Pinterest, Inc. Q1 FY2024 Earnings Call

Hello everyone and welcome to the Pinterest First Quarter 2024 Earnings Conference Call. My name is Harry, and I will be your operator today. I would now hand you over to Andrew Somberg, Vice President and Investor Relations and Treasury at Pinterest to begin. Please go ahead.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the first quarter ended March 31, 2024. My name is Andrew Somberg and I am Vice President of Investor Relations and Treasury for Pinterest. Joining me today on the call are Bill Ready, Pinterest CEO; and Julia Donnelly, our CFO. We are providing a slide presentation to accompany our commentary. This conference call is also being webcast. Please refer to our Investor Relations website to find today's presentation, webcast and earnings press release. Some of the statements 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 outlooks for Q2 2024 and beyond are preliminary and are not an assurance of future performance. We are making these forward-looking statements based on information available to us as of today, and we expressly disclaim any duty or obligation to update them unless required by law. For more information about risks, uncertainties, and other factors that could affect our results, please refer to our most recent quarterly report on Form 10-Q or annual report on Form 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 measures to the most directly comparable 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. 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, Andrew. Good afternoon and thank you for joining our first quarter 2024 earnings call. In Q1, we accelerated our progress against our strategic priorities, growing users and engagement, creating value for our advertisers through our lower funnel solutions, and continuing to deliver profitable growth through operational efficiency. Investing in our core differentiators has led to our best product market fit in years. Global MAUs surpassed $500 million for the first time, reaching another record of 518 million, growing 12% and accelerating for the seventh consecutive quarter. Q1 revenue of $740 million grew 23%, nearly doubling our growth rate with an 11-point acceleration from just a quarter ago. To put these numbers into broader perspective, not only are we seeing acceleration since last quarter, but we are also driving the highest user and revenue growth on the platform since 2021. We also continue to drive significant improvements in profitability, resulting in Q1 adjusted EBITDA of $113 million or a 15% margin, up nearly 1,100 basis points from last year. As many of you will remember, we hosted our first Investor Day last fall, where we shared an in-depth view of our strategy, as well as our three to five-year targets for revenue and margins. We outlined multiple ways to drive revenue and how we would achieve our goals. First, growing users and deepening engagement per user. Second, continuing to increase ad load driven by the synergies between our users' strong commercial intent and relevant ads. Third, executing on our lower funnel revenue opportunity. And finally, driving demand through third-party partners, resellers, and international markets as additional levers for growth. Our results in Q1 are a testament to how each of these initiatives are performing as we expected or better. All four of these drivers contributed to the revenue acceleration we saw in the first quarter and the strong outlook we have for the second quarter. In summary, we have multiple ways to win, and we are not overly reliant on any single initiative to achieve our objectives, which gives us confidence to deliver on these long-range targets. We're driving strong momentum in our business, making it clear that we have shifted into a higher gear as we enter this next stage of growth. As we pass the $500 million MAU milestone, I'd like to take a step back and discuss some of the core initiatives over the past seven quarters that have driven much of the accelerating user growth and deepening engagement we're seeing today. We focused the company on what our users love most about Pinterest, with a particular emphasis on reinvigorating curation and satisfying commercial intent. We leaned heavily into next-gen AI and relevancy improvements. We updated our content strategy to focus on content that meets purpose and intent rather than pure entertainment. We made clear that our shopping strategy was to partner with retailers rather than compete with them. We're now clearly moving at full speed, leaning into the reasons we know users come to Pinterest and making them even better. In doing so, we're finding our best product market fit in years. The drivers of user growth I'll discuss today are consistent with what I've laid out since joining Pinterest and that we elaborated on at our investor day. First, how we're using AI to drive relevance and personalization. Second, doubling down on curation through boards and collages. Third, driving actionability throughout our core surfaces. Lastly, creating a more positive alternative to traditional social media. The results of these efforts can be seen in the accelerating growth rate of our monthly active users, the vast majority of whom come directly to our mobile app, deeply engage per user with engagement growth exceeding user growth, and how we are winning with Gen Z, which is now our largest and fastest growing demographic making up more than 40% of our users. It's important to note that our MAU growth acceleration is a result of months and quarters of compounding effects of these initiatives I just described, and we see much more opportunity ahead as we continue improving our core user experience and lean further into the unique and highly differentiated aspects of our platform. Let's start with our investments in AI to drive personalization and relevance. In the second half of 2022, we moved aggressively to implement