Pinterest, Inc. Q2 FY2022 Earnings Call

Good afternoon, and thank you for joining today's Pinterest Second Quarter 2022 Earnings Call. My name is Daniel, and I will be your moderator for this call. All lines will be muted during the presentation, and there will be a chance for questions and answers at the end. I will now hand the conference over to our host, Neil Doshi, Head of Investor Relations. Neil, please go ahead.

Good afternoon and thank you for joining us. Welcome to Pinterest's earnings call for the second quarter ended June 30, 2022. I'm Neil Doshi, Head of Investor Relations for Pinterest. Joining me today on the call are Ben Silbermann, Pinterest's Co-Founder and Executive Chairman; Bill Ready, Pinterest's CEO; and Todd Morgenfeld, our Chief Financial Officer and Head of Business Operations. Now I'll cover the safe harbor. Some of the statements we make today regarding our performance, operations and outlook, including the impact of the COVID-19 pandemic, may be considered forward-looking and 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 2022 and beyond 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 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.

Thanks, Neil, and hi, everyone. I appreciate you joining our call. Today is going to be a bit different. In addition to announcing results, we're also marking an exciting new chapter for Pinterest. A few weeks ago, we welcomed our new CEO, Bill Ready. Today, you're going to hear from him and see why we're all excited to have him at the helm. But before I turn it over to him and Todd, I just want to quickly touch on why we made the transition. First, I absolutely love Pinterest and cherish the journey we've been on for more than a decade. It all began in 2010 as a tool to help people collect all the things they love from across the Internet. And in the years since, Pinterest has grown into something bigger and more meaningful. Today, Pinterest is a place where 433 million people all over the world come to get inspiration, a place where content creators can share their talents and passions with an inspired global audience and a place where brands can connect with consumers trying to build their best lives. I am grateful to everyone who's made this journey possible; first, our Pinners, our extraordinarily talented team, and all of the investors and businesses who've supported us along the way. I'm proud of what we've achieved together. But as far as we've come, I know Pinterest could be more. It's so clear that we have an opportunity to build an end-to-end platform, one that delights people with incredible inspiration, helps them plan their futures, and then brings those plans to life with purchases and actions. It's an ambitious vision that's bigger than one person, including a founder. And so, for our next stage of growth, we sought a leader with expertise in e-commerce and shopping to help us capitalize on the strong user intent and planning behavior on our platform. I met and talked with a lot of people. Bill's skill set and experience stood out. He's a builder who scaled companies like Braintree and Venmo. He knows how to operate on a global scale from his time as CEO of PayPal. He's a leader in commerce, most recently as President of Commerce, Payments and Next Billion Users of Google. And beyond his resume, he shares our values and our aspiration of building a positive corner of the Internet that's nourishing and encouraging. His passion is the same as ours, creating products that people love. It became clear to me that Bill will be a fantastic CEO for Pinterest's next chapter, and the Board felt the same way after discussions with them, and that's why we made the move. I could not be more excited about where Bill is going to lead Pinterest in the future. I know there's a huge opportunity ahead of us. I'm looking forward to fully supporting Bill's vision and strategy, and I can't wait to see how he leads us into the next great chapter of our story. With that, I'm going to turn it over to Bill to share a few thoughts.

