Pinterest, Inc. Q2 FY2023 Earnings Call

Good afternoon, and thank you for attending the Pinterest Second Quarter 2023 Earnings Conference Call. My name is Elisa, 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.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the second quarter ended June 30, 2023. I'm Neil Doshi, Head of Investor Relations for Pinterest. Joining me today on the call are Bill Ready, Pinterest's CEO; and Julia Donnelly, our CFO. Now I'll cover the safe harbor. Some of the statements that we make today regarding our performance, operations and outlook, 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 2023 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 our Investor Relations 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 presentation, which are distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com. Lastly, all growth rates discussed in today's prepared remarks should be considered year-over-year unless otherwise specified. And now I'll turn the call over to Bill.

Thanks, Neil, and thank you all for joining our second quarter 2023 earnings call. Q2 was a solid quarter marked by strong growth across our business. We're seeing ongoing momentum, giving us continued confidence that our strategy is yielding results with more potential as we look ahead. We ended the quarter with 465 million monthly active users (MAUs), up 8%. Our total revenue was $708 million, growing 6% or 7% on a constant currency basis. We remain disciplined with our expenses and delivered adjusted EBITDA of $107 million and an adjusted EBITDA margin of 15%. Before we dive into the key highlights from Q2, I'd like to share more about what we've accomplished over the last year since I joined and why I'm excited for the opportunities ahead. During this time, we've become laser-focused on our strategy of building upon our core differentiators and visual discovery to help our users go from inspiration to action. With that focus on our strategic priorities, we've successfully returned to strong user and engagement growth while delivering consistent year-on-year revenue growth and returning to margin expansion despite the downturn in the advertising environment. On the engagement side, we've utilized next-generation AI technologies to service more relevant and personalized content and improve ad relevance, driving more intent to action and focusing our content strategy to bring actionable content from a range of sources, including users, creators, publishers, and retailers. As a result, monthly active users have grown more than 30 million over the last 12 months. Our users are also returning more frequently and engaging more deeply. Engagement metrics such as sessions, impressions, and saves grew substantially faster than our users across all of our regions over the same period. It's worth noting that we've seen these engagement gains over the past year during a period where we have also grown our ad load on the platform, proving that relevant ads, including lower funnel ad formats, can be good content for users in a unique setting like ours with high commercial intent. We continue to see significant benefits and momentum from whole page optimization and ongoing improvements to our ads quality, targeting, and relevancy. We increased our focus on making Pinterest more shoppable by integrating shopping into the core experiences of our platform. We're now seeing strong growth and engagement with shopping-related content on our core surfaces. For the past four quarters, shopping ads revenue has grown multiple times faster than our total revenue growth. I believe we are just scratching the surface when it comes to monetizing lower funnel behavior on Pinterest. Importantly, we also accelerated innovation on behalf of our advertisers, tripling the number of ad product formats released so far this year versus last and introducing important measurement solutions that prove our value to advertisers. We are seeing revenue from advertisers who take advantage of these measurement tools grow significantly faster, a positive sign for the future as we increase adoption of these tools among our customer base. We also opened our platform to third-party demand partners, starting with the Amazon Ads platform. To summarize, I'm very proud of what we've accomplished over the last year, and we're just getting started. We look forward to sharing more details and a comprehensive update on our strategy during our Investor Day, taking place in San Francisco on September 19. With that backdrop, I'll now move on to the progress we've made in the second quarter, advancing our strategic priorities and driving the business forward. First, I'd like to discuss how we are deepening engagement with our existing users and growing new users in Q2, driven by our AI efforts in relevance and personalization as well as a clear focus on satisfaction of user intent. In Q2, our global MAUs grew 8%, while our mobile app MAUs, which account for over 80% of our revenue and impressions, grew 16%. In addition, our mobile app MAUs grew 9%, accelerating from Q1. Our users were also visiting us more frequently. The basket of metrics that we use to measure engagement, such as sessions, impressions, and saves, grew significantly faster than MAUs in Q2 across all regions, consistent with the trends we have observed over the last four quarters. To help bring this to life, I'd like to share a few examples