Pinterest, Inc. Q2 FY2021 Earnings Call

Thank you all for being here and welcome to the Pinterest Second Quarter Earnings Conference Call. I would now like to pass the call to Ms. Jane Penner, Head of Investor Relations for Pinterest. Ms. Penner, the floor is yours.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the second quarter ended June 30, 2021. I'm Jane Penner, Head of Investor Relations for Pinterest. Joining me today on the call are Ben Silbermann, Pinterest's 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 2021 are preliminary and are not 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 forms 10-Q and 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.

Thank you, Jane. Hi, everyone. Thank you for joining the call today. I'm going to talk for a few minutes, and then Todd will follow up with some additional insight, and then we'll open up for questions. Earlier today, we released our latest shareholder letter. As you've seen, we grew revenue faster than expected. And at the same time, we saw a decrease in engagement as stay-at-home orders eased around the world. I want to discuss each in turn. Starting with revenue. Revenue increased 125% year-over-year to $613 million. We saw more and more advertisers here in the U.S. and increasingly across the globe recognize the value we offer in connecting them with people planning for their lives. It's a clear signal that our investments in shopping, automation and tools are working. And we plan to continue investing to make it easier for advertisers to scale and reach new customers on Pinterest. On the user growth front, we grew globally monthly active users 9% year-over-year. And I'm sure there are questions about this, so I thought I'd take a few of the obvious ones head on. The first question is what happened with user behavior? As we all know, the pandemic was an unprecedented and unique global event. In past earnings calls, we talked about how stay-at-home orders significantly increased usage of Pinterest. And for the past year, we've highlighted how people came to Pinterest for inspiration to reinvent their lives during such a difficult time. Now as the world opens up, we're seeing a similar effect in the opposite direction. That impacted our growth, particularly because some of the core use cases we see on our platform are less common in 2021 than they were a year ago. That shift in behavior in Q2 impacted engagements. Which brings me to the second question, what users did this impact the most? Well, most of the difference between what we guided and what we reported are people who came to Pinterest from the web versus from mobile apps. These users tended to be, on average, less engaged and generated less revenue than people who came directly to Pinterest. In contrast, in Q2, monthly active users on our mobile apps grew in the U.S. year-over-year and internationally by more than 20%. We're continuing to closely monitor Pinner engagement. So later, Todd will talk you through more about what we've learned a few weeks into our current quarter. While we navigate the current volatility caused by COVID, we remain focused on building for the long term. Pinterest is at the beginning of a fundamental transition, going from a place of lifestyle expertise in the form of rich interactive videos. We're doing this in a number of ways. First, Idea Pins are our first publishing tool, enabling creators to share ideas with lasting value. Second, the creator code is our initiative to make sure Pinterest remains a positive and supportive environment. And third, we'll be adding new features to help creators foster community. We intend to go beyond likes and comments, and we'll build tools that let people share their creations, ask and answer questions, offer encouragement and share tips. We're still early in this transition, but those early results are positive. The number of Idea Pins created daily has grown more than sevenfold since the beginning of the year. More and more, creators are publishing ideas and opening up new worlds on Pinterest on everything from outfit ideas, school activities, workout routines and vacation ideas. And Idea Pins are resonating with our fastest-growing audience, Gen Z. This audience grew double digits year-over-year. We plan to continue to execute on this strategy with more product launches like product tagging, which came out this week to help reward creators for their work and give Pinners another way to go from inspiration to purchase until later this year, when we make it possible for all Pinners to create Idea Pins as well as many more capabilities. For us, these aren't just a series of one-off moves; rather they add up to a larger vision on how we intend to pursue our mission. It has to do with something we believe Pinterest is uniquely positioned to do: to tie together the lifestyle inspiration you've seen on TV with the positivity and enjoyment that comes from being part of a community of shared interests with the utility that comes from great planning and shopping tools. Creators are an important building block fulfilling our mission of giving everyone the inspiration to create a life they love. Now I'd like to turn it over to Todd for his thoughts.

