Pinterest, Inc. Q3 FY2022 Earnings Call

Good morning, ladies and gentlemen. Thank you for attending today's Pinterest Third Quarter 2022 Earnings Conference Call. My name is Tia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host Neil Doshi, Head of Investor Relations, you may proceed.

Thank you. Good afternoon, and thank you for joining us. Welcome to the Pinterest earnings call for the third quarter ended September 30, 2022. I'm Neil Doshi, Head of Investor Relations for Pinterest. Joining me today on the call are Bill Ready, Pinterest CEO, and Todd Morgenfeld, our Chief Financial Officer and head of business operations. Now we'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, and these statements involve a number of risks and uncertainties that could cause actual results to differ materially. In addition, our results, trends, and outlook for Q4 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, which is distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com. Before we jump in, I'd like to note that we've decided to change our format for earnings communications; we will no longer be publishing a shareholder letter so that we can focus on providing key updates on these calls. And now I'd like to turn the call over to Bill.

Thanks, Neil. Hi, everyone. Thanks for joining our Q3 earnings call. I'm proud of our team's execution in Q3 across user growth, monetization, and operating discipline. On the user side, we stabilized the user base and grew sequentially as we returned to seasonal growth trends. Our global revenues of $445 million were above Q3 2021, as we've largely lapped headwinds from the pandemic unwind and have driven improvements in user engagement. Our U.S. and Canada monthly active users grew sequentially for the first time since Q1 2021 to 95 million. Despite continued macroeconomic uncertainty, we grew revenue by 10% on a constant currency basis to $685 million for Q3. We delivered adjusted EBITDA of $77 million and an adjusted EBITDA margin of 11%. Each of these points demonstrates that our team is operating with heightened focus and discipline, finding ways to grow the business and drive efficiencies despite the difficult macroeconomic environment. My remarks today will focus on three topics. First, how we're making Pinterest more relevant and engaging. Second, how we're driving more inspiration to action, including greater shopability, and third, how we continue to improve our monetization efforts to drive value to our advertising partners. By making Pinterest more relevant to our users, we can increase and deepen our engagement on the platform. We're doing this in multiple ways, including improving the personalization on our core surfaces, leveraging our unique opportunities of the content platform, and broadening our appeal to emerging demographics. Regarding personalization, we're creating much more relevant experiences for users by combining the unique first-party signals on our platform with advancements in machine learning to recommend highly relevant content to users. In Q3, this work was a meaningful driver of our return to seasonal sequential growth in global and U.S. and Canada metrics. It also resulted in year-on-year improvement in engagement, as measured by metrics such as sessions, impressions, and saves. In fact, sessions in Q3 grew meaningfully faster than our monthly active users, which indicates that we are deepening engagement with our users. We believe growing sessions should drive multiple top-line benefits, such as reducing user churn, improving overall monetization, and growing revenue per user. We're also making Pinterest more relevant to users by leveraging our unique user-curated content and upgrading our overall content ecosystem. In short, we want content that not only inspires users but also helps them make, do, or buy things. With this goal in mind, here's how we're thinking about user curation and rich media content, which are the two biggest types of content we have on the platform. The human curation at scale that happens on Pinterest is a highly differentiated invaluable source of content generated by our users. While machine learning helps us serve a personalized recommendation for a pair of women's fall boots, human curation at scale makes it possible for us to further suggest the best skirt and sweater options to complete the look. This type of curation is very unique to Pinterest and is fundamentally different from user activity that typically occurs on other platforms. This creates a highly efficient way to get relevant content for users across our ecosystem. User-curated content is a key aspect of our content strategy, and we expect it to remain a significant differentiator. In addition, we're increasingly sourcing rich media content uploaded to our platform from a wide variety of sources, including publishers, creators, brands, and users. In Q3, content uploaded to Pinterest accounted for nearly half of our saves, demonstrating that users are finding this type of content highly relevant and engaging. One of the uploaded rich media formats we're particularly excited about is video. Videos often make it easier for users to get inspired and to make, do, or buy something. This is especially true for Gen Z users. We've been ramping our video efforts over the past couple of years. Last year, we focused almost exclusively on attracting creators to upload videos on our platform. However, we've since learned more about the types of videos that resonate with our users and found that we can also obtain high-quality videos and other forms of rich media content from sources beyond creators. This is both highly efficient and effective. While creators are an important part of this equation, a larger portion of our rich media corpus is coming from users, brands, and publishing partners. Over the past year as we've evolved our video upload tools, we've grown our video supply by three times. Additionally, in October, we announced partnerships with Warner Music Group, Warner Chappell music, Merlyn, and BMG to expand the music experience on Pinterest. Through