LLMs and NextGen AI to improve our user experiences. We transitioned from CPU to GPU serving, which allowed us to serve models that were 100 times larger in size. This was the first step to unlocking a better product experience by improving our ability to surface more personalized content for our users. With GPU serving capabilities, we are developing and deploying even more complex models to drive further gains in relevancy and personalization. For example, our recommendation models were previously focused on serving content to drive greater view time in that immediate moment. However, as we've advanced our AI and sharpened our focus on user intent, we've incorporated more proprietary signals into our recommendation models to optimize for depth of engagement and satisfaction of intent, including driving more actual outcomes like saves, clicks, and conversions to help users progress further through their inspiration to action journey. Among these signals are the billions of acts of curation that happen on our platform in a manner that is highly distinct from the rest of social media. This provides us unique insight into user preferences, allowing us to tailor content to suit their needs and help them find their next use case. In summary, not only does our AI keep advancing, but there's also a flywheel effect that takes place. As we train our models on more user signals, we're driving even further relevance in our content recommendations, which then further improves the user signals our AI can act upon. As I mentioned, a key source of user signals is the human curation that takes place on our platform at scale, and we're improving this experience for our users. Our work on curation has been another driver of our user growth and is an integral step in the inspiration to action journey. To help remove the friction for users to begin creating boards, we've added additional board functionality, including auto-organization features. For those who generally don't organize their saves, this feature resulted in an annual 30% lift in boards created, highlighting how auto-organization can unlock the magic of Pinterest for more users. We're also significantly advancing what it means to curate on Pinterest with collages. Powered by our AI and advanced computer vision technology, collages are a powerful curation tool to cut out images and components from a pen and piece together new inspiring content. This greater granularity allows users to express their styles, tastes, and preferences in much more specific and creative ways. This is an entirely new, highly engaging, and highly shoppable content format. Users are roughly three times more likely to save collage pens versus other pens on Pinterest, with a significant portion containing clickable products. We're also continuing to see collages gain traction with Gen Z, who are nearly 70% of collage creators. Furthermore, improving the actionability of pens is another core tenet of improving user satisfaction, deepening engagement, and growing MAUs. We know users come to Pinterest to shop, and we've been working to ensure our high-intent audience can find and easily take action on the content they see on Pinterest. We've integrated more shoppable content into our core surfaces, including home feed, search, and related items. For example, our guided shopping modules help users pick up where they left off on prior shopping journeys by resurfacing product pens based on past browsing and click history, while our visual shopping modules, such as Shop Similar and Shop the Look, allow users to shop the items they see within lifestyle images right when they discover them. In Q1, we brought shoppable video to Pinterest as we expanded Shop to Look to video pens. Now, when a user clicks on a video pen, a carousel will appear with shoppable pens that match items in the video. This allows the user to easily shop the items that inspire them in the videos they were already watching. Through these and other efforts to improve the actionability of the platform, we've made it easier and more seamless to shop content on Pinterest, a top priority for our users. We're seeing users take advantage of the improved actionability, as outbound clicks to advertisers accelerated from last quarter, more than doubling year-over-year yet again. As a part of our efforts to grow users and deepen engagement, we're also building a more positive alternative to traditional social media. We firmly believe that inspiration starts with inclusion. Building on past successes in inclusive product design, like skin tone and hair pattern search in 2023, we added to our suite of inclusive products with our body-type ranges. We're also using the inclusive AI that powers these products to increase representation in the content that we show to users by default. Throughout 2023, we refined and implemented this technology across more surfaces so more people can see themselves reflected on Pinterest. Our users love and use these products. For example, the number of users searching with skin tone ranges doubled in the past year, which speaks to the affinity our users have for inclusive products and the work our team is doing to provide a more inspirational experience for everyone. Finally, as I mentioned earlier, we're continuing to win with Gen Z. They account for more than 40% of the users on the platform and represent our largest and fastest-growing demographic. Gen Z comes to our platform to get inspired and to shop. They save more than other demographics and also find value in new content formats like collages. They see Pinterest as a distinct and separate destination from other social media apps, one where they can invest in themselves and refine their interests in smaller forums with closer connections and without the pressures and toxicity that often accompany their time on other social apps. In fact, Gen Z rates Pinterest higher on promoting and preserving well-being metrics like