Thanks, Ben. I'll share some further details on the trends we saw in Q2 and provide a preliminary outlook for Q3. As noted in our shareholder letter, fewer monthly active users came to Pinterest in Q2 than we expected. Ben's remarks on the letter detail why we think this happened. But in summary, we believe that nearly all of what we're seeing now is the unwinding of some of the engagement benefits that we got during an unprecedented period of time when people were stuck at home and had more time to spend on some of our core use cases. We also continue to monitor other factors, including competition and the impact of Google's recent search algorithm changes while continuing to improve our product and ramp up our marketing efforts to increase engagement over time. We're encouraged that our most engaged monthly active users, those that use our mobile applications, grew year-over-year, both in the U.S. and globally. These users contributed a significant majority of both total impressions and total revenue in Q2. Additionally, the investments we've been making to more efficiently realize value from the unique existing engagement we have is working well. Specifically, the engagement we have on shopping services appears to be more resilient than overall engagement. We plan to continue investing in helping Pinners shop for products they love at a price point they want and in helping merchants get discovered and connected to people who will love their products and services. While we're still early in the journey to fully monetize our shopping engagement, we believe that we have the right sales coverage model, and we're delivering conversions to advertisers who are seeking sales on the platform. Looking beyond the COVID-19-driven volatility, our view on the long-term opportunity to grow our user base, both in the U.S. and globally, is unchanged from what it was before the pandemic. Turning to our financial performance. Year-over-year revenue growth accelerated to 125%, with adjusted EBITDA margins of 29%. This remarkable growth was propelled by two main drivers. First, we saw momentum from large advertisers, especially retailers, who returned to the platform in force as consumers resumed social activity when pandemic restrictions eased. Other going out subverticals like beauty and travel also returned to strength in Q2. Second, our international business again performed really well, growing 227% year-over-year in Q2 and contributing 22% of total revenue. Both of these trends show the growth and diversification of our active advertiser base, which grew both sequentially and year-over-year. Turning to our preliminary outlook for Q3. The engagement headwinds we observed in Q2 have continued in July. As of Tuesday, U.S. monthly active users have declined approximately 7% and global monthly active users have grown approximately 5% year-over-year. The evolution of COVID-19 and pandemic restrictions remain unknown, and we're not providing guidance on Q3 2021 monthly active users, given our lack of visibility into certain key drivers of engagement, which could continue to play out for a few quarters. On the revenue side, we expect total revenue to grow in the low 40s on a percentage basis year-over-year. Please note that our Q3 revenue guide takes into account a few things: first, Ben talked about the important transition we're making from being a place where people view static images to the place where people go to discover the best native immersive lifestyle content. That's a big behavior change for us. To build a new ecosystem for creators, we have to invest, and that means giving distribution to Idea Pins at the expense of some high-value advertising inventory, which impacts revenue. We believe that in the long term, this strategy will be engagement accretive and that we'll have a significant opportunity to monetize that engagement. Through the course of the year and in Q3. There was a big rebound in ad spend during the quarter as large CPG and retail advertisers reengaged after the initial shock of COVID, and we believe we benefited from being a positive platform during the social media boycott amidst the 2020 election cycle. Finally, we're carefully monitoring the impact of increasing prices on the platform. These increases are consistent with our strategy to grow our advertiser base, increase auction density and deliver ads more efficiently over time, but that may increase the churn for some price-sensitive advertisers whose cost per action has increased. Before opening it up for questions, I also want to touch on expenses. We continue to invest in the growth of the business in accordance with our key strategic priorities of inspiring content, the Pinner experience, advertiser success and shopping. Non-GAAP operating expenses grew 51% year-over-year, driven in part by our brand marketing campaign. We increased our head count 21% year-over-year, our third quarter of sequential acceleration. We expect sequential non-GAAP operating expenses to grow modestly in Q3 as we continue to ramp investments in our long-term strategic initiatives and growth drivers and resume our brand marketing campaign again in early Q4. Thank you to our teams at Pinterest, our advertising partners, our creators and all of the people that come to Pinterest to find inspiration. And with that, we can open it up for questions.

Your first question comes from the line of Ross Sandler from Barclays.