these deals, users will be able to add popular song tracks through a new user experience, which we believe will enable users and creators to engage more deeply and creatively with the platform. Finally, we're working to expand the relevance of our platform to emerging audiences, specifically Gen Z, by building products and experiences that resonate with them. Over the past three years, growth from our global Gen Z demographic has outpaced growth from all other demographics, and Gen Z users continue to grow despite the pandemic's online and SEO headwinds. In Q3, Gen Z grew double digits year-over-year, accelerating from Q2. This trend supports our thesis that Gen Z gets something from Pinterest that is distinct from what they get on other popular platforms, namely, a place to discover with intent and purpose and to explore their creativity. Nowhere was this clearer to us in Q3 than in the enthusiastic reception of Shuffles, our standalone collage-making app available on an invite-only basis to iOS users. The vast majority of shuffled users are in the Gen Z demographic. We've been watching with interest as they find novel ways to use Shuffles, such as remixing each other's Shuffles to collaborate on ideas, like creating the perfect Halloween costume inspired by 'Stranger Things.' We continue to iterate and learn from this beta launch and plan to add new features and functionality to Shuffles as we make it more widely available. Next, I'll discuss our approach to driving more inspiration and intent to action. At the highest level, we believe shopping on Pinterest drives and informs the core experience of the service rather than being distinct from or bolted on to that core experience. This is supported by the fact that more than half of users we've surveyed view Pinterest as a place to shop. Over time, we expect to make every product that the user encounters on Pinterest shoppable, even when that product may be in a scene or in other user-generated content. This means pins on all our surfaces should be shoppable, not just the ones on a designated Shop tab. To facilitate this, we've released our API for shopping to general availability in Q3 across all of our shopping-enabled countries, which include the U.S. and our largest markets in Europe, Latin America, and APAC. Our API for shopping makes it easier for merchants to upload their catalogs and metadata while also sending real-time data on SKU-level pricing and inventory. On the discoverability side, we're leveraging both machine learning and the first-party signals we get from the unique human curation on Pinterest. If you're looking for a mid-century modern couch, we should be able to show you tables, rugs, and lamps to complete that room based on how millions of users have saved and organized home decor content. I think this is a superpower for us as we become the home for digital taste-based shopping. We also have an opportunity to become an even more trusted partner to retailers by helping send more traffic, attributable conversions, and customers to their businesses. We can deliver high-quality shopping experiences in partnership with retailers by creating frictionless handoffs with the merchant for things that people want to buy. For example, we're piloting a hosted checkout program with Shopify that allows users to check out directly with the merchant while on Pinterest. We're also testing mobile deep linking that takes users straight to the retailer's app and checkout page. Our efforts on personalization, relevance, and shopping are also instrumental in creating more value for advertisers. Pinterest is a unique place for advertisers because our users seek inspiration and discovery with intent and purpose. This has a number of implications. We have on-platform, first-party signals like searches, saves, and board curation that translate into highly valuable and monetizable customer insights for advertisers and resilient on-platform ad personalization and optimization. Additionally, we have full-funnel ad solutions as users come to us throughout the stages of their purchase journey. We've built our ad platform so advertisers can meet users at every stage of their purchasing journey, as they move from ideation, where brand advertising is most effective; to consideration, where a traffic campaign makes sense; to taking action, where conversion objectives are optimal. Revenue from our ads align with these three objectives, with approximately one-third of our revenue coming from each. Furthermore, we're making ads more performant on Pinterest through insight-led selling, better automation, and improved tools, measurement, and formats. Our results show that this is working. Approximately 90% of our active advertisers now use automated bidding, and in Q3, our attributed conversions grew over 20% year-on-year, driven by improvements we've made in ad optimization and conversion visibility. Before I hand over to Todd, I want to share my thoughts on how we operate the business. 2022 was a year of elevated investment for Pinterest as we leaned into a number of initiatives that we believe will drive durable, long-term growth. Additionally, the team and I have gone through an extensive review of our portfolio of initiatives to ensure we're focused on the highest-yielding activities. The benefits of that additional investment and heightened focus are coming through in product impact, particularly in engagement and revenue. We're also focused on driving efficiencies in the business. As we discussed on the last call, we intend to return to meaningful margin expansion next year and have already started those efforts. Lastly, we have a strong balance sheet with roughly $2.7 billion in cash and cash equivalents, and our business continues to generate strong free cash flow. Our primary use of capital is to invest in the business to drive continued growth. In addition, Todd and I continue to evaluate our broader capital allocation strategy, including a plan to manage dilution from stock-based compensation. Now I'll turn it over to Todd to discuss our financial results and guidance.