of how we are driving engagement on the platform, starting with how we are implementing AI to better serve our users. Nearly a year ago, we began moving to next-gen AI capabilities, enabling us to use recommender models that were 100 times larger than before. We combined our first-party proprietary data with our AI-based computer vision and search technologies to improve the perceived relevance for recommendations on related pins, driving perceived relevance up by nearly 10 points from a year ago to 94%. This means that when users are searching for something on Pinterest, we are returning results that they find relevant and helpful, and we're doing this with a very high degree of accuracy. More recently, as we have continued to focus on what our users want from us, we've incorporated into our AI models more signals from our platform. As an example, in the first half of this year, we unlocked further engagement gains by integrating propensity to share into our AI recommender models. By recommending content that users are more likely to share, we improved retention of our core users, and we grew revisits from dormant users as they tend to engage more with recommended content from people they know. In Q2, another source of engagement gains came from the launch of our new guided browsing experience designed to help episodic users rediscover existing use cases and find their next project or passion on Pinterest. This experience adds a set of horizontal images across the home feeds grid where we can display more content based on the user's intent. The valuable signals we get from this new browsing module help optimize the user experience for previous or new use cases and deliver more relevant shopping experiences. We've seen a meaningful lift in revisitation as a result. As we continue to focus on improving the inspiration to action journey for users across our platform, we see users explore more interests outside our core home, food, fashion, and beauty verticals, with strong growth in the number of MAUs engaging with emerging verticals such as men's fashion, auto, health, and travel in the first half of this year. Lastly, we continue to see strong growth with Gen Z users on Pinterest, who in Q2 were our largest contributor to overall engagement growth and the fastest-growing cohort, growing double digits and accounting for a larger portion of our overall mix. In particular, we found that our Gen Z users consistently engage more deeply on the platform than our older cohorts, as measured by their saves and close-up activity on the platform. Next, I'd like to discuss how we are improving monetization by making Pinterest more valuable for advertisers as a full-funnel platform. These ad offerings allow us to reach a broader set of advertisers to diversify and grow our revenue base and also help us deliver improved results to our advertisers based on their performance criteria. First, let's start with how we are innovating at the lower end of the funnel, where we are helping retailers gain customers, not just transactions. In July, we brought our mobile deep linking product or MDL to general availability, opening up this highly performant offering to more advertisers. MDL is a great fit for retailers who want to drive users to purchase an item on their mobile app and has been a significant driver of our shopping ads revenue growth over the past nine months. By taking what we've learned through MDL, we are planning to expand our lower funnel offerings to include more seamless one-click site handoffs in the back half of this year. This gives retailers who don't have a standalone app, or prefer to do a one-click handoff directly to their site, the flexibility to choose what works best for their objectives. Travel catalogs are another format we debuted this quarter, allowing advertisers to reach users who are in the midst of planning, organizing, and taking action on their travel dreams. It's built on our product catalog technology and automatically turns each listing into a dynamic product pin with relevant booking information such as hotel name, pricing, images, and descriptions. As an example, TUI, one of the world's leading tourism groups based in Germany, added travel catalogs to their full-funnel strategy to drive more users to their available hotel listings. In Q2, their campaign yielded strong results with a six-fold increase in outbound click-through rate and an 80% reduction in outbound cost per click compared to what they were seeing in previous conversion campaigns. Furthermore, we made good headway helping advertisers measure the efficacy of their campaigns on Pinterest. Since introducing our conversion API in Q4, we've steadily grown the percentage of revenue from advertisers who adopted our conversion API solution. In addition to innovating on the lower funnel, we've also continued to innovate on upper funnel ad formats to build on our strength in that segment of the market and meet advertiser demand. In June, we made our Premier Spotlight ad format, which is our upper funnel takeover video ad unit on our search surface available for all advertisers. We're seeing early adoption from a large number of brand advertisers such as MAX, formerly known as HBOMax and Comcast XFINITY. Similar to last quarter, in Q2, we continued to drive a more than 30% increase in our global ad impressions or monetizable supply due to engagement gains and dynamically flexing ad load