Thank you, Ben, and hello everyone. I first want to express my gratitude to Ben and the Board for their trust in me as Pinterest CEO. As a fellow entrepreneur, I have tremendous respect for Ben and what he's accomplished at Pinterest. Under Ben's leadership, Pinterest has grown into a global consumer Internet platform with hundreds of millions of users, has scaled revenue to over $2 billion, and the Pinterest brand is synonymous with positivity. It's been roughly a month since I became CEO. And after talking with some of our key stakeholders and reviewing our product roadmap, I'm even more excited today about our business opportunity ahead. I know that maintaining a healthy dialogue and relationship with the investor community is an important part of our success. That's why I'd like to spend a few minutes discussing why I joined Pinterest and outlining what you can expect in the next few months. I joined Pinterest because it offers people a digital experience that is genuinely unique and positive and because we've only just begun to tap into the possibilities that experience has to create value for users and advertisers. Pinterest is really one of the only platforms that sits at the intersection of social media, search and e-commerce. And I'm incredibly excited to help unlock the company's potential. Having spent most of my career in commerce and payments, I recognize that there are many places to buy online, but there are very few online destinations where you can actually shop, that is to browse and discover and get inspired before you buy. Pinterest is very unique, and it has inspiration, discovery, and strong user intent, all in the same place. Pinterest is one of the few places online where users can discover new products by browsing and searching in a curated, personalized setting before they even know exactly what they want. What happens next is similarly unique. Pinterest users don't just scroll through or like images. They save relevant pins to thematic boards. This active saving of content again shows how differentiated the Pinner mindset is. You save something because you plan to return and take action on it. This type of engagement is a highly differentiated first-party signal we can leverage to create value for Pinners and advertisers alike. It allows Pinterest to better leverage organic engagement activity and makes the platform less vulnerable to certain ongoing changes in the broader technology landscape. From my perspective, we have an enormous opportunity to lean further into the significant intent and first-party signal that we have on the platform to help users bring the ideas and inspiration they found on Pinterest to life. At the same time, I believe that Pinterest's unique use case appeals to advertisers of all shapes and sizes, and gives advertisers the opportunity to engage at crucial and highly valuable moments in the user's purchase journey when the user has clear intent but is still determining what to buy. Longer term, this unique combination of inspiration and intent can be applied to many categories, and I'm excited to help broaden and diversify the base of advertisers by making the platform easier to use. And we have a fantastic team to capitalize on these opportunities. I've been very impressed with the people at Pinterest and their commitment and enthusiasm for our mission of bringing everyone the inspiration to create a life they love. We truly live our mission. Over the next few months, I'll be digging deeper into our product strategy on engagement and content as well as on the planning and shopping side. I'll be meeting with more of our key stakeholders, including Pinners, our employees, advertisers, agencies, strategic business partners, and our shareholders to understand their needs. And I'm going to work with our leadership team on how we can update a durable long-term strategy to deliver value across the board. I recognize that there is a lot of work ahead of us, especially during a period of significant macroeconomic headwinds and general consumer uncertainty, but we're operating today from a position of strength, with a growing business that is differentiated in the market and offers a distinct value proposition to advertisers that Todd will address further in his remarks. Pinterest is a business that has generated attractive margins and cash flow and is in an incredibly sound financial position with approximately $2.7 billion of cash and equivalents. Given the strength of our financial position today, I'm also focused on evaluating the best uses of capital for Pinterest, and we'll be considering this as we update our broader strategic plan, which we'll share more of in the coming months. Additionally, I'm reviewing our investment profile to understand the return on investment of our expenses and to determine the best way to optimize in a resource-constrained environment. Given the growth that we are seeing, combined with the significant potential opportunity ahead of us, we are continuing to invest in the business this year, and Todd will give more detail on that. But it's worth saying that I do not subscribe to a growth-at-all-cost mentality. While I believe we need to invest in long-term growth, I also believe that constraints breed creativity and can lead to even better product outcomes. And we have an extremely creative team here. So while 2022 is an investment year, I'll be focused on aligning our investments with our objectives of creating a differentiated experience for our users, helping our existing and new advertisers achieve success on our platform, and generating attractive returns on our investments for shareholders. Consistent with that, Todd and I agree that Pinterest plans to return to meaningful margin expansion in 2023. I look forward to communicating more about our plans in the coming months. Now, I'll turn it over to Todd to talk about the quarter.