self-worth, belonging, and purpose compared to other traditional social media platforms. As a result, Pinterest is aging down, a rarity in consumer internet applications, which typically age up as they mature. We're also continuing to break through with Gen Z by connecting through culturally relevant moments. For example, we recently hosted an immersive activation at the Coachella Music Festival, one of the biggest Gen Z moments of the year, to deepen their connection to Pinterest. Inspired by our festival trends report, we created the Pinterest manifestation, which invited festival-goers to turn their favorite festival fashion and beauty dreams to reality with the help of expert makeup artists and stylists. Bringing this together, we've been moving fast and executing with tremendous clarity and focus over the past two years across the themes I've just discussed, which have all compounded to drive our acceleration in user growth. I'm proud of our team for all they've been able to accomplish thus far and look forward to continuing to innovate on behalf of our users. Next, I'd like to discuss how we are improving monetization by making Pinterest more valuable and performant for advertisers. We know that people come to Pinterest with intent. Our platform uniquely empowers users to have dynamic, multi-session journeys that take them from inspiration to action. For a long time, Pinterest excelled in upper funnel discovery in connection with the early stages of a user's inspiration to action journey. But Pinterest provided very little ability to take action on items that users found. Now, we're solving for that actionability in the lower funnel. Through seamless connections to retailers like mobile deep linking and direct links, enhanced ad platform capabilities like whole page optimization, and improved adoption of our foundational measurement capabilities like the API for conversions and clean rooms, we've made substantial improvements in executing on our lower funnel roadmap to deliver value for our users and our advertisers. We're seeing the direct impact of increased actionability play out. The results we delivered this quarter prove this. We've accelerated clicks to advertisers again this quarter, even after more than doubling clicks year-on-year in Q4. Our revenue growth rate nearly doubled from Q4, driven by lower funnel revenue acceleration. Turning to some of the most notable achievements from the quarter, the adoption of our lower funnel formats and tools has been critical to our monetization strategy. In Q1, we completed our rollout of direct links to our lower funnel ad formats, which now covers 97% of our lower funnel revenue, up from 80% last quarter. Direct links take users to an advertiser's product or purchase page in just one click, significantly reducing friction and improving the ability to take action. The value creation to advertisers has been outstanding, with clicks to advertisers more than doubling year-over-year. The underlying value direct links create has been clear to us since it launched at the end of Q3, but for advertisers, it takes time to see and measure the results with their own source of truth, their measurement models. We're now seeing the value capture from direct links through increased ad spend, especially from some of the largest, most sophisticated advertisers. Similar to past new product launches like mobile deep links, advertisers who have seen sustained performance gains from direct links and are able to measure the results have started to increase their share of budget with Pinterest. With some of our most sophisticated advertisers, we are reaching 5% or more of their total ad budget, implying an even deeper penetration of their digital ad spend. However, much more of the value capture from direct links remains ahead of us. Many of our advertisers either recently got access to direct links or don't yet have the correct tools to understand their improved Pinterest performance, a process which can take months or quarters. As a result, we expect value capture from these advertisers to continue throughout the year as more of them begin to measure and react to the benefits from direct links. In order to facilitate advertiser adoption of our lower funnel solutions, which drive additional value capture, we've made a number of changes within our sales and go-to-market functions. For example, we're providing a scaled approach for our global sales force to educate on and implement lower funnel best practices with more technical support to help advertisers meet their specific goals and maximize performance. Turning to measurement, thanks to our improved lower funnel solutions, we're driving more clicks and conversions to advertisers. Through our measurement tools, we're proving this value to advertisers. Our suite of measurement tools starts with advertisers adopting our privacy-centric tools to preserve conversion visibility, which provides them with data to feed their individual models and measure their specific goals. One of our most important initiatives began in earnest in 2023 with our efforts to increase adoption of the API for conversions, which provides a server-to-server connection for advertisers to measure and attribute conversions. I'm pleased to report that we've grown the adoption of the API to nearly 40% of total revenue, up from 28% of total revenue at our investor day last September. Revenue from retail advertisers who have adopted the API for conversions tends to grow significantly faster than revenue from those who have not yet adopted. This trend continued to hold in Q1 and underscores our desire to drive more privacy-centric measurement, particularly for lower funnel advertisers where it's most impactful. We're seeing a reinforcing effect take place. As advertisers adopt and see the benefits of shopping ads, mobile deep linking, or direct links, they are more incentivized to adopt our privacy-centric measurement. We also see that