One question for Ben and one for Todd. Ben, you mentioned in the letter and just now that some at-home categories are seeing a drop in monthly active users or use cases, which makes sense given the current reopening situation. Can you break down these use cases and clarify how much of the behavior is related to at-home activities versus other factors? Is the decline only occurring in those areas, or is there a more widespread issue at play? Todd, the second quarter numbers are impressive. The low 40s figure seems a bit below our expectations, which might indicate some caution. Is this related to your comments about swapping ads for creator pins? Can you provide more insight into what you're observing so far in the third quarter from your large retail and consumer packaged goods clients? Do you think the two-year growth trend can sustain the 40% level you're discussing for the third quarter moving forward?

Sure, Ross. Thanks for the question. I can start with your first one, which was a little bit more color on the changes in user behavior that we're seeing. And as Todd outlined, there are a few things that are changing as the pandemic is eased. One, overall time at home has shifted. And two, a lot of the use cases that were especially relevant last year, things like redecorating your home, educating your kid at home, cooking meals at home, those have lessened. Now it's early to say how those will normalize over time. I wouldn't describe the current user behavior or the current social environment exactly the same, but we're seeing some promising early signs. We're looking at things like back-to-school, we're seeing an uptick in fashion. And as mentioned, we continue to see strength in areas like Gen Z, which engage and continue to be our fastest-growing demographic. I don't know if that starts to answer your question. Todd, I'm not sure if you want to add any more color there.

No, I think that's great, Ben. Ross, I'll address the second part of your question, which I touched on in my prepared remarks, but I'll elaborate a bit more. You're interested in how our creator and content ecosystem, particularly the distribution of Idea Pins, is affected. There are three main factors influencing the low 40s guidance. It's challenging to pin down precise numbers, but three key points come to mind. First, we are developing a content and creator ecosystem with our Idea Pin format, which requires investments to launch effectively. This involves transitioning users from the grid format to streaming experiences and utilizing some of our highest-value ad inventory for distributing Idea Pins. Also, there's a cold start issue since we don't have enough content yet, making relevance a bit difficult until we effectively establish this content marketplace. Thus, investing in the long-term engagement and growth potential of the company by using some of that supply to distribute Idea Pins is crucial. We believe this will enhance engagement in the long run, and we have already seen evidence that we can monetize this format. Given the short-form video nature of this content and our strong track record in scaling video advertising over time, I’m optimistic about achieving similar results with these creator efforts. I’d like to remind everyone that we experienced a similar situation with shopping over the past few years, where we prioritized user experience first to establish product-market fit before ramping up monetization. I see this process in a similar light: we’re investing in user experience to establish this content marketplace with Idea Pins, believing that with the right product-market fit, we will drive organic engagement and subsequently achieve monetizable growth.

Your next question comes from the line of Brian Nowak from Morgan Stanley.

I have two. First one, yes, I understand there'll be a lot of questions about users. Maybe just to give us a little more clarity. Can you just tell us what percentage of the U.S. or the global users are part of that app user base? Just so we can sort of better understand the magnitude of some of the dynamics you're talking about, app users versus web users. And then secondly, I think in the past, you talked about your new initiatives like Lat Am, APAC and native checkout. Maybe just talk to us about where you are on sort of those three growth areas.

Yes. Regarding the user base, our mobile app users make up a large majority of our total impressions. They engage more frequently, which leads to a significant portion of our revenue. Globally, about 75% of our users are mobile users, with a considerable number being mobile app users. This gives a clearer picture of the situation. However, web users who access us outside the mobile app are also valuable as they help with upper funnel user acquisition. While they may not drive immediate revenue or impressions, they represent long-term growth potential. They are important to us, although not as crucial for the company's short-term revenue performance. A couple of years back, in the second quarter of 2018, we faced external factors that affected user growth but still managed to increase our revenue despite those engagement issues, similar to what we observed last quarter. And sorry, could you please repeat your second question?

It's all good. Yes. Just sort of looking for any update on timing of some of the new growth initiatives you talked about in the past like native checkout, Latin America expansion on the monetization side and then APAC on the incremental website side or incremental app side.