Thanks, Bill. Our Q3 financial performance demonstrated the effectiveness of our full-funnel advertising platform, a platform that mirrors the user journey from inspiration to action and that delivers compelling results for advertisers across multiple objectives, including awareness, consideration, and conversions. When you can address the entire consumer journey, it presents a significant monetization opportunity. We've been focused on this strategy for a while, and it's been working. Over the last three years, from Q3 of 2019 to Q3 of 2022, we've grown our global users at an 11% compound annual growth rate. In the same time frame, our revenue grew more than three times faster at a 35% CAGR. This ability to grow revenue faster than users has been driven by ad innovation. While we're pleased with our results today, we think there's a lot more to come in this area. We also believe that we have an opportunity to further grow our revenue per user by deepening engagement with existing users who visit Pinterest more episodically than monthly active users. Bill mentioned the momentum we're seeing in session growth, and we are now leaning into this strategy. Turning to our engagement trends in the third quarter. During the quarter, 445 million global monthly active users came to Pinterest, flat year-over-year but up 12 million or 3% quarter-over-quarter. We believe that the investments we've made and the user experience were the primary drivers to return to seasonal growth patterns from Q2 to Q3. We also received a modest one-time benefit from the iOS 16 update in September, which contributed to our sequential growth in global monthly active users and U.S. and Canada monthly active users. Looking at the U.S. and Canada, monthly active users were 95 million, increasing 3% sequentially with the addition of 3 million users. This is the first time monthly active users have grown sequentially in this region since the first quarter of 2021. Our global mobile app MAU growth accelerated to 11% year-over-year in Q3, and U.S. and Canada mobile application users grew 3% year-over-year, showing positive growth for the first time this year. While our desktop and mobile web MAUs declined in Q3, our mobile app MAUs continued to show greater resilience. As a reminder, mobile application MAUs account for over 80% of our total impressions and revenue. Looking ahead, we've moved beyond the pandemic unwind. By the end of the year, we will have lapped the Google Search algorithm update from November 2021 that impacted our ability to grow MAUs. We feel good about the health of the user base, and we're much more focused now on deepening engagement and driving revenue per user. Turning to our financial performance. Third quarter global revenue of $685 million grew 10% year-over-year on a constant currency basis or 8% on a reported basis. Total U.S. and Canada revenue was $575 million, an increase of 9% year-over-year. This is an acceleration from last quarter's 7% growth rate. U.S. and Canada ARPU of $6.13 grew 15% year-over-year. Better-than-expected strength came from large U.S. retail advertisers who have been more resilient and often seek lower-funnel objectives and shopping goals. CPG advertiser revenue grew modestly year-over-year for the first time all year as we lapped the initial supply chain issues that these businesses faced last year. Our shopping ads revenue, which comes from promoted catalogs, grew 50% year-over-year, accelerating from the quarter prior. We're beginning to see traction in some of our emerging verticals like automotive, financial services, and travel. These segments grew significantly faster than our overall revenue. We continue to evolve more from a previously experimental platform into an always-on and trusted advertising partner. Total revenue from Europe was $86 million, growing 8% on a constant currency basis but declining 4% on a reported basis due to significant foreign exchange headwinds. Our European advertisers remain concerned about the current recession impacting that region as inflation and energy costs are affecting consumer demand. Total revenue from our Rest of World region was $24 million, growing 41% on a constant currency basis and 36% on a reported basis. During the quarter, we launched advertisements in Argentina, Chile, and Colombia as we added to our