advertisers who have adopted our full lower funnel toolset, including shopping ads, mobile deep linking, direct links, and our API for conversions are growing much faster than those who have no lower funnel solution adoption. As we look ahead to more industry changes, which will affect an advertiser's ability to measure conversions, we are strongly promoting API for conversions adoption to our lower funnel advertisers and in our sales efforts, and increasing the amount of variable compensation attached to adoption. We are also focused on meeting advertisers where they are by integrating into their measurement tools of choice, such as clean rooms and over 20 measurement platform integrations. In addition to format and measurement innovations, we remain committed to bringing AI-based automation to the forefront of our campaign creation experience and ads offering to drive performance for our advertisers. In fact, 2023 was a strong year for ads innovation as we accelerated our product delivery and launched more ad formats, tools, and solutions than in any year in our history. We've seen a lot of success with our current automation tools and we're investing to build out this suite in order to give advertisers an array of tools to build, optimize, manage, and measure campaigns on Pinterest. Today, our automated suite of performance features includes tools such as automated bidding, expanded targeting, and flexible daily budgets. Each of these automation offerings helps to drive more efficient campaigns on Pinterest. As of Q1, we continue to see revenue coverage above 80% for automated bidding, while over half of our revenue utilizes either expanded targeting or flexible daily budgets. However, there's still significant room for us to grow and drive further revenue coverage of our entire automation suite, which, when adopted, results in compounding positive impacts on campaign performance. To drive further uptake, we plan to launch a campaign creation tool to simplify setup for our automated offerings and remove friction for advertisers to leverage these tools. We're also building out additional automation components to drive greater campaign efficiency for advertisers. We will release these features in stages and as with other new launches, they will go through a typical product ramp as we develop, test, and scale ultimately creating a more robust suite of automation tools to improve advertiser performance. Let me touch on a couple of the new offerings we're expecting to roll out over the coming quarters. First, we're launching our dynamic creative optimization solution set which will allow advertisers to use generative AI to optimize the creative for their ads. Over time we'll personalize this technology using signals that are unique to Pinterest. Such that the imagery users see will be tailored to their own interests and aesthetics. We'll also be introducing ROAS-level bidding. This solution will seek to increase advertiser return on ad spend by automatically optimizing campaigns in real time to prioritize users or products that drive the highest ROI. This rollout is a continuation of automation features we've already been delivering so that ultimately advertisers will be able to provide us with a budget, a goal, and their seed creative, and we'll do the rest. We'll manage bidding, targeting, and dynamic creative at scale all in service of delivering the best possible performance for our advertisers. Next, I want to provide an update on our third-party demand efforts. Consistent with our commentary from the start, our goal in developing these partnerships is to complement our first-party demand and round out demand gaps in our auction. We are currently scaling third-party demand with two partners, Amazon Ads in the U.S. and Google Ads Manager, which recently went live in February in unmonetized international markets. Our Amazon partnership is live on all of our main surfaces in the U.S. and we are continuing to optimize our respective systems to improve relevance and drive performance for advertisers. Additionally, our Google partnership, while early, is also progressing nicely. In Q1, as expected, we saw an emerging contribution to revenue from third-party demand and we anticipate this will be the base from which further third-party revenue will grow throughout the year. We continue to see opportunities to expand our current partnerships to multiple geographies and for multiple partners to exist within the same market. Consistent with what we laid out at our investor day, we also have an opportunity to grow our revenue in international markets and are employing a multi-pronged strategy to do so. In our largest international markets, we are using first-party selling efforts to strategically capture advertiser demand. We're also deepening our partnership with agencies to grow within these markets. In smaller markets, where we previously had not monetized or are under monetized, we are introducing additional sources of demand to fill in gaps in our auction. In addition to third-party demand from Google, this quarter we will begin working with resellers to bring in local ad demand, primarily in rest of world markets. Resellers provide a scaled approach to drive demand in markets where we don't currently have a sales presence and can bring relevant ad content for users in those markets. Like any new selling effort, demand from resellers will take time to grow in these markets, and therefore we expect this initiative to ramp over the course of the year. Our third strategic priority has been a continued focus on operational rigor and discipline. As I mentioned before, I'm extremely proud of our team's continued strong execution, as evidenced by our ability to expand adjusted EBITDA margins by nearly 1,100 basis points in Q1, while also accelerating product innovation and product market fit. Now I'll turn the call over to Julia to share more details about our financial performance.