Yes. So on the native checkout side, I think we said last quarter that we were planning to begin testing at some point this year in less friction-filled or friction-free way for our users to buy what they found on Pinterest, which is one of our big requests from our users. How do I buy what that sounds on Pinterest? And we've enabled that over time, but we're making it even easier for people to do that as a result of some of these tests that are on track for later this year. Our investments in Latin America are early. We've got a great team in place. The early returns are scaling nicely. We're building great relationships. It's working, but it's still incredibly early. We just launched a couple of months ago in Brazil and Mexico. And while I'm really encouraged by the user base that we have down there and the market opportunity, it's still very early, and that will continue to scale over time. And then lastly, we're investing in growing our user base in some markets in Asia Pacific that we think we could open up over time, but that's not on the road map for this year yet.

Your next question comes from Rich Greenfield from LightShed Partners.

I want to address a couple of housekeeping points to ensure everyone is aligned. When you mention that U.S. Daily Active Users are down 7% this quarter, it indicates that U.S. DAUs are essentially flat compared to the previous quarter. Conversely, internationally, the subscriber numbers would actually be up. I want to clarify that we are interpreting this correctly. Additionally, could you provide insight into how many users are engaging with Idea Pins? It seems to be a significant focus for Ben and the product team. What percentage of your Monthly Active Users, whether globally or specifically in the U.S., are currently interacting with Idea Pins? Lastly, regarding the comment about advertisers being influenced by the adoption of measurement solutions, could you elaborate on what you mean? What aspects of your measurement solutions are attracting advertisers to Pinterest? Can you share specific examples that demonstrate the impact?

Sure. I’ll address the first and third questions, while Ben will respond to the second. It seems you are interested in users rather than daily active users. As you noted, we are down about 7% year-over-year through Tuesday. These are preliminary figures. We are currently seeking some direction following the end of the quarter to present updated trends, but there doesn't seem to be any significant sequential flatness.

But they're not notably flat sequentially?

Yes, that calculation is correct if those levels are maintained throughout the quarter. However, I want to caution everyone that while the math holds true, it assumes we remain at these current levels. I didn’t want to give the impression that this will definitely be the case since I lack sufficient visibility on how the easing of pandemic restrictions or changes in user behavior might unfold. It has been challenging to predict. We've conducted thorough time series analysis, examined historical seasonality, and utilized third-party analysis that correlates time spent at home with mobility data in our user demographics. Given the current volatility, our best judgment is to provide an update based on our position in July. Recently, our forecasting has not aligned with historical accuracy, so I want to clarify that we are not offering guidance for Q3 results right now due to the ongoing uncertainties surrounding the pandemic. Does that make sense?

It does.

On the advertiser side, part of the value of being on Pinterest is that advertisers appreciate the brand safety and inspiration that the platform offers. They value the early commercial intent of our user base, as users come seeking ideas to incorporate into their lives. Much of the activity is unbranded; users arrive not fully knowing what they want but are effectively shopping, exploring new ideas, weighing those options, and ultimately making purchases. We have shown the benefits of being proactive through our insights delivery over the past couple of years, particularly in connection with seasonal trends. We can observe consumer behavior before it happens and assist our advertisers in crafting campaigns that align with these seasonal moments, highlighting the significance of an early engagement. The industry has long relied on last-click analysis, so much of our marketing and sales efforts focus on proving that an earlier interaction is crucial for diversifying spend in consumer Internet advertising. Innovations like our Pinterest conversion analysis and conversion insights, which examine the gross merchandise value driven by both organic and promoted shopping behaviors, along with our Pinterest conversion lift tool, are examples of our commitment over the last several quarters to illustrate the importance of longer attribution windows and that initial touchpoint. Our overall go-to-market strategy includes demonstrating the value of inspiration on the platform and the unique insights we can derive from consumer behavior, increasingly showing the advantages of an early engagement for those who consider it in their advertising budgets.

It does.

Okay. And then I don't know, Ben, if you had thoughts on the Idea Pins question.