presence in the LatAm market. However, weak consumer spending created challenges for our more price-sensitive global mid-market and SMB advertisers. As I mentioned earlier, we've been focused on building a durable performance advertising business that allows advertisers to meet users across the entire funnel. This has never been more important than today when CMOs are focused on marketing spend that drives measurable returns. In addition, our positive platform, our users' commercial intent, and our ability to deliver insights-led selling drive unique value for advertisers that's just difficult to find elsewhere. In Q3, we expanded the Pinterest Trends tool from beta to general availability to help advertisers around the world get deeper insights into user planning behavior to inform the early campaign planning stage. Aligning with trends on Pinterest helps advertisers develop relevant campaigns that resonate with their audience based on real-time interests, leading to increased performance. In October, we announced that we've expanded the Pinterest Trends tool from the U.S., UK, and Canada to 30 additional countries. For example, Ashley Furniture Canada tapped into growing home trends on Pinterest using our Pinterest Trends tool to align their products with emerging home decor styles. Knowing that terms like Boho chic and modern farmhouse were top home decor trends on Pinterest, they designed their campaign visuals to highlight how their products could bring these trends to life. In doing so, Ashley Furniture drove a 71% increase in click-through rates and a 12% increase in returns on ad spend in their conversion campaigns. We continue to innovate in tools and formats to improve automation. Our new API for conversions helps explain Pinterest's contribution to attributable conversions to advertisers. We're seeing encouraging adoption of the tool by our advertisers, with its most frequent use case being lower-funnel actions such as checkouts. Beta results have shown impressive performance with a 36% increase in attributed conversion volume when using both the conversion API and tags compared to using tags only. Turning to our expense profile. Cost of revenue increased both year-over-year and sequentially. We're investing in models to make product experiences more personalized and relevant for our users while also delivering improved ROI for our advertisers. We're beginning to see impact from these investments in our current results and believe that they will continue to drive further improvements in engagement and revenue over time. Non-GAAP operating expenses were $434 million in the third quarter, up 38% year-over-year and up 4% quarter-over-quarter. This was lower than our prior guidance, in part due to a decision to shift a portion of our brand marketing spend from the third to the fourth quarter. Adjusted EBITDA was $77 million in the third quarter, with an adjusted EBITDA margin of 11%. We ended the quarter with about $2.67 billion in cash, cash equivalents, and marketable securities. Turning to our preliminary outlook for the fourth quarter. We expect revenue to grow in the mid-single digits percentage range year-over-year. That includes approximately three percentage points of headwind from foreign exchange, slightly greater compared to the third quarter. Many of our advertisers are navigating a challenging environment with higher inflation and weakening consumer demand. This creates a volatile demand environment globally. Given this uncertainty, we believe there could be a wider range of outcomes this quarter, including some downside risk, especially as our Q4 revenue tends to be back-end weighted. On expenses, we expect non-GAAP operating expenses to grow in the low double digits percentage range sequentially as we shift a portion of our brand marketing campaign into Q4. For the full year, we expect non-GAAP OpEx to grow around 35% year-over-year, at the low end of the range we communicated at the start of the year. We firmly believe the investments we made this year will enable us to continue innovating to enhance both the user experience and our advertising platform. As we exit 2022, we're focused on maximizing the return from these investments. We are still committed to meaningful margin expansion in 2023. Now I'll turn it back over to Bill before we open it up to Q&A.