Thanks, Bill and good afternoon everyone. Today I'll be discussing our first quarter 2024 financial results and provide an update on our preliminary second quarter 2024 outlook. 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. Our team has made tremendous progress across users, monetization, and profitability over the past few quarters. This quarter is a testament to how focused execution and alignment across our strategic priorities can drive strong gains for the business. Like Bill said, we found our best product market fit in years. Users and advertisers alike are taking notice, leading to our highest MAU count ever in our fastest revenue growth quarter since 2021. User growth is accelerating as we are investing in areas that are unique to Pinterest, such as human curation at scale that allows our AI to generate highly relevant personalization and recommendations across multi-session commercial journeys and significant improvements in actionability. We also see our investments in positivity and inclusion resonating deeply with our users. Additionally, our lower funnel tools and formats including mobile deep linking, API for conversions and clean rooms, as well as direct links are driving meaningful and sustained ROI improvement for advertisers, which are reflected in our continuing revenue acceleration. These efforts have been complemented by our introduction of third-party demand onto the platform, which has added density to our auction and allowed us to serve more relevant and engaging ads to our users. Now let's dive into our first quarter results. We ended the quarter with 518 million global monthly active users, growing 12% and reaching another record high. We accelerated user growth year-over-year across all our geographic regions. In the U.S. and Canada, we had 98 million MAUs, growing 3%, up from 2% last quarter, adding 1 million sequential users for the third quarter in a row. In Europe, we had 140 million MAUs, growing 10%, up from 8% last quarter. In our rest of the world markets, we had 279 million MAUs, growing 16%, up from 15% last quarter. Now to revenue. In Q1, our global revenue was $740 million, up 23% or 22% on a constant currency basis. The revenue strength this quarter, which exceeded the high end of our guidance range, highlights how we are driving value for advertisers across the full funnel. Our lowest funnel conversion objective was our fastest growing, with particular strength coming from our shopping ads format as advertisers turned to Pinterest to drive sales. We know that we are creating value for our advertisers, and we're seeing signs of value capture from our largest, most sophisticated advertisers that have been able to see sustained performance gains in their own measurement sources of truth and shifted more budget to us as a result. However, we finished our GA rollout of direct links in March, and we expect more value capture to still be in front of us, similar to the historical lag we've seen between value creation and value capture from other lower funnel products we've launched, such as mobile deep linking, API for conversions, and our shopping ads format. From a vertical perspective, we saw broad strength in retail. Within retail, we saw our larger, more sophisticated advertisers continue to lean into the platform as they have adopted our lower funnel tools and are seeing continued success. We also saw nice growth in our emerging categories, including financial services and technology. Next, as expected, our third-party demand partnerships began to scale in Q1 and were an emerging contributor to our growth. Finally, we estimate that leap day in February and the Easter shift into March this year contributed approximately two points of growth to Q1. Turning to our geographical breakouts, in the U.S. and Canada, we generated $592 million in revenue, growing 22%. Strength came from retailers and emerging categories, including technology and financial services. In Europe, revenue was $118 million, growing 27% on a reported basis or 25% on a constant currency basis. Strength in Europe came from retail and CPG categories. Revenue from the rest of the world was $30 million, growing 25% on a reported basis or 26% on a constant currency basis. In Q1, ad impressions, which is composed of ad load and total impressions, including both