Sure, Rich. So I think your question was kind of like how many people are seeing these Idea Pins? Where are we in that journey? And I think it's probably worth just taking a moment to visit like why we're going through, why we're describing it as a big transition. Today, the much of Pinterest content is based on users' pinning items for the web, and it's creating enormous value for businesses, enormous value for people looking for ideas. Over the last few years, we've told you about increasing importance of video content, which has grown significantly. Idea Pins are the next logical step because they not only enable people to save a video, but they enable creators to produce original content that's aligned with our unique brand and purpose, which is inspiring useful ideas that encourage people to try something new. But as Todd mentioned, that's a new user behavior. And so the reason we say it's early is because we're going to get our Pinner community used to the idea of following and subscribing creators. And on the flip side, we're going to empower creators with not only publishing tools, ways to engage that audience and eventually to make a living. We think there's an enormous opportunity there because while there's a lot of long-form video and there's a ton in short-form entertainment video, there isn't as much in the type of things that Pinterest specializes in, which are inspiring ideas, ideas that have durable value and ultimately, ideas that can drive action. So we're really excited about that. And the early results are really promising. So in Q2, we launched Idea Pin, that is the ability to publish them in 22 markets to those with a business account. We have not yet released it to everybody on Pinterest. So if you don't have a business account, you can't yet create Idea Pins, but that will be coming. But already, Idea Pin's created daily. It's grown more than 7x. And on the user side, we're seeing really good adoption with daily impressions growing more than 10x since January. So this is going to be a big shift for the company. As Todd mentioned, we're really leaning into it, investing. Investing in helping these traders build a community. But over the long term, we think they can change Pinterest from a passive experience where you're browsing imagery to one where you're following people. And we also think that it can bolster all of our other initiatives around not only giving people inspiration but helping them take action by letting them purchase the things that they've seen.

Are there milestones that people should be judging you on in this transition as you think about this rollout?

Sure. I mean I think that the first step, Rich, is we're really going to make it much more broadly available. And we're going to make it so people encounter creators and Idea Pins a lot more often. And that's really the first phase, and we're focused on helping these creators build a community. And that's the first phase. And then we're going to build out from there. So that's how we're approaching it internally.

Your next question comes from the line of Mark Shmulik from Bernstein.

A couple, if I may. Ben, just to kind of follow on, on the creator point. It seems like every platform is kind of focused on the creator economy. And so can you share a little bit more details on like who these creators are? Are they already on the platform? And this is about empowering them to do more? Or attracting new types of creators? And then for Todd, can you provide a bit more color on that shopping behavior and what it looks like? I think you mentioned at the top of the call that it's been more resilient. But wondering if there's any more color you can share around whether it's product searches to the shopping tab or what it might be?

Sure. I'll start, Mark, with this question of who the creators are. I mean I think it starts with like what's our mission and our unique place as a platform. Pinterest has always been a place that provides lifestyle inspiration, things where people aren't there just to get in their team. They're also there to do something. And we're focused on short-form. And so that means there are a lot of creators that exist on the platform but there are also creators where other platforms that are focused more on pure entertainment aren't serving their needs as directly. We've seen a lot of really interesting early creator success, things that are core to our use cases but are expressed in a much more engaging way. Make him breakfasts, workouts, cleanup products for a glow-up. And just to put a point on it, one example is a fashion photographer who's been in the early beta. His name is Shane. He's cultivated an audience of 18,000, average 9 million monthly views in only a few months. What he does is he uses these Idea Pins to take Pinners kind of behind the scenes at fashion shoots and share tips on how to succeed as a young entrepreneurial photographer, creative ideas. What he says is that Pinterest is allowing him to connect with his audience or his community on a deeper level that's harder for him to reach on other platforms. Part of that is because of its search engine-like nature. People are actively looking to churn. Internally, we call that kind of intent. The feedback that he's received, he describes as really breathtaking. So he's excited about cultivating the audience that's more intentful versus browsing, more inspiring or entertaining person after another. So that's kind of the character. We think there are a lot that are on the platform that haven't had the publishing tools. We're focused on that. We think there are a lot of outside the platform, and we're eager to bring them on and give them the best tools to inspire their community and eventually make a living from it.