Thanks, Bill. I'd like to share some further details on the trends we saw in Q2 and provide a preliminary update for Q3. Before I jump into the quarter, let's quickly review our principles. As Bill mentioned, Pinterest is uniquely valuable for consumers because it helps them discover new ideas and then bring those ideas to life, often through purchases. The journey consumers take on Pinterest, from the start of their interest to product consideration and conversion, means that Pinterest offers unique value for a broad range of advertisers as well. Their engagement with Pinterest is different from that of social media companies due to our users' distinct mindset. They are often in-market consumers with high commercial intent. Initially, our service attracted mostly larger retail and consumer packaged goods advertisers who recognized the value of our platform, particularly that over 90% of Pinner queries were unbranded and continue to be so today. These advertisers remain a significant part of our business, making our advertiser composition different from many other online advertising platforms. Over the years, we have also developed a strong performance advertising business that helps marketers utilize Pinterest's organic commercial intent to drive conversions, such as additions to carts, checkouts, or purchases. Advertisers who consistently find strong returns on Pinterest appreciate our unique offering, including our attractive user demographic, high commercial intent, a relatively brand-safe environment, insights-driven media buying, and longer attribution windows, which reflect the value of advertising at the early stages of demand when advertising's effectiveness is arguably greater than later in a purchasing decision. Despite challenging macro conditions, we saw resilience from our large advertising partners, with a 25% increase in spend commitments from joint business partnerships in the first half of 2022 compared to the first half of 2021. As a reminder, these partnerships, while non-binding, indicate significant spend commitments from larger advertisers who often see Pinterest as an important channel to connect with their consumers. These partnerships suggest that we are an established channel for those partners rather than an experimental platform. We are also focused on expanding our monetization efforts in new geographies, which is starting to yield results. In the Rest of World segment, we had 223 million monthly active users, but our revenue there in Q2 was just $22 million. However, our Rest of World ARPU increased by 80% year-over-year. We launched ads in Japan in the second quarter and expanded into Chile, Argentina, and Colombia in July. We are excited about monetizing our emerging markets. On a year-over-year basis, our monthly active users have declined by 5%. Some of the reasons for this decline are easier to quantify, such as lower search traffic due to Google's algorithm change in November last year, resulting in fewer new users and resurrections, along with the residual effects of the pandemic, which we believe we mostly lapped at the end of Q2. Additionally, we face increasing competition from video-centric platforms, particularly in our mature markets, though it’s hard to precisely measure the impact on our engagement on these platforms. Notably, our web users saw the most significant drop, approximately 30% year-over-year, while our global mobile app users showed stronger resilience, growing 8% year-over-year. In the US and Canada, our mobile app users were flat sequentially, which is a positive indicator during the typically weaker engagement quarter of the year. It's crucial to point out that our global mobile app users make up over 80% of our revenue and impressions, so their resilience is a strong signal for our financial performance and capacity. Regarding our financial performance, Q2 revenue grew 9% year-over-year to $666 million, or 10% year-over-year on a constant currency basis. Sequentially, our revenue grew 16%. Over a two-year period, our revenue accelerated at an annualized rate of 56% in the second quarter compared to 45% growth in the first quarter. In Europe, our revenue increased 22% year-over-year, even when factoring in a 12-point headwind from the strength of the US dollar. Although we observed strength from retail and international advertisers, we encountered softer demand from consumer packaged goods, big-box retailers, and our mid-market advertisers. Despite these headwinds, shopping ads performed well, growing twice as fast as our overall revenue year-over-year in Q2. Adjusted EBITDA was $92 million, with an adjusted EBITDA margin of 14%. Our non-GAAP operating expenses rose 16% sequentially. We have planned to invest throughout 2022, and in the first half, we made significant investments and key hires to bolster our organization, which we believe will drive long-term growth. In the first quarter, we spent less than anticipated due to slower hiring in R&D and a delay in our creator-related marketing spend. In the second quarter, we took the opportunity to enhance our R&D team as the recruiting market improved, and we also caught up on some of the planned creator-related marketing. Additionally, our G&A expenses increased sequentially due to headcount growth and related payroll costs in our HR and recruiting teams as the most significant contributor. Approximately one-fourth of the sequential expense increase is expected to be non-recurring at these levels. Lastly, returning to the office in the second quarter as COVID protocols changed led to some costs as well, including increased facility and travel expenses. As