when a user is expressing intent through whole page optimization. We are also leveraging next-gen AI on our ad products, and we're seeing a profound impact in our ad capabilities. In Q2, we expanded our use of GPU serving from core engagement AI models to our ad delivery models, which enabled us to utilize models that are 100 times larger than before in ads as well as organic. The cumulative impact resulted in a 5% reduction in cost per action and over 10% lift in click-through rates. I'm very proud of our team's execution on the monetization side, but we are still early in our ad platform evolution. I believe third-party partnerships can be additive by expanding the depth of advertisers, bringing more relevant ads, and improving our auction density. We announced our first third-party partnership with Amazon Ads in April. This partnership has strong synergies as Pinterest has significant commercial intent and consumer desire to go from inspiration to action while Amazon Ads can bring more shoppable content with a great consumer buying experience. As I said on our last call, a partnership of this scale will be a multi-quarter implementation, with the most meaningful revenue impact likely being in early 2024. However, we've recently begun testing live traffic with Amazon Ads. We are very pleased with the pace of implementation in Q2 and the early results of our testing in Q3 so far. Looking at our overall progress on shopping, we're quite excited about the momentum we're generating. We're building a powerful flywheel that is driving increased engagement among our users and delivering greater value to our advertisers. We're utilizing next-gen AI models with our first-party signal to recommend brands and products that are aligned with user preferences, and this is resonating with users. In Q1, we continued to grow the overall distribution of shoppable products you can take action on in the home feed. In Q2, we've expanded this to all of our core surfaces. Users are actively engaging with this content, with click-through rates and saves of shoppable content growing over 50%, accelerating from the 35% we saw in Q1. In Q2, we also launched a new automated shop-the-look module for home decor and fashion pins that utilizes AI to recommend similar shoppable products tied to our merchant catalogs. In our early A/B tests, Shop the Look is unlocking greater value for merchants as this high-intent traffic drove a 9% increase in conversions. These innovations continue to manifest in robust shopping ads revenue, which continues to grow at a pace meaningfully faster than our overall revenue rate. Now I'd like to discuss our focus on operational rigor. As we've said previously, we're instilling a culture where we focus more on what drives results for users and advertisers, and being more rigorous with our expenses ultimately makes us a more durable company. We've been able to accelerate our pace of innovation while also being disciplined on expense management, resulting in positive outcomes for our users, advertisers, and shareholders. In Q1, we took steps to reduce our expenses and drive greater efficiencies in our business, including rightsizing our workforce to align talent with our strategic priorities and restructuring our real estate portfolio. In Q2, we identified further cost efficiencies, leading to operating expenses that were lower than we guided to. Later in the prepared remarks, Julia will share our latest outlook on expenses and margin expansion for the year. Finally, I'd like to talk about our progress in making Pinterest a more positive place on the internet. Our commitment to fostering a more positive environment resonates with advertisers. We believe our relative brand safety remains a driver for advertisers to invest more and spend on Pinterest. Our efforts and positivity also resonate with users. For example, we're building inclusive AI technology like skin tone diversification that helps users personalize their experience and see themselves on Pinterest. In Q2, we improved the skin tone diversification of our core feeds, leading to engagement wins. We want others to join us on our mission to make the internet a more positive place. In June, we created the Inspired Internet pledge in collaboration with the Digital Wellness Lab at Boston Children's Hospital. The pledge is the call to action for tech companies and the broader digital ecosystem to unite with the common goal of making the internet a safer and healthier place for everyone, especially young people. Before turning the call over, I wanted to say a few words about our new CFO, Julia Donnelly, and why I'm so excited to partner with her going forward. We ran an extensive search for a CFO, and I know Julia is the right leader and partner to help our team grow and scale Pinterest. Prior to joining, Julia was VP of Finance and Accounting at Wayfair, where she was responsible for the entire global finance and accounting organization, as well as Investor Relations and Corporate Development. She is a strategic, disciplined, and highly regarded executive with an impressive background leading all aspects of finance within an innovative, high-growth public company. Her leadership and deep experience across e-commerce, media, and technology will be invaluable as we position ourselves for the next chapter of Pinterest. I'll now turn the call over to Julia to provide an update on our Q2 financial performance.