On the topic of shopping, I want to highlight a few key points. First, we have consistently invested in improving our product experience, which has led to an increase in our ability to provide more inventory. In fact, we delivered 50% more product inventory through catalog uploads in the second quarter compared to the first quarter. We have also introduced shopping features in Australia, Canada, France, and Germany. Additionally, we launched a shopping list feature that allows users to save product pins in one central location, making shopping easier and sending notifications when prices drop on those items. These initiatives aim to enhance the shopping experience we discussed. Early tests indicate that our users are seven times more likely to purchase products they have saved. As previously mentioned, we are also planning to conduct tests on our platform's transaction experience later this year. More directly regarding shopping behavior, our weekly shoppers in the U.S. performed better than our overall monthly active users, showing flat growth year-over-year compared to a slight decline in monthly users. Does that address your questions?

Yes.

Your next question comes from Mark Mahaney from Evercore ISI.

I have two questions. One is specific, and the other is broader. For the specific question, could you provide an update on the engaged mobile monthly active users, similar to what you shared on overall MAUs? What have the trends been like for the quarter so far, both globally and in the U.S.? Specifically, are U.S. MAUs declining year-over-year, while the mobile ones are increasing? Any comments on that? For the broader question, in light of COVID, what impact do you think it has had? We understand it created a comparison issue for you, but could you discuss any sustainable wins? It seems there was a significant number of users who joined during that time and have remained engaged. Can you elaborate on the engagement trends from that COVID cohort? Last year, you mentioned those trends were similar to or even better than your previous observations. What sustainable trends do you see from those users?

So Mark, I'll start with the first one, and I'll let Ben comment a little bit on some of the user behavior that we've seen. I don't have an update through Tuesday on the mobile app MAUs, but what we saw last quarter was they were modestly positive year-over-year in the U.S. and grew about roughly 20% globally. And so that gives you some sense, but I didn't update them through Tuesday and don't have them to share on this call.

Mark, the second question was what have we observed about folks that joined during COVID, what's the same and what's different. So the things that are the same are we continue to see that these core lifestyle verticals, fashion, food, beauty, health, they continue to be really important. And while coming from last year to this year, the overall usage is lower. We think those are durable things. Those are things that people care about and they're going to continue to care about. In terms of progress, we continue to invest to make sure those experiences, including making all those experiences more shoppable, continue to be really great. One interesting thing that we have noticed is that we continue to see Gen Z grow on Pinterest. So the U.S. monthly attributes women's fashion. But it's a really exciting early trend. And it's one that we're really excited to cater to because it's obviously a future demographic that will grow into an incredibly valuable cohort in the future.

Your next question comes from Justin Post from Bank of America Merrill Lynch.

Maybe one for Ben. When you take a step back and you look at 91 million DAUs in the quarter versus 85 two years ago, how do you feel about your progress kind of getting new demographics on the site? And where do you think you can go from here? I mean you still have aspirations of maybe getting 150 million users. How are you thinking about really driving growth in new demographics from here? And then I guess on the catalog, really interesting growth there, 50% quarter-over-quarter. Can you just help us understand what that puts up on the advertising side? And does that put you in a better position for shopping on the site? How you're thinking about that?