for our preliminary outlook for Q3, I'd like to discuss monthly active users first. As mentioned last quarter, we’re not providing a mid-quarter update. However, I want to give some context about our engagement outlook for the latter half of this year. With the pandemic effects largely behind us, we anticipate that global monthly active users will revert to more typical seasonal engagement patterns in the second half of the year. Those patterns usually show modest sequential growth moving into Q3 and Q4. However, we expect these trends to be somewhat muted compared to historical patterns, and for the US, Canada, and Europe specifically, we aim to stabilize our user base in the latter half of the year. Although the pandemic influences are mostly behind us, we are facing increasing and sustained competition from video-centric apps for users' time spent. This outlook does assume we won’t encounter any additional unforeseen engagement issues, like further search algorithm changes. Now, regarding our revenue guidance, considering the current economy's dynamics and the quick fluctuation in conditions, we believe providing a broad range is wise rather than offering a specific estimate like last quarter. We currently expect revenue growth in Q3 to be in the mid-single digits year-over-year. We’re slightly ahead in growth quarter-to-date, but many of our advertising partners, particularly larger retailers, are facing supply chain challenges, inflation, and declining consumer demand. These factors weigh on advertisers' spending capabilities, and our best performance signals suggest a slowdown from the growth rate we observed in July. We anticipate this slowdown will likely position us toward the lower end of our guidance range. Moreover, should economic conditions worsen, we might see revenue growth reach the lower end of the range or potentially fall into low single digits. Additionally, in conjunction with the challenging economic landscape, our Q3 revenue guidance incorporates a few other considerations. We expect slightly greater foreign exchange headwinds compared to Q2, and we are monitoring how elevated CPAs resulting from platform-specific dynamics and engagement trends are impacting advertising. We believe higher pricing may disproportionately hinder price-sensitive advertisers from utilizing their budgets effectively on our platform. That said, we are confident that advertisers who appreciate our unique offerings will continue to find success here. Our Idea Pin distribution is expected to modestly impact revenue growth in Q3, but as we move past this, we do not expect Idea Pins to create significant revenue headwinds in Q4 and beyond. Now, let’s discuss our expense guidance and investment philosophy. As Bill mentioned, we are operating in a more uncertain environment characterized by sluggish revenue growth and increased demand variability. While our business has shown relative resilience, we remain mindful of the economic landscape. Thus far, we have significantly slowed our hiring pace and are reassessing our needs for the latter half of this year to effectively support our long-term growth plans. We will be more strategic and selective in our hiring for the remainder of 2022. For Q3, we expect non-GAAP operating expenses to rise in the low double digits from the previous quarter, driven primarily by our global brand marketing campaign to launch in mid-September and run through late October, continued investment in our native content and creator initiatives, and the impact of recent hiring. We believe these marketing investments, particularly in our mature and emerging monetizing markets, can enhance the progress we’re making in core engagement work and yield substantial future returns. For the full year, we maintain our previous guidance for non-GAAP operating expenses to increase between 35% to 40% year-over-year, with a continued deceleration in sequential expense growth from the peak levels experienced in Q2. As we noted at the beginning of this year, after three years of significant margin expansion, we believe 2022 is the appropriate time to ramp up investments that will position us well to take advantage of long-term growth opportunities. We continue to believe this is the right approach. However, considering the increasingly dynamic market environment and with Bill joining the company, we are reviewing our investment strategy for the latter half of this year and beyond. While there is a significant long-term opportunity ahead for the business, we have accelerated many of our planned investments into 2022 and expect to start seeing benefits from those investments next year. Accordingly, we intend to return to significant margin expansion in 2023. As you know, we prioritize achieving an appropriate balance between realizing our long-term potential and delivering on near-term financial results. We currently have approximately $2.7 billion in cash on our balance sheet, and Bill and I are discussing how best to allocate our capital. In Q2, we acquired THE YES, reinforcing our commitment to connecting the commercial intent on our platform with personalized shopping experiences. We will continue to be strategic about our cash allocation regarding future mergers and acquisitions. Bill and I are dedicated to delivering shareholder value and will provide updates on our long-term strategic framework moving forward. Thank you to our employees at Pinterest, our advertising partners, our creators, and everyone who visits Pinterest for inspiration, planning, and shopping. Now, I'll hand it back to Bill for a brief comment before we open the floor to questions.

