that has been across awareness objectives or brand advertisers and in performance objectives. The auto bid product improvement that we made for traffic objectives and have now rolled out to our conversion optimization objectives has created more pressure on the auction. We've seen both clear and much better performance. It's been a healthy dynamic all the way around, and the picture has definitely improved each month from April, May, and June and then an inflection point in July.

And we have time for one more question coming from the line of Heath Terry with Goldman Sachs. Please go ahead.

Great, thanks. I was wondering if you could give us a bit of an update on the technology side of things, specifically what you're seeing in the development of visual search? To the extent that Jeremy has now sort of been there a little over a year, and surely has his feet well under him at this point, sort of where his priorities lie, I would appreciate any insights and perspective you can share on those?

Sure. We continue to invest in computer vision as a core technology. There's sometimes an impression that computer vision only touches on one product, such as the lens product, which lets you take a photo, but it actually improves the relevance around the product itself. When we talk about shopping, being able to match images to products is essential; it also helps with recommendations. We continue to make large investments in machine learning more broadly and computer vision specifically. In terms of some of the areas that Jeremy's looking at, look, there's a mix; there's obviously what we call our technical foundations. We've been working on building a lot of our core platforms in a way that are more scalable. But we see an opportunity to continue to unify the way that we rank and look at both organic content and our advertising content. That really is about the fundamental alignment that we know from the user's perspective exists between their goal, which is to get inspired and turn those things into something in real life, as well as the advertisers goal, which is to inspire the customers and get people all the way to a transaction. That continues to be a core focus, as well as making sure we're building efficient infrastructure, and also ensuring that the service remains reliable and scalable as we grow.

And I will now turn the call back over to Jane Penner for closing remarks.

Thanks everyone. That concludes our Q2, 2020 earnings conference call. I'm going to turn the call over to Ben for some closing remarks.

Thanks, Jane. I just want to thank everyone for taking the time to join us. Definitely, we appreciate your questions. As always, we look forward to staying engaged with you in the future. Have a great day.

This concludes today's conference call for the Pinterest second quarter earnings. You may now disconnect. Thank you.