Sure, Justin. So I think at a high level, you're asking where do we think that future growth is going to come from. We covered a little bit new demographics that are going. But maybe one way to interpret it is what are the functionalities? How is the platform improving to be more useful to more people at the time? I think that we covered at some length on why we think the creators, while a long-term initiative is pretty fundamental. If you think about large-scale consumer Internet platforms, you have social platforms, and then you have a long list of ones that have some form of publish and subscribe, when you can follow people to create content. Usually, that's video content. Pinterest is somewhat unique in that it's grown as a utility where you browse and look at content. So we're introducing something that we think that our users are really looking for, our users tell us that they want a place where they can browse video content, they can follow inspiring people who really major in expertise and minor in celebrity and entertainment rather than the other way around. So we're really excited about that long-term prospect. On the flip side of that, you have utility, like how useful is Pinterest at helping you go from inspiration to actually a purchase. And there, we've made tremendous progress. A year or two ago, one of the most common user concerns was that I would see an image, I would want to purchase it, but I couldn't reliably get there. But a lot of investments we've made from increasing the amount of products uploaded through catalogs, to better ways to pivot from an image or a video to products and interrelated products and then to a brand page, to future things like the shopping list that we released, test to needed checkout, make Pinterest itself more and more useful for taking us on a full journey from inspiration all the way to purchase. Both of these things are long-term tailwinds. I also do believe we're still early days in terms of international growth and expansion. And so we're going to continue to invest there. I think there's a lot of great future growth to be had.

And then, Justin, I think the second part of your question was about the impact of the 50% sequential increase in catalogs on the platform. I think around a little bit to say, you may remember this little echo of some of the conversations we've had over the last few quarters, but I'll remind folks that similar to how I kicked off the call, we're majoring in the user experience and product market fit with respect to shopping. So our investments in catalog ingestion were designed to improve the inventory of shoppable content we have available to us to deliver and then marry that with better access to natural high-intent discovery services for our users to find that content in a natural journey from inspiration to purchase. The catalog ingestion success that we've had really improved the first of those, the inventory available to us to deliver products to users that match their aesthetic from a retailer that they trust at an appropriate price point. We have seen nice growth in our shopping revenue, consistent with that product market fit that's still developing and improving as advertisers see the value of promoting the shopping content that our users are increasingly engaging in. So that is, hopefully, that's a little bit better, helpful color on how I think about the catalog piece. Our availability of shopping content means that we have a bunch of potential content to promote for advertisers who are seeing that GMV success on the platform.

Your next question comes from Douglas Anmuth from JPMorgan.

I just wanted to circle back to the 3Q revenue. Just trying to understand the low 40s growth better. Just as you're shifting from static images to more Idea Pins, can you help us quantify the impact there at all in terms of dollars? And how do we rationalize that just with the comments that mobile users are still growing overall and that they monetize better? And then separately, is there any risk as you go through this transition? Is there any risk to users and engagement just as you shift the user experience more to Idea Pins over these next few or several quarters?

Yes, I can kick off with the guidance piece, and then maybe Ben can talk about these or the second part of your question. The way I think about it is we do have highly engaged mobile app users where we drive the bulk of our revenue. But for those users as we pivot and introduce the creator ecosystem and more Idea Pins, there are a couple of things we're doing even with those users, right? We're pivoting them from a grid format to a streaming format that consumes some of the time they would have spent on the platform. We're using some of our highest value ad slots for those users, and we're replacing them with Idea Pins. So the distribution is coming in place of known economic return to find that it's a compelling way to go from idea to action. We're also evaluating this relevance question. We've talked a lot about how diversifying our advertiser base is important because we want to increasingly deliver ads that feel like content to users. In this particular area with Idea Pins without an abundance of content, relevance is challenging to get up and running. And so that has some implications for engagement as people have a less than satisfying experience on site. These are all things that we know we will deal with as we get this marketplace, this content marketplace up and running. But I wanted to be clear about how I was thinking about it. It's an investment in monetizable supply to get that content marketplace up and running and successful, that we think is the right long-term investment for the company. It's unclear how the adoption rates will go. Some of it's within our control to some extent, too, how it unfolds. But I wanted to give you my best judgment of where we're headed based on my current assessment of roadmap, what we're seeing in the quarter and where we're heading. Does that make sense?

It does.

Okay. And then on the user experience, I don't know, Ben, if you wanted to add any color?