Thank you, Bill, and good afternoon, everyone. I'm thrilled to join the Pinterest team. As you can imagine, it's been a busy and exciting few weeks since I joined in late June. First, I'd like to discuss a few of the reasons why I came to Pinterest and why I'm even more excited about the opportunity ahead. Before joining, I followed Pinterest extensively as a beloved brand with an inspiring and positive consumer app and a strong financial model. From my previous role, I've also watched Pinterest become an incredibly performant and innovative advertising platform. Coming from what I would consider a best-in-class e-commerce advertiser, I've had first-hand experience in how Pinterest is uniquely able to help marketers find users who are in the midst of an inspiration journey where they're looking to buy but not quite sure what they want, and then ultimately take action to bring that to life. Over the last few weeks, sitting inside the company, I can attest to the excitement and energy from our teams on everything we are building for our users and advertisers. I'm honored to take on the CFO role and join the management team at Pinterest to continue building on this momentum. Leveraging my background in e-commerce, I look forward to helping us navigate through this exciting next chapter of growth, capturing the significant revenue potential ahead through strong operating execution and sound investments. Looking ahead, I'm excited to develop a productive dialogue with the shareholder and analyst community, as well as sharing more about progress to date and future potential ahead at our Investor Day in September. Now turning to our results in the second quarter. In my remarks today, I'll discuss our Q2 financial performance and provide our preliminary outlook for Q3. All financial metrics, except for revenue will be discussed in non-GAAP terms unless otherwise specified, and all comparisons will be discussed on a year-over-year basis unless otherwise noted. As Bill mentioned, our investments in AI and new user experiences drove strong engagement on our platform in Q2, resulting in 465 million global monthly active users, an increase of over 30 million users over the last 12 months. We grew monthly active users 8% on a year-over-year basis globally, the highest growth we've seen during the last two years. In the U.S. and Canada, monthly active users were 95 million, up 3%. In Europe, monthly active users were 124 million, up 6%. And in our Rest of World markets, monthly active users were 246 million, up 10%. Underlying our monthly active user metric, we had even faster growth and engagement as measured by sessions, impressions, and saves, which is a testament to the work we're doing around deepening engagement with our users. I'm excited about the progress we're making with Gen Z users, which is our fastest-growing segment and an important and influential demographic for marketers in many of our core verticals. Turning to our financial performance. Global revenue for the second quarter came in at $708 million, growing 6% or 7% on a constant currency basis. U.S. and Canada revenue was $565 million, an increase of 4%. Europe revenue was $114 million, growing 12% on both a reported and constant currency basis. Revenue from Rest of World was $29 million, growing 32% or 35% on a constant currency basis. We're pleased to see global year-over-year revenue growth continued to strengthen this quarter versus Q1 '23 and Q4 '22. A testament that while the ad market remains somewhat choppy, advertisers continue to turn to Pinterest because of our highly attractive user demographics, relative brand-safe environment, and the strong return on ads spend we can deliver. During the quarter, at the top of the funnel, we saw strength in awareness objectives as many brand advertisers, particularly CPG advertisers, were able to meet their goals given our engagement gains and attractive pricing. Contributing to this growth were video ads and our new Premier Spotlight takeover ad unit. At the bottom of the funnel this quarter, strength came from larger, more sophisticated advertisers who leaned into our shopping ads format driven by the adoption of mobile deep-linking and our conversion API. However, we also experienced headwinds from those who have yet to adopt our measurement tools and pockets of distressed retail advertisers. Finally, across all parts of the funnel, we continue to gain good traction with advertisers in emerging verticals such as travel, autos, and financial services, helping us further diversify our advertiser base outside our traditional areas of strength. In terms of overall auction dynamics in the second quarter, ad supply grew more than 30%, driven by engagement gains and opening up supply to whole page optimization, and the price of ads declined 20% due primarily to a softer pricing environment across all geographies. Moving down the P&L, cost of revenue was $164 million, up 1% year-over-year and down 2% quarter-over-quarter versus Q1. This is the third quarter in a row of sequential declines in our cost of revenue line item as our teams implemented a number of efficiency projects across storage and compute infrastructure. It has been exciting to see how we can realize these efficiencies in our cost of revenue even while we drive significant engagement gains and ad stack innovation and leverage AI throughout our business. Overall, our non-GAAP operating expense was $440 million, up 5% year-over-year and up 7% sequentially versus Q1. This was below our guidance as we were able to drive more cost efficiencies, particularly in our R&D and G&A functions, while also shifting some of our marketing spend from Q1 into Q2. Adjusted EBITDA had a very strong quarter, coming in at $107 million or a 15% margin, up 130 basis points year-over-year, driven by increased revenue, efficiency in our cost of revenue, and operating expense discipline. This quarter, we successfully completed our $500 million stock repurchase program, well ahead of the 12-month plan to complete the program as we saw openings to be opportunistic with our purchases during the quarter. We continue to be mindful of managing dilution. Capital allocation will be a topic of our upcoming Investor Day, and we look forward to sharing more details at that time. Finally, we ended the quarter with approximately $2.3 billion in cash, cash equivalents, and marketable securities. Now I'd like to provide preliminary financial guidance for the third quarter. While the overall digital ads market appears to be stabilizing, the recovery remains uneven with pockets of strength and weakness. We expect Q3 revenue to grow in the high single-digits range year-over-year. Based on what we are seeing right now, we expect to land towards the middle of that range, which would represent a moderate acceleration from the growth rate we saw in Q2. This includes a small impact from foreign exchange, which is reflected in our guidance. Turning to expenses, we expect Q3 non-GAAP operating expenses to grow in the low single digits range year-over-year. Please note that our operating expense guidance does not include the cost of revenue. As we have noted previously, we are committed to expanding adjusted EBITDA margins in full year 2023 on the order of a couple of hundred basis points year-over-year in any state of the world. Based on the revenue acceleration and the expense outlook provided above, we believe the adjusted EBITDA we expect to deliver in Q3 puts us on the path to double that prior commitment, resulting in roughly 400 basis points of year-over-year adjusted EBITDA margin expansion for full year 2023. We feel good about the progress we've made on users, engagement, and monetization while also maintaining cost discipline to ensure we are investing in areas with clear line of sight to strong returns to capture the sizable revenue potential we see ahead. With that, I'll now turn the call over to Bill for a few final words.