organic and paid impressions, grew 38%. This was driven both by increases in total impressions and increases in ad load. We've been able to flex up our ad load through whole-page optimization to provide relevant ads to users in moments of high commercial intent, and we see continued room to steadily progress this as we further improve the actionability of our users' commercial journeys and relevance of ads. Meanwhile, ad pricing declined 11%, an improvement from down 16% last quarter, largely as a result of accelerating ad demand. But still, a year-over-year decline as we continue to drive increased value to advertisers in the form of more clicks and greater efficiency. Moving to expenses. For the past few quarters, we've been able to drive continued margin expansion through effective expense discipline while allocating resources towards our highest ROI initiatives. Cost of revenue in Q1 was $177 million, up 6% year-over-year and up 2% versus Q4. This increase is related to increased infrastructure spend tied to user and engagement growth, partially offset by our continued work to drive cost optimizations on our infrastructure spend. Our non-GAAP operating expense was $453 million, up 10%. The increase was primarily driven by higher headcount-related expenses across R&D and sales and marketing, as well as incremental marketing spend. Our revenue outperformance and expense discipline led to another strong quarter of adjusted EBITDA and margin expansion, coming in at $113 million with an adjusted EBITDA margin of 15%. This was up approximately 1,100 basis points versus last year. Finally, we ended the quarter with cash, cash equivalents, and marketable securities of $2.8 billion. We utilized approximately $100 million of cash in the quarter on net share settlement of equity awards. As a reminder, this process mitigates dilution by holding back shares to cover the taxes on employees' vested RSUs, where the company pays for the taxes from our own cash reserve on behalf of the employees. This process, combined with last year's share repurchase, has led to an approximately 1.6% decline in year-over-year fully diluted share count relative to the positive 2% to 3% average annual dilution target that we outlined at our investor day. Now we'll discuss our preliminary guidance for the second quarter. We expect Q2 2024 revenue to be in the range of $835 million to $850 million, representing 18% to 20% growth year-over-year. This guidance represents a continuation of the strong growth we saw in Q1, driven by many of the same initiatives I just outlined, including direct links value capture and the emerging contribution from third-party demand partnerships. This guidance range is roughly consistent with the revenue growth that we've seen in Q1, when adjusting for the two points of year-over-year growth benefit in Q1 from the Easter timing shift and leap day, and an additional one-point benefit in Q1 from foreign exchange, which we're not expecting to continue into Q2 based on current spot rates. Turning to our expense guidance, we expect Q2 non-GAAP operating expenses of $490 million to $505 million, growing 11% to 15% year-over-year. Our operating expense guidance does not include cost of revenue. However, we plan to continue our infrastructure optimization efforts, and therefore we anticipate non-GAAP cost of revenue expense to be relatively consistent with Q1. The increase in non-GAAP operating expense year-over-year is driven by investment increases in R&D, where we are investing in headcount for AI talent across our business. As we have said previously, we are anticipating year-over-year margin expansion again in 2024, but at a more modest level than the 660 basis point expansion we delivered in 2023, as we balance investing in growth and flowing profitability through to the bottom line. We expect margin expansion in both halves of 2024. However, we expect significantly more margin expansion to occur in the first half versus a more modest level in the second half, as we lap the strengthening adjusted EBITDA margins we drove in the second half of 2023. All-in-all, I'm pleased with the strong progress we've made against our strategic priorities. There's strong momentum in our business, and we're successfully executing against our plan. Now I hand it over to Bill for some final words.