Thanks, Todd. I want to say a few words about how I approach these earnings updates because it's a bit different from how we've done things in the past. I consider communications with and feedback from investors a key priority. I view our quarterly earnings calls as one of the best channels to inform investors and analysts about the most important topics in the business, and I expect to increase the overall dialogue with our investors and analysts. I look forward to sharing more with you when we set our Investor Day in 2023. Finally, I want to thank our team at Pinterest, our advertising partners, and all the people that come to Pinterest to find inspiration. And with that, we can open it up for questions.

We will now begin the Q&A session. The first question is from the line of Eric Sheridan with Goldman Sachs. Please proceed.

Thanks so much for taking the questions. And hope everyone is well on the team. Maybe coming back to a point you both made in the prepared remarks, as we turn the page on '22 and what you highlighted as an investment year, how should we be thinking about what those key investment priorities are, whether it's product or platform or as we go from '22 into '23? And if we're trying to think about what the potential impact of those priorities is, whether it be revenue growth building in '23 and beyond or the potential for margin expansion in '23 and beyond, how would you frame the output from those investment priorities? Thanks.

Thanks, Eric, for the question. So a couple of things I'd say. First of all, we've really been focused on bringing clarity, focus, and operating discipline to the business. On each of those, I'd say on the clarity side, we're a visual discovery platform with three really unique attributes: first, that we're a positive place on the Internet; second, that our users come here with high intent; and third, the human curation that happens on our platform is quite unique. So with that clarity, we're really focused on things that can drive differentiation based on those unique attributes of our platform and making sure that we're operating well and tying these initiatives across our different functions and making sure that we're focused on the highest-yielding activities. As we go into '23, we're glad that we've stabilized the user base and returned to seasonal growth. We think we've got a great ARPU story as we continue to move forward with the business. We're driving more relevance with users and doing that really by leaning into these unique attributes of the platform, both in terms of how we take inspiration to action with things like shopping, making more of the content that users find on Pinterest actionable, and bringing in more relevant content to users, particularly content coming from efficient sources like user-generated content on our platform as well as what we can do with publishers and then, of course, creators. Finally, innovation on ad tech, where we've been making really good progress, but we think there's a lot more we can do there. You're seeing some of this reflected in the results this quarter, but we think there's a lot of upside yet to go on each of those points. I'll pause; is there anything, Todd, do you want to add to that?

No, I don't have much to add. I would say that, to Bill's point on starting to see the results, you saw it in the financial results with strength from many of our core customer base in large retail and even some falling in the CPG market for us. But it's also worth noting that in addition to the stability in the user base and even the sequential growth that we saw, Bill had referenced some sessions growth meaningfully above our user growth. We saw improvement in saves, impressions, board creates in the U.S. and other good signals that we're now in a position to drive that ARPU story that Bill described.

Great. Thanks very much. I have a couple. First off, Todd, I was hoping you could expand a bit on the puts and takes with respect to the Q4 guide just given the moving parts you discussed on the macro front and the various platform initiatives. And then, Bill, I was hoping you could then maybe expand on the lower-funnel shopping integrations, including checkout and some of the beta tests, if your view or strategy here has evolved since you first joined Pinterest and if these are already moving the needle or if they have a longer cycle time, perhaps in the next year, before they contribute meaningfully to growth. Thank you.