Thanks, Todd. Before we move to Q&A, I want to address recent news reports regarding a large investment from Elliott Management. We've had a very collaborative and engaged dialogue with Elliott recently. They're aligned with our vision on what Pinterest can become, are supportive of our team and our efforts, and see the same tremendous potential for long-term value creation that I do. I look forward to continuing to engage with Elliott as I will with our other shareholders and view their investment as a vote of confidence in Pinterest's future. But the purpose of today's call is to discuss our second quarter results and outlook, and we ask that you please keep your questions focused on these topics. And with that, we can open it up for questions.

The first question comes from Eric Sheridan of Goldman Sachs. Please proceed.

Thanks so much for taking the questions and Ben, I just first want to thank you for all the dialogue on these earnings calls since going public. Bill, maybe turning to you. Maybe two-parter, if I can. First, when you were approaching this role from the outside in, what are you the most excited about in terms of closing the gap from executing on the operation side against the opportunity set versus how you're thinking about allocating capital investments against that ambition? And then the second part of the question would be, when you say meaningful margin expansion in 2023, help us bridge from all the ambition you're laying out and what you want to invest in to the concept of expanding margins in 2023 past this investment year? Thanks.

Thank you for the question. I'm really excited about several aspects of joining Pinterest. Specifically, regarding how we enhance commercial engagement, I believe Pinterest is uniquely positioned at the crossroads of social and search, where there is a high level of intent coupled with inspiration. Typically, places where one seeks inspiration and discovery do not always have intent, and those with high intent often lack inspiration, but Pinterest combines both elements. This creates a distinct opportunity to guide users from inspiration and discovery to taking action, whether that involves creating, doing, or purchasing. We are just beginning to tap into the potential of what the platform can offer in this regard. I'm particularly enthusiastic about observing how users engage naturally with the platform. It is significantly easier to assist users in achieving what they already intend to do rather than trying to change their behavior. On Pinterest, users clearly come with an intent for inspiration and discovery, and we can drive that further towards action, be it shopping, buying, or creating. We see tremendous potential here, and there are promising early indicators in areas like shopping ads. Now, I'll pass it over to Todd to elaborate on our progress in shopping and address your question about margins as well.

Yes, a couple of things. I mean, obviously, we're all very excited to move forward on the vision that Bill is starting to lay out here. But on the shopping question, in particular, you might remember back over the last couple of calls that we've been very focused on making sure we have a lot of shoppable inventory and then we have the right shoppable services for people to discover those products. And so a lot of our effort has come through building an inventory of shopping products that we can map to commercial intent and our users' preferences. We're now to one billion shoppable products in the system. And on the shoppable surfaces side, we launched Your Shop, which is our first personalized shopping experience. That will be augmented by the acquisition we made with THE YES and help our users continue to go from intent to action on the platform. So really excited about those two things. And on top of that, we're building, as I mentioned in my script, our shopping revenue is growing twice the rate of our overall revenue. So really compelling vision financially behind what Bill was describing. The second part of your question was around the expense profile and what we meant by meaningful margin expansion, I think if I heard your question correctly. And I think the tee-up here is, number one, the business has a ton of runway. Everything Bill described suggests that we've got a big business to build here. And in the spirit of that, we laid out 2022 a couple of calls ago as an investment year after several years of significant margin expansion leading into 2022. But this isn't a new normal, or it's just a year where we designed to position the company for an improved user experience, future compelling revenue growth and margin expansion in the years to come. And so I've had questions about whether next year will be another reset or another investment year. But as you heard Bill described, while we're still spending a lot of time together to figure out what that plan is, and this is way too early to provide guidance for next year, we're looking at the macro environment. We’re getting together as a team to figure out what our product plans will be for next year. So it's not guidance. But the idea here is that we would see as much as a couple of hundred basis points of margin expansion going into next year, just to provide some directional input.

Operator, next question.

Certainly. Next question comes from Ross Sandler of Barclays. Please proceed.

Hey, Bill, I have a question for you and then one for Todd about the quarter. Bill, Google Shopping underwent a significant transformation from its early days to the much improved state it is now. What elements of the Google strategy do you think could be relevant here based on your experiences? Additionally, how do you assess Pinterest's infrastructure compared to the robust technical framework that Google has maintained? Todd, regarding the quarter, you mentioned that larger online retail advertisers are showing strong performance while big-box retailers and CPG companies are facing challenges, which aligns with what we've heard from Walmart and others recently. Could you elaborate on whether you're attracting new online retail advertisers or increasing spending from the existing larger ones? We know which sectors are struggling, but I'm curious to learn more about where the strength is originating from. Thank you.

Thank you for your question, and I appreciate your interest. I want to focus on the opportunities we have. My experience in the industry drew me to Pinterest, highlighting its unique potential. One key aspect is the need for extensive capabilities in computer vision, machine learning, and AI to create a truly personalized and curated visual experience. These capabilities are complex and challenging to develop. Even before I joined Pinterest, I admired the team's efforts in building a great visual experience, utilizing computer vision and enhancing personalization through machine learning and AI. Now that I am part of the team, I am even more enthusiastic about these strengths. Looking ahead at our shopping opportunities, I see leveraging these advanced capabilities as a significant advantage, particularly in how users engage with their shopping journeys and how we can personalize experiences effectively. We've already begun initiatives such as partnering with other platforms to simplify the integration of inventory from various retailers, which will enrich the product catalog available to consumers. I see many compelling opportunities, and being on the inside only amplifies my excitement. While we have made progress, there is still much more we can achieve in this area. It's also important to note that we are still in the early stages of this journey. I believe we are working on solutions that align with user expectations for Pinterest, which is a positive position to be in when meeting those natural expectations.