Thanks, Julia. I want to thank our team at Pinterest, our advertising partners, and all the people that come to Pinterest to find inspiration and shop. And with that, we can open the call up for questions.

Thank you. And our first question today will be from the line of Brian Nowak of Morgan Stanley. Brian, your line is open if you'd like to proceed with your question.

Great. Thanks for taking my questions. I have two. The first one, the first quarter results seem to come in quite a bit stronger than the guide. So I was just curious about any specific areas you'd call out that really came in a lot better than you were expecting, call it 90 days ago. And then the second one is we sort of look at the back half of the year. Julia, I know the year-on-year growth comps get a little more difficult. How do we think about sort of continuing to be able to grow at this 20% clip even through the more challenging comps because of all the momentum you have with the business and third party partners, etcetera? Thanks.

Thanks, Brian. On your first question, we were really pleased with the revenue acceleration we saw this quarter leading us to come in above the high end of our guidance range. As I mentioned in the prepared remarks and that we talked about it yesterday as well, we've got multiple ways to win and drive revenue. We're seeing broad-based strengths across all of these initiatives, all of which are performing generally as we expected or better. First of all, there continues to be a strong amount of engagement growth on the platform. We're seeing the best product market fit we've seen in years, not only growing MAU, but deepening engagement even as we accelerate the rate of user ads on the platform. We're doing that synergistically with ad load. We are demonstrating that because our users have commercial intent, ads can be relevant content on the platform. Second, on monetization, strength in the lower funnel driven by our shopping ads and direct links value capture, a strong contributor. There's particular strength in U.S. retail where we're taking share and starting to gain more access into performance budgets. This was driven by the fact that we again doubled the number of clicks to advertisers year-on-year. We doubled clicks to advertisers in Q4, and more than doubled the number of clicks to advertisers again in Q1, and actually accelerated from Q4. So that's really driving that penetration into those performance budgets and strong growth in U.S. retail. As I mentioned, we saw an emerging contribution in Q1 from our third-party partnerships, which are ramping, and which helped complement the really strong growth we’re seeing in first party demand. So it really is broad-based. All of those contributed to the acceleration in Q1, and we see that continuing as we think about the Q2 revenue guidance as well. And with that, I'll give it over to Julia for your second question.

Yes, so thanks, Brian. It's clear we're shifting into a higher gear here in the first half of 2024, and Bill just outlined a number of those drivers. We're clearly seeing a more favorable ad market backdrop, but perhaps more importantly, we're also seeing the initiatives that we laid out playing out kind of as we expected or even better, as Bill just outlined. We do have tougher comps going into the back half of the year and there are some additional uncertainties from the ramping deprecation of third-party cookies on Chrome through this year and into early 2025. But as we've said before, on cookies from a relevancy and targeting perspective, we feel like we are well positioned, given our unique first-party signal. From a measurement adoption perspective, we feel like we're executing all the necessary actions to drive privacy-safe adoption among our advertiser base. However, we expect many of the initiatives that Bill just outlined to ramp throughout this year as well. Specifically, we foresee more of the value capture on direct links ahead of us rather than behind us, and we expect third-party ad demand to continue contributing to growth and grow off the base that we are seeing here in Q1. So, those are the considerations as we think about 2024 revenue from here, but we feel really good about the initiatives that we're driving.

Great, thank you both.

Thank you.

Our next question today is from the line of Eric Sheridan of Goldman Sachs. Eric, your line is open, please go ahead.

Thanks so much for taking the question. I'm going to be following on what Brian asked there, just looking out towards the second half and even over a multi-year timeframe. How do you think about the key investments that have to be made in the platform over the medium to long-term? How should we be thinking about your relative competitive positioning on those products relative to other scale players in the industry that are employing equal amounts of OpEx and CapEx as a percentage of revenue towards initiatives like shopability and AI? So a bit of a relative competition question as well as investment scale as we go through this year. Thank you.