Colin, thanks for the question. I'll start with your first one on puts and takes around Q4 guidance. Currently, the headline is that October is trending, very roughly speaking, at the low end of our Q4 guidance of that guidance range that we described in the opening remarks. We've been executing very well in this environment overall and relative to others in the industry, which has been very encouraging. As you know, though, Q4 revenue is back-end weighted to November and December given holiday seasonal moments. And given this and the overall ad market volatility, there could be a wider range of outcomes, including some downside risk to our guidance. When we gave our Q3 guidance of mid-single digits growth during our Q2 earnings call in July, we indicated that July was trending slightly above that guide. At this point, October today is trending at the low end of the Q4 guidance range, and our guide assumes a modest pickup in demand for November and December from today. It's worth noting that our guide includes about three percentage points of headwind to revenue growth rate in the fourth quarter from foreign exchange headwinds, which is slightly greater compared to the third quarter.

Yeah. On your question about lower funnel and shopping, Colin, we think there's a lot more we can do to drive intent to action across the platform. This is one of the things we think makes us very different from other discovery platforms, is that we have discovery with intent and purpose. So there's a lot more that we can do to drive that intent to action. Shopping is a particular area of focus for us on that. Our strategy is to meet the user where they are on the platform. We see that more than half of users on Pinterest are here to shop; they're telling us that directly. We've had experiments with shopping tabs that have been part of the experience but not necessarily core to the experience. Moving forward, we're making shopping more core to the experience. That's what users are looking for. You can see progress on the shopping front already. Our Q3 revenue from shopping ads grew 50% year-over-year. You can look to see more from us as we start to make every product you encounter on Pinterest shoppable, regardless of whether that product appeared in a scene or user-generated content. We will make sure there is clear actionability on that. This can be a hosted checkout through Shopify or a high-quality handoff to the retailer or the merchant. As we enhance this actionability, we believe it not only plugs leaked engagement but also is a highly monetizable event, and you're already seeing that in our shopping ads. We expect more of that to continue.

Great. Thank you.

Next question, operator.

Can I ask two questions, please? First, regarding the music partnerships you mentioned, could these lead to new revenue streams? Are there additional ways to monetize if music is incorporated? Secondly, Bill, I’d like to inquire about the investments in AI and machine learning, which seem to have increased significantly across the industry. How do you envision Pinterest leveraging higher investment in artificial intelligence and machine learning? Thank you. That's all.

Thanks for the questions, Mark. First on the music partnerships, we look at that as a way to make our content more attractive for users. You’ve seen us making good progress, particularly in finding efficient ways to source new content. Instead of relying almost entirely on creators, we are broadening our strategy to include various sources of content, including publishers and partners. This should lead to better monetization opportunities overall over time. Regarding machine learning, it's a fantastic question. One of the things that drew me to Pinterest is that while machine learning is a utility that many have access to, it’s only as good as the signals it's acting upon. The human curation that happens on Pinterest is fundamentally different than the user engagement that happens on other platforms. Most other platforms are lean-back consumption; Pinterest users are more engaged, which provides a richer signal. This positions us well in a landscape impacted by changes like privacy policies that reduce third-party cookies. Our unique model allows us to remain resilient, and we have a lot of potential for improvement and relevance as we leverage our strong first-party signals with machine learning.

Hey, guys. Nice job on the quarter. A question on international. So if we look at the international ad revenue opportunity, there are some countries where consumers engage with shopping apps differently than they do in the U.S. There's live commerce and other things going on. The monetization opportunity could be more robust in one country versus the other. If we look at franchises like Facebook, there's a pretty normal spread between the ARPU in the U.S. and places like Europe and ROW. The gap here with Pinterest reflects that your U.S. business is far more mature than these international countries. So the question is, is there anything structural that we should think about that would make your international story different? How quickly do you expect these new countries that you're lighting up to ramp up? Is it direct sales, self-serve? Can you explain how a new market, like Japan or some of these newer countries, might ramp up? Thanks a lot.