Thanks, Julia. I'm proud of our team's execution to deliver strong results in Q2. And I'm confident that we're making the appropriate investments to provide great experiences for our users and more value for advertisers. I want to thank our teams at Pinterest, our advertising partners, and all the people who come to Pinterest to find inspiration. And with that, we can open the call up for questions.

We will now open the line for questions. The first question comes from the line of Eric Sheridan with Goldman Sachs. Your line is now open.

Thank you so much for taking the question. Maybe two, if I could. Bill, first for you. You talked a lot about product and platform iteration and there's also a lot of talk about the current advertising environment. Can you talk a little bit about when you think about the elements of revenue reacceleration that are building in your business, how much are elements that are within your control based on things you're building and executing on inside the business versus elements of volatility down to the broader ad environment or macro environment that are somewhat out of your control? And then the second one, Julia first, congrats on the new role. I look forward to working with you going forward. I wanted to come back to your comments during your prepared remarks and just delve a little bit deeper in what you see as some of the big opportunities or agenda items that you want to tackle in this role as the CFO? Thanks so much.

Thanks for the question, Eric. So to your first question, on what we can control and what's sort of in the broader environment. The broader environment is seeing some stabilization and some signs of recovery, but there's still a lot of puts and takes and a lot of choppiness out there. A direct example of that is if you look at pricing impact, which would be sort of direct evidence of softness in the ad market, that's down 20% year-on-year for us. That's pretty consistent with what you see across other large platforms, some of which had year-on-year declines last year and year-on-year declines again this year. They were double-digit plus or 15 percentage points plus. So you have this pretty strong pricing headwind, which is just the element of softness in the broader market. And while there are some signs of stabilization in pockets of recovery, there's still choppiness, as evidenced both by us and other major platforms with that pretty material headwind on pricing. But if you look at to your question of what we can control, we feel fantastic about the progress that we're making. The things in our control, most noteworthy, are the return to user growth. We just put up our largest user growth quarter in two-plus years, deepening engagement on the platform. We've talked about how, given the high commerciality of what users do on our platform, we can take ad load much higher than what it has been. Ads in a commercial context can be really relevant content. So we can take ad load higher even while driving deeper engagement, and you see that evidence in our results. That's a unique thing in the ad world, to be able to do that, particularly in social media, where ads tend to take the user away from what they're trying to do. Because they are more in an entertainment mode. Here, because we have the user in a lean forward intent mode, we are demonstrating through our whole page optimization work and our dynamic ad load that we've been able to take ad load up 30% or drive 30%-plus lift in impressions, part of that driven by growth in user engagement, but a big part of that driven by increasing ad load while engagement is up, meaning we're proving out those ads as relevant content. Coupled with the advertiser side of this, as they are getting more adoption of our measurement tools, they continuously as they adopt our latest measurement tools, spend more and tend to grow much faster than those on the rest of our platform. I've shared this in some prior remarks later in the quarter, that those who have adopted our measurement tools tend to grow on the order of 30% year-on-year. Those who have not yet adopted our mid-single-digit decline. So as we're driving that adoption curve, that headwind will increasingly flip around to a tailwind for us. Those are things that are in our control that again, if you step back from it, give us lots of confidence in where we're going. While we can't predict when the pricing headwinds in the broader ad market will alleviate or turn back into a tailwind, we've been able to deliver really solid growth even with a 20-point plus headwind. I'll give it to Julia for your second question.