Ross, regarding the second part of your question about the retailer dynamics, particularly the comparison between larger specialty retailers and e-commerce versus big-box stores, I think your observations about the current market and what has been reported by others are accurate. Our larger specialty retailers and e-commerce platforms have shown more resilience, while the diversified big-box retailers are facing more pressure, which isn't surprising considering the current demand environment and consumer spending trends. The key takeaway aligns with what I mentioned in my opening remarks. Advertisers who appreciate the demographic diversity of our users, the safety of our platform, and the insights-driven media buying that we offer, which has become more automated, are finding success even in this environment and are increasing their budgets. To answer your question about whether we are attracting more advertisers or gaining a larger share of wallet, I would say we're achieving both results. This suggests that we are both increasing our share of wallet and onboarding more advertisers in those specific segments.

Operator, next question.

Thank you. The next question comes from Brian Nowak of Morgan Stanley. Please proceed.

Thanks for taking my question. Bill, one for you. You’ve said you've been around the industry over a long time. You have a very unique perspective. You've obviously studied Pinterest inside the competitive landscape. A lot of what you described as the opportunity isn't that new probably to a lot of people on this call. I would be curious to hear about sort of two or three low-hanging areas of executional improvement you see in the company where you say, here is why the company has not executed on these opportunities the last couple of years the way that they could have and here's how I'm going to fix those, maybe lay a couple of those out for us? Thanks.

Sure. Thanks, Brian. I have a few thoughts on this. First, I believe some of these developments are a natural progression in how things evolve. We've established a strong foundation in visual exploration, supported by computer vision and machine learning, which have always been strengths of our platform and reinforce our opportunities. There is a logical sequence to these developments, and that foundational aspect is essential. Currently, we are witnessing users engaging more thoroughly in their entire commerce journey in a digital setting. In the early years of e-commerce, the focus was mainly on making purchases efficiently rather than exploring options. However, consumer behavior has shifted significantly during the pandemic. Most shopping sessions now begin online, whether or not the purchase concludes in-store. In this context, where consumers seek to engage digitally not just for online purchases but for a wider variety of purchases, the way they shop in the physical world—prioritizing discovery and inspiration—aligns perfectly with Pinterest's strengths as a product and platform. Timing and context are crucial here. Additionally, the increasing availability of catalogs from a wider range of players, who are also enhancing their investments—be it retailers or other commerce platforms—provides us with the necessary resources to drive user engagement during their digital shopping journey. These factors position us well to take advantage of these opportunities. Furthermore, shopping is already generating significant revenue growth for the company, as Todd mentioned. The shopping experience is showing promising progress, and we have more momentum to build on. Lastly, when we discuss transitioning from inspiration to action, there are various methods we can use to encourage user action. Some industry efforts may become fixated on whether a purchase was completed on the platform, but there are multiple pathways to facilitate deeper connections between users, retailers, and brands. Focusing solely on buying can be limiting. Hence, we see this as an opportunity to explore diverse ways to enhance those engagements, and we're committed to continuing this exploration. There was also a second part for Todd, I believe.

On the, sorry. What was that, Brian? Can you repeat the second part of your question?

Let's move on.

Operator, let's go to the next question. Next comes from Mark Mahaney of Evercore. Please proceed.

Hi. Thanks, everyone. This is Jan Lee for Mark Mahaney. I wanted to follow up on the growth opportunity in shopping ads. If you were to rank the key drivers of growth in this area, what would they be? Is it simply adding more inventory to the platform, improving recommendations, or focusing more on creator content? My second question is about your investment in creator content. Given the current environment, how are you approaching this investment? Additionally, you've mentioned competition from other video platforms. When it comes to acquiring creators or content, how much do you need to compete with platforms like TikTok, YouTube Shorts, and Instagram Reels? Are you targeting a different type of creator than those platforms? Thank you.