Thank you for the question, Ross. There is definitely opportunity in international markets. We have seen good growth in some of the markets, and Todd will talk more about that. What I would say generally is our differentiation in the full funnel is important. We are a full-funnel platform, which we believe positions us well across different markets. Yes, we are relatively new to monetizing outside the U.S., starting in Western Europe and moving into LATAM, and we just launched in Japan a few months ago. Overall, we are still early in the international market but are committed to growing there. While there are unique aspects in these markets, the core value of what users find on Pinterest and their mindset remains consistent. Understanding how to tailor our approach in specific markets while leveraging our strengths as a full-funnel platform is key. I'll hand off to Todd to elaborate on efforts across various markets.

Ross, thanks for the question. When you step back and think about the user experience and the mindset of our users, the same commercial intent and planning mindset that U.S. users have is very similar in our non-U.S. markets too. While we were just later to begin monetizing outside the U.S., we are seeing it grow in many countries. Just to give an example, you may recall when we talked about scaling in EMEA that one of the differences in the region was more agency concentration or agency-centric selling. So we talked about launching Business Access as a tool to help us navigate those agency relationships. However, the fundamental use cases and intent are still there in these non-U.S. markets. Over time, I think you will see both the depth of the ad market and the prices it's possible to command for ad slots driving our growth.

Great. Thank you for taking my questions. I have two. I appreciate the color about session growth. It's pretty interesting. I'd be curious to hear about what you can share on search behavior, whether it's search queries or the number of people who are searching, anything, Bill. I know with your search background, you could help us understand the behavior you see in searching, perhaps another monetization driver. Then the second one, maybe it's a little technical, but I'm just curious to hear about the Shopify partnership. Can you give us some examples of blocking and tackling in the back end where you're able to accelerate the merchants and the SKUs per merchant that really come onto the platform and are integrated into the experience at a faster pace? Thanks.

Thanks, Brian. Great questions. Regarding session growth, we are deeply engaging with our users, and I believe this highlights our opportunity for ARPU growth. On your search question, we split revenue by funnel stages. Lower funnel is where the product is most nascent. However, we see considerable search volume on the platform today, which provides us another angle for growth. As for accelerating merchant integration, we've had good connections with Shopify, leveraging our shopping API to simplify catalog uploads. This allows retailers to publish real-time inventory updates, and we're at one billion items in our catalog now. Additionally, we are shifting from shopping being a separate function to making products users discover on Pinterest more directly actionable, which historically wasn’t as straightforward. This strategic shift creates more opportunity to drive lower-funnel activity and the engagement we are already seeing from our shopping ads growing 50% year-over-year speaks volumes. We have still much work ahead, but we are enthusiastic about our path forward.

Thanks for taking questions. Just two quick ones. Bill, you mentioned just innovation in ad tech going forward. Can you talk for a minute about building out self-serve and how far along you are here? Also, Shuffles is driving a lot of the Gen Z growth in Q3. How do you leverage that into the core platform to drive repeated use and engagement? Thank you.

Thanks, Doug. On the ad innovation side, we are somewhat early in our ad platform compared to others. Improving conversion visibility and trends visibility is our focus. Self-serve remains an opportunity for future growth; however, it has faced challenges as smaller advertisers are more affected by the tough environment. This will continue to be a priority for us, but it is secondary in the near term. Regarding Shuffles, we are seeing remarkable reception, which speaks to what users expect on Pinterest. The user experiences are different compared to other platforms. Shuffles extends our unique use cases designed around engagement. Moreover, our core platform is already drawing strong traction with Gen Z, not solely due to Shuffles. We’re examining ways for more connectivity between Shuffles and the Pinterest app, encouraging a back-and-forth interaction that enhances the overall Pinterest experience. Thank you again for joining us today.

That concludes today's conference call. Thank you. You may now disconnect your line.