Well, I think we've covered it. I think the important thing to understand is that we are introducing a new user experience. We had a large-scale service, it takes some getting used to. But there are a few things that I think are really encouraging and really will cater to the unique nature of the platform. One is where we've seen a lot of Idea Pins be successful early are items that have utility. As people add more content, that begins to fill up a content corpus that has long-lasting value. It's not a highlight of today's party; it might be a recipe you can cook, an outfit that you can try on, a new way to style something, a new workout. Over time, as more and more of these Idea Pins are generated, we have a larger and larger body of pins to recommend. That increases relevance. It helps people find those 1 or 2 creators that really connect with their interests. The other thing I would say is that historically, we have and we continue to be focused on the long term. We took a really long bet, as Todd mentioned, on shopping. We had a very similar dynamic where we had to help merchants get some of their products. But as we've grown the volume, it's improved relevance. Now we're systematically removing friction out of the purchasing experience because we think long term that's what's great for users. Similarly, we think that users would love to go from that passive experience, which won't go away, but have the option to connect directly with creative people who want to share their passion and expertise. We've been experimenting with new ways to deepen that experience, from uploading your version of an Idea Pin to a beta that we ran, where you can take a live class or directly engage with the creators. Laying that foundational subscription system is really what we're building out right now. We think that as that gets built out, it opens up great possibilities for our users to fulfill our mission, and it opens up great possibilities for businesses who want to connect with Pinners in different ways.

Your final question comes from the line of Colin Sebastian from Baird.

I guess, first, a follow-up on users. With U.S. MAUs reverting back essentially to pre-pandemic or March last year levels, I guess what gives you confidence or conviction that we won't see more of a decline in some of the international markets as they reopen for travel and recreation? And then secondly, with respect to the on-platform test transactions that you'll be doing in Q4, curious what that will look like compared to some of the other formats we see in other platforms. Are these buy buttons and rich media ads that take you to a Pinterest checkout page? Or will this have more marketplace functionality through category searches or product listings? If you could add a little more color there, it would be helpful.

Thank you for the questions, Colin. I will begin with the user question regarding our observations in the U.S. and how that might influence international markets. Then, Ben can provide insights into the shopping experience we envision. I want to clarify our current position in the quarter and the factors affecting our short-term user outlook. Firstly, I want to emphasize that I believe we are navigating pandemic-related challenges, alongside other factors we are monitoring. This is a competitive market for user attention with various consumer applications available. We noted a recent change in Google SEO, but we believe that the primary impact on our user engagement this quarter has been related to pandemic factors. The future trajectory in the U.S. and internationally is uncertain and could take multiple directions. However, I am confident that our service can attract a broader audience compared to our pre-pandemic user base if we continue to execute our strategic initiatives. I believe our efforts in enhancing our creator and content ecosystem will increase engagement. Ben mentioned our success in growing our Gen Z audience, which is actively engaging with Idea Pins, a format that supports sustained growth. This reinforces my belief that we are investing in the right areas to drive engagement and revenue over time. Nonetheless, there is still uncertainty about the upcoming months, which is why we provided a recent update and made it clear that we are evaluating the pandemic's impacts in real time. Ben, would you like to discuss the transaction experience further?

I think that I'd probably just say that we want to significantly reduce the friction for the user. So we're probably not going to talk about the specific solution yet, but you'll see it soon enough, you'll see it this year. And then if you put it together into the broader shopping vision, I think it begins to paint a really compelling story. Today, we want to help you go from an inspiring image that you might see. You can identify products in there. You can browse related products, filter by price, and we want to add to that, then built to checkout with just one click. But as I mentioned at the beginning, I think over the long term, there's also a way to connect that vision to a vision where creators are actively sharing their expertise and passion. You saw this week, the launch of 1 small step in that direction, which is the ability for creators to tag products in their shops or in their videos. In early tests, we find that Pinners are significantly upwards of 90% more likely to engage on products tagged and Idea Pins than on just a picture of a product on a white background. So we see these things working in tandem over time. We're really excited because that's core to our mission of giving people inspiration but not stopping there, helping them go all the way to a life they'll love, which often involves purchasing a product.

I think that's our final question, operator, and welcome back Ben to close the call.

Well, I just want to thank everyone today for participating and for the thoughtful questions. Enjoy the rest of the day, and please do stay safe and healthy.

Ladies and gentlemen, that does conclude the Pinterest second quarter earnings conference call. Thank you for participating. You may now all disconnect.