Thanks, Eric, for the question. I appreciate it. So first, let me start with just a couple of observations. It's been obviously an exciting few weeks here for me at Pinterest. From my prior position, I heard a lot about Pinterest and the exciting pace of innovation that was taking place. Now that I'm on the inside, it's great to see that many other advertisers are really recognizing the same. When I first got here, the teams had just returned from Cannes. They were talking about the buzz and momentum from agencies and advertisers about all the ad products we're building. As we mentioned earlier, we've actually tripled the number of ad formats released so far this year versus last year, and we're really accelerating the pace of ad stack innovation meaningfully as we described earlier. So that recognition by the broader advertiser community is great to see. The second observation I'd have is just how impressed I've been early on by the level of engineering and product talent that we have inside the company here, particularly in our AI functions. We have really world-class AI teams, and Pinterest has been a talent magnet on that front. So I'm impressed to see and learn how embedded AI actually is in virtually every aspect of our platform today. As you think about agenda items and where we go from here, obviously, I'm very excited about the direction that this team has already taken the company, and that's a big part of why I chose to join and help build on that momentum. I'd say we've made some real progress over the last year. My goal, where I look forward to partnering with the team, is continuing to ensure we're driving investments in areas with really clear line of sight to returns, where we're investing in that growth to capture the revenue opportunity but also doing so profitably and looking to drive that operating leverage over time.

Hey, guys. So we're starting to see these really nice SKU-level ads from Amazon showing up in the app. And you just mentioned that you guys have been able to increase that load pretty nicely even before turning these on. So I guess, can you just talk about how you think about ad load, the ceiling to ad load if there is one? And then how these new Amazon ads compare from a pricing perspective to the directly sold interest ads? And then the second question is just on the new categories - the travel, financial services, auto. Just how you guys are viewing? I know it's early, but how are you viewing those non-endemic categories in terms of potential opportunity in the next couple of years? Thanks a lot.

Thanks, Ross. So on your point on the Amazon Ads partnership, as I've said before, we really believe that the commerciality on our platform can allow us to take ad load much higher. We don't break out ad loads specifically, but we've talked about the 30%-plus growth in monetizable supply, which is meaningfully faster than our engagement growth overall. That's really been driven by bringing more relevant shoppable content onto the platform for users. So Amazon as a partner, we're quite encouraged that they can bring more of that shoppable content plus a great buying experience for users. And so while it's a multi-quarter implementation. A reminder that the biggest element of that revenue we expect to start hitting in early '24, we're really pleased with the pace of implementation. One of the biggest things we're happy about is we're seeing improvements in relevancy even beyond our already very optimistic expectations on our side. It contributes to more relevant shopping content, which further bolsters our view that we can take ad load much higher. If you compare that to other experiences you could see as you count ad load or ad slots on other shopping experiences, provided we have the right relevancy, we can take ad load to be a multiple of what it is today for our users, particularly when users are in a commercial context, where more than half the users are here to shop. So, I think there is still a lot more runway ahead, with quite a high ceiling for where we can go with ad load. The fact that we've already been growing at 30% plus year-on-year in terms of overall monetizable supply, while also increasing engagement proves out that theory of the case that we can grow ad load while also making it relevant engagement driving content for our users. Now to your second question on new categories and how we're seeing those previously non-endemic categories across Pinterest. We talked about the uniqueness of Pinterest being that it's a great full funnel platform where people would go from inspiration to action. We knew that actionability was historically a weaker part of the platform. As we’ve brought in more satisfaction of intent, more ability to go from intent to action, we’re seeing that is resonating across categories. A few that we mentioned, like travel, auto, and men’s fashion, we’re seeing that as we’re doing more to create satisfaction of intent, that is applying well across other categories. Travel is likely the most noteworthy. People have always dreamed about travel on Pinterest. But again, like shopping, actionability was lower. As we’ve taken our work in shopping and applied a lot of that base technology to travel and opened up a travel catalog, we are now making more of those travel ads clickable and engageable by the user with things like pricing information and availability. We are seeing that intent-to-action effort driving good results with users and with advertisers. That's quite encouraging, and while we still have tremendous runway to go in shopping, there are other meaningful categories and verticals on Pinterest. Finally, I would just say on the organic side of that, I mentioned some of what we’re doing around helping to nudge users into other use cases. Pinterest could at times be more episodic for some users, and we've been leveraging some of our AI capabilities and product experiences to nudge users towards other relevant categories for them. We think there's a lot more runway to go there.