So I can start on the shopping discussion. The way I think about shopping on our platform is either a pure shopping ad, so promoted product or our conversion optimization product, particularly checkouts and additions to a cart. So very shopping-oriented performance ads. The success that we're seeing in general is the focus on building a great user experience. So how do we get enough inventory that if you're looking for something that we have the product and the system to serve to you, it's mapped to your aesthetic taste, your price point, a retailer that you trust and is delivered in a natural part of your shopping journey. So getting one billion products into the system, which came on the back of high-performing partnerships with Shopify and WooCommerce and with our merchants who are increasingly using our API to get real-time inventory with real-time pricing into the system, that's been really powerful in building the inventory we need to serve against a user's interest or intent. The second thing is, we're building out more personalized shopping experiences into the core of the product. So your shop is an example that I referenced earlier. That's our first real effort in a personalized shopping experience. We bought THE YES or acquired THE YES a couple of months ago to help augment that effort. And I think that piece, coupled with the inventory that we've built into the system, will continue to build more organic shopping experiences for our users. What that means is that we can then deliver ads products against that. And our investments in automation have made that more successful. We've talked over the last couple of years about automated bidding that extended to some of our lower-funnel conversion products. We're looking forward to launching in the back half of this year more campaign-level automation, which will continue to power even more performance in these areas. So all of that has been working together to build a better shopping business for us. On the creator and content side, I can start. I don't know, Bill, if you want to weigh in, but we were really delighted this quarter to look at some of our stats and see that 10% of time spent on the platform now is users watching video. That includes our Watch tab and our Idea Pins. That's powered by a lot of content that's coming from individuals, but also through some partnerships that we announced, most notably Tastemade, where they're helping us build idea pins, a lot of shows and then increasingly Pinterest TV live programming around the world. So, both organic and user-generated as well as through partnerships. We also improved through a lot of the investments we've made in machine learning, our relevance in short-form video content and our Idea Pins. So, relevance improved a ton quarter-over-quarter to the point now where we're seeing relevance almost at parity across Idea Pins and our static images, which was a big improvement. And so all of that means that when we get the idea ads format working, not only will this be accretive to engagement but accretive to revenue over time. We were delighted to announce Idea ads launching in the quarter. So, all of what we think about building relevance, getting richer content onto the platform and extending that to business building, we made progress against that in the quarter. So I don't know if that answers your question, or Bill, you wanted to add anything?

Yes, exactly right. The only other thing I'd add to it is that as we think about the way we're engaging with content creators, we see they appreciate the uniqueness of our platform as well, both it's a positive place to engage as well as the strong think that's something that both our advertisers see from us and are excited about from us. But we see the content creators really appreciate that about the platform as well. I think it leads to different types of opportunities for how creators can engage on our platform and the kinds of content and user engagement that can come from that. And it also means that we can play our own game on how we work with content creators. Of course, we don't expect that we're going to match dollar for dollar with larger platforms, but we can create unique ways to engage. We believe we can attract content creators that are here for the specific users and environment that we have as well as the intent that they have, which is very different from other platforms where that intent may not be there or the intent is one of looking for the next entertaining video that can sometimes be harder for creators to keep up versus a platform where people are coming with an intent to either shop or make or do and that being be more enduring for those reasons and so I think that's an important part of our platform, both for advertisers, but that also creators are really noticing and allows us to play our own game there.

Operator. Next question.

Next question comes from Colin Sebastian of Baird. Please proceed.

Thanks and good afternoon Bill, congratulations again. It's been enjoyable to follow your journey over the years. I have a couple of questions for you or Todd. First, there were some interesting comments in the letter regarding the relevance of Idea Pins. I'm curious if there's a direct connection between how you're measuring relevance and the engagement you're seeing with users. Secondly, you touched on near-term trends earlier. Since the guidance for revenues in Q3 seems more positive compared to most other digital platforms at this time, I'm interested in hearing what feedback you're receiving from advertisers about what factors are making Pinterest more resilient than other platforms. Thank you.

Thanks, Colin. I appreciate your remarks. I'll share a few thoughts, and then Todd can provide additional insights. We've observed strong engagement with Idea Pins and video content. Todd previously mentioned that 10% of engagement coming from video, which was almost negligible a couple of years ago, represents significant progress. Idea Pins serve as a prime example, and Todd can delve deeper into what our teams are observing. Regarding advertiser feedback, Todd will elaborate, but I want to emphasize the unique aspects of our platform. As advertisers consider where to invest their budgets, the relatively safe environment we offer, combined with high user intent and our strong first-party data, stands out. Compared to other platforms, especially with the ongoing changes around cookies, our first-party data is a major asset. Todd noted that over 80% of our users are engaged through our mobile app, which enhances our understanding of user intent directly from our platform. Advertisers value this clarity, which positively influences our advertising capabilities. Now, I'll hand it over to Todd for more details.