Okay, thanks. A couple for me on the partner monetization side, if I can. First, it sounds like Amazon partnership is progressing faster than you guys expected. What are the big outstanding blocks you need to get through to scale that? As you think about potentially adding other partners, would those things need to get redone from scratch? Or is this more foundational platform efforts? And then the second question is the partnership you guys announced with Alf - how meaningful could that contribution ultimately grow to and in markets where you have their sales force helping you and other third parties? How will you kind of toggle between those sorts of go-to-market and a less? Thanks.

Thanks for the question, Lloyd. So on the partnership with Amazon and your broader comments on bringing on third-party demand, as we said, yes, we are very pleased with the pace of implementation and even more importantly, pleased with the significant improvement in relevancy and what that says about the long-term potential of that partnership. A couple of things. You asked about the pace there, yes, we are pacing ahead of expectations. At the same time, as we get relevancy right, that places a much higher ceiling on the long-term potential. So in the near term, we're making sure that although we're pleased with the pace and the progress and the results, we want to ensure we do that in a methodical way, getting the relevancy really right for the user because as we do that, that gives us a much higher long-term ceiling. We're not going to sacrifice the long-term to go faster than is necessary in the short term, but we are seeing positive progress there. Our long-term view of that partnership just continues to expand, even though we want to be careful not to get ahead of ourselves in terms of revenue contribution for this year. The big opportunity here is to make our platform shoppable content for users. The pacing remains better than we had expected, though. As for your question about other partners, we've mentioned this previously; we expect to have multiple partners to help us bring in engaging, relevant content and ad demand for our users. We're focused on ensuring we get this first one really right. We're building it in a way that will help to set the stage for others to be integrated as well. So as we go forward, we are going to ensure we get this partnership right, especially in getting the user relevancy right. Getting that right gives us a higher long-term potential. On the international side, we believe our international monetization is a big opportunity for us. This past year, we had to focus on meaningful updates to our user experience and ad capabilities in our larger, competitive markets. We did start to make focused investments in international, particularly with agencies and partners that can help us drive more distribution and meet our advertisers where they are. Those partnerships have performed quite well without speaking to any specific partner. I've seen those grow at a much faster rate than we would see otherwise. We think there's a lot more yield in that area, and as we look into 2024, we believe international has been under-monetized broadly.

Okay. Thanks. I want to ask about two things: the LLM models, and the impact you've seen in terms of cost per action, reduced cost per action and lift in CTRs. I would assume these are still kind of early-stage results for you. Could you talk maybe about what kind of long-term impact you could see? Or is that kind of in the unknown knowns. How much better do you think the application of large language models to Pinterest would be – and what kind of improvements could you see on both the user and advertiser side? One specific question about this data point you provided on a month ago about how 10% of your advertisers had adopted your measurement tools, and they're growing 30% year-over-year in terms of their ad spend with you. Where are those two numbers now? And what's a reasonable expectation for when 10% gets to 50%? Thank you very much.

Thanks, Mark. Appreciate the questions. On LLM models, two things are simultaneously true. One is we are seeing tremendous benefit, and we are pretty far along with what we're doing there. The second is that as you look at the longer term, I think there is a lot more runway to go regarding what we can do with that core technology, particularly when you consider the fact that that technology can continue advancing. To be more specific, we recently started incorporating larger models and next-gen AI capabilities moving from CPUs and GPUs. I mentioned in my prepared remarks that we started this nearly a year ago. We began first on the organic side. The fact that we've been able to take our recommender models up to be 100 times larger than what they were has lead to a 10 percentage point improvement in perceived relevancy by the user. In the world of search, advertising, discovery, 10 percentage point improvements in relevancy are nearly unheard of. We're seeing really tremendous impact from that, and we're well on our way on the organic side. On the ad side, we just started bringing that over to the ad side now with models 100 times larger. Yes, we are early on there, but the impacts have been profound. But again, there is tons of runway on both. We continue to leverage AI in a way that has been core to Pinterest for a long time. As we advance on organic, we have a lot of runway to go on the ad side. On the second question around the 10% of advertisers that had adopted measurement tools growing on the order of 30%. We gave that update pretty deep into the quarter last quarter, so we're not updating those specific numbers at this moment. We're going to have our Investor Day coming up, and we'll talk more about some of the progress there. However, the linkage between advertisers adopting the measurement tools and seeing that they’re getting much better performance than they had realized has remained present and become stronger. There was tremendous buzz at the recent Cannes event around our performance-oriented solutions available for advertisers. We’ve found that those who have adopted solutions tend to please even sophisticated advertisers, further supporting growth.

Bill, you were talking about the AI and targeting. There’s a growing fear among investors that everyone not named Meta or Google will struggle to compete in AI as we look out over the next two years. Given the importance of AI for content recommendations and ad targeting, how do you think about competing with the juggernauts in tech, especially given your background at Google? I also have a follow-up on demographics.

All right. Maybe we get the follow-up quickly, just so we know what it is, and we don't lose it from you.

The follow-up is just you talked about the demographic group, and you talked about Gen Z growing so quickly. As we look at all of the different demos that use Pinterest, especially regarding shopping, the actual taking action on content and buying content, do you see any major deviations or changes in terms of what behavior looks at by demographic as you look by cohort? Anything to call out in terms of shopping activity specifically?

Okay. Great. Thank you, Rich. So on your first question on AI, I think there’s a question of whether the benefits only accrue to the largest. I think we’re already providing a pretty strong counterpoint to that. If you look at cloud computing, while yes, large providers gained benefits, it also created a lot of ability for others to engage. This is the same with AI. Yes, large players can provide great capabilities, but they're also externalizing those through cloud compute, and the open-source community is advancing rapidly. Some open-source models are comparing quite favorably to some of the things offered by the largest players. If you evaluate the value, I think a lot of the model creators have received a lot of value. Moving forward, however, I believe a lot of value will accrue to places that have unique signals and user interactions. The AI is only as good as the signal it acts on. We have a really unique signal at Pinterest due to high commercial intent. Moreover, users are curating for the future, meaning we know what people plan to do, not just what they did in the past. This unique signal allows us to make powerful recommendations and open up advertising capabilities. Regarding Gen Z, we note they are our largest contributor to overall engagement and fastest-growing demographic cohort. Gen Z engages more deeply on our platform than older cohorts, which is quite exceptional. What we're solving – helping people go from dreaming to doing – resonates with Gen Z. This is reflected in our next-gen experiences that are delivering results.

Thanks for taking the questions. Bill, I know you touched on Tapi, but what's keeping advertisers from adopting here? What are you doing proactively to move them along the adoption curve? Any comments on the MAU decline in Europe in 2Q? Was that part of the birthday collection dynamic you mentioned? Curious if you have thoughts on the overall Q3 MAU outlook.

Thanks, Doug. On our conversion API, we are early on with that. The product was recently introduced. So to say what’s keeping folks from adopting it, we’re pleased with the progress we’ve made. However, of course, we want to be faster as it has a significant impact. Regarding how we move along the adoption curve faster, a few things come to mind. With that being a recent product, we’ve focused on ensuring our go-to-market strategy is tight, especially with proof points that communicate its impact. We’re also working to meet advertisers where they are as they move through the adoption curve. We work with third-party partners like LiveRamp and Tealium that advertisers already utilize. This approach helps accelerate adoption. The positive outcome is that advertisers adopting our measurement solutions see better performance and increase their spend with us. For the MAU decline in Europe and Q3 MAU outlook, we feel good about global MAU growth. It’s at a two-year high globally, and there’s some seasonality in the business. Overall, we expect to see MAUs revert back in Q3.

Thanks again to all of you for joining the call and for your questions. We look forward to keeping the dialogue going, and hope you all enjoy the rest of your day. Thank you.

That concludes today's call. Thank you for your participation. You may now disconnect your lines.