Yes, I think that’s a great summary. We are really excited about the investments we’re making in relevance and the impact it’s having on making our Idea Pin format more comparable to our static pins. This is essential for success in engagement. When this improvement reflects in our revenue numbers and we begin to see an upward trend in engagement, we will recognize its broader impact, but it’s crucial for us to reach that stage. On the advertising front, Bill summarized it well. One thing we lack on this platform is a diverse advertiser base. I shared the history of how we grew our advertiser community, emphasizing that our exposure to larger consumer packaged goods companies and major retailers during times like these is more advantageous. We don’t have many ads for gaming app downloads or cryptocurrencies on the platform; most of our advertising revolves around home, food, fashion, and beauty, with our larger, more stable advertisers. I highlighted the joint business partnership in my opening comments because it serves as a significant indicator for us, providing an alternative to the larger incumbents for advertising dollars. However, we are still facing challenges related to issues that Bill mentioned, such as demographics, brand safety, leading indicators of consumer intent, and a commercial mindset on the platform, particularly at the early stages of the purchase journey. These are all differentiators for us. I want to clarify that we are not in a vastly different economic environment compared to others in our industry. We began the quarter with strong momentum, but many of our leading indicators are softening as we observe some uncertainty in demand as the quarter progresses. Therefore, I wouldn’t suggest that we are in a completely different market environment from others. We simply started off slightly stronger than the range I described. Our best signals indicate we are likely to experience some slowdown as the quarter continues.

And operator, we’ll take our last question.

The final question will come from Rich Greenfield from LightShed. Please proceed.

I've never been to Greenland, but I'm sure I could find it on Pinterest. In the letter, Bill, you mentioned Google Search. Clearly, Google Search has been a challenge for the business over the last several quarters. You discussed relying on new strategies for demand generation or driving traffic. Could you provide more examples? When you refer to sharing Idea Pins on third-party platforms and AI for push notifications, can you give us tangible examples of their impact on the business and what we can expect moving forward? Also, as a general point, since mobile users account for over 80 percent of your revenue, why not just report on mobile users? It seems to be the most relevant indicator for revenue growth. Why not minimize the overall MAU metric if mobile MAU is what truly matters? Thanks.

Thank you, Rich. I'll let Todd respond to the last question regarding user reporting. Concerning how we are enhancing engagement, there are several factors at play. One key point is that we are experiencing significant direct engagement through our mobile app, which accounts for over 80% of our interactions. This is a solid foundation for us. We are utilizing machine learning and artificial intelligence to enhance personalization across our services, leading to increased engagement. I have been genuinely impressed by the progress the team has made in this area. We anticipate more advancements in machine learning and AI to further improve personalization, which is a strength of our platform. There is more potential to explore here. Engagement with native content creators is expected to grow over time, and we are already seeing positive developments, with video now representing 10% of our engagement. We have discussed the journey from inspiration and intent to action, and historically, users often needed to turn to other platforms to take action. As we make more content actionable on our platform, we expect that to boost further engagement, which we have observed with the progress in shopping ads. Regarding SEO, our teams are effectively utilizing machine learning and AI across various engagement channels, including notifications and emails, and we are seeing encouraging returns from these efforts as well as from social sharing. There are various elements contributing to our success; it’s not just one solution but a mix of activities that is driving remarkable progress in engagement. Now, I'll hand it over to Todd to address the user reporting aspect of your question.

Yes. Thanks for the question, Rich. We're always open to evaluating disclosure, and so I will keep an open mind about it and consider it. The reason we've been bringing it up for the last few quarters is we thought there was a bit of a deviation in the trend that we've seen historically. And so I thought it would be important context for this community and for investors to understand what's going on with our web-based traffic versus those that are coming direct or using the mobile app. I thought it was also important to call out that impression and revenue contribution, just so folks would understand how we could be seeing these MAU declines, but continue our financial performance right through it, which is one of the factors that plays here, in addition to all the investments we're making in our ad stack and efficiency there, plus our demand generation. To your point specifically, the reason I kept it and have kept it is that it's a pretty inclusive way of thinking about the people that come and discover Pinterest content, number one. Number two, we have often viewed these web-based users who come to us through search traffic as our upper funnel user acquisition. These are people that are discovering Pinterest content through search, they're existing users that are resurrected, and they rediscover reasons to come back to Pinterest. And so, from a broader aperture perspective, it's a pretty useful way of thinking about those that are finding Pinterest content and are potential future mobile app users because they found this content through search. But of course, we'll always consider what's most useful for this community to understand the business and its prospects.

Now I'll turn it over to Bill for final comments.

Yes. Thank you again to everyone for joining the call and for your questions. We look forward to continuing the dialogue with you as we execute on the many exciting opportunities ahead and we hope you all enjoy the rest of your day.

That concludes the conference call. Thank you for your participation. You may now disconnect your line.