Yes, thanks, Eric. What I'd say is, if you look over the past seven quarters, I think we have demonstrably improved our competitive positioning across the board. If you look at our growth rate in users, the fact that users grew across every geography, we continue to deepen engagement per user, and that really speaks to just how much the greater actionability that we're driving for our users, both on shopping and on curation, is causing deeper user engagement in the platform that's really been driven by both AI advancements and the unique signals on our platform where people curate on our platform. We get truly unique signals that don't exist anywhere else, where users spend hours and hours refining their interests, curating their interests. We understand their interests at a depth that you just couldn't understand otherwise. As the AI acts upon that, it allows us to drive much more relevant recommendations. Yes, you have general competition and large models, but we also have completely unique signals that we can train those models on which is reflected in the relevancy improvements we've made. The same applies on the advertising side. For advertisers, we're able to bring them users in a highly commercial moment where they have intent but have not yet decided what to buy. So, there's greater commercial intent than you would typically see elsewhere in social media, while also bringing more of the inspiration than what you would find in very low funnel moments. I think that's demonstrating that we have a unique space. Our users see us as distinct and separate from the rest of social media, where social media tends to be lean-back entertainment, Pinterest is more lean-forward commercial intent. We are still early in our journey with this, and we see a multi-year journey ahead as we continue to refine and improve. This will also transcend into the advertising relationships, where we are delivering strong performance for them. Doubling the number of clicks year-on-year is exceptional, and our advertisers see that as exceptional. As Julia noted, more of the value capture from that still lies ahead of us versus behind us, and we believe there's more runway to go in driving higher levels of commerciality on our platform. We feel really well positioned in a unique space, and as AI continues to advance, we can adopt off-the-shelf large language models, tune those to our unique signals, and gain very unique results based on the distinct signals we collect through human curation.

And then Eric, to the second part of your question regarding investment areas. So, as a reminder, overall in 2024, we're expecting adjusted EBITDA margin expansion overall, but on a dollar basis, the areas where we're looking to ramp include operating expenses primarily in R&D, particularly headcount additions in the AI space to benefit both our users and our advertisers and also an expansion of our sales organization with a focus on enhancing technical selling capabilities, particularly in the lower funnel.

Thank you. Our next question today is from the line of Ron Josey of Citigroup. Ron, your line is open. Please go ahead.

Great. Thanks for taking the question. Bill, I wanted to ask a little bit more as a follow-up to some questions around your comments regarding greater returns for advertisers and gaining access to performance budgets. One of the questions we get is just the visibility that Pinterest has on these budgets and the adoption of these newer tools. It's great to hear progress on direct links and API for conversions, but we'd love to hear a little bit more on your commentary around direct links adoption. I think you talked about measurement tools; more advertisers need to be walked through the process. Any insights there would be helpful. Also, you mentioned the launch of dynamic campaign creation tools and the ROAS-level bidding. Just talk to us about how you envision all these tools coming together as we move forward here. Thank you.

Yes, certainly. So, as I mentioned in the prepared remarks, we launched direct links at the very tail end of Q3; Q4 is when we first saw its effect. We continue to ramp that through Q1. We now have 97% of our lower funnel revenue adopting the direct links format. Our conversion for the API for conversion is now covering 40% of revenue. The effect I talked about, both Julia and I mentioned, is that there's a lag effect between the value we create for advertisers when we start to send them more clicks and better conversions, and when they're able to see that flow through to their models and measurement systems, which typically has sometimes a quarter or multi-quarter lag effect, particularly if they haven't implemented measurement. We see more of the value capture still in front of us than behind us, with direct links now having budgets shift. Some larger, more sophisticated advertisers have picked up these changes very quickly, shifting budgets to us and we are capturing 5% or more of total budgets. This indicates a deeper penetration into their performance budgets, whereas historically, Pinterest was often in experimental or social budgets. We are now moving into always-on performance budgets and doing quite well there. However, the broad adoption of the measurement tools lets advertisers see this and motivate their budget shifts. We see more of this in front of us than behind us. As for the second part of your question about the automation suite for those advertisers, we have delivered some of the most important components of a full automation suite; more than 80%+ of our revenue goes through automated bidding. We have some meaningful components still in front of us like dynamic creative optimization, which we will be launching and ramping over the coming quarters, as well as ROAS-level bidding. These all lead to more clicks and conversions for advertisers, and we make it easier for them to create campaigns that deliver ROI. Each of these elements compounds our confidence as the past trends show. So, don't expect a big bang moment, but we are seeing compounding benefits in our growth rate from H1 to H2 last year, and see it occurring again in Q1 and projected into Q2.

That's great. Thank you, Bill.

Thank you.

Our next question today is from the line of Ross Sandler of Barclays. Ross, your line is open. Please go ahead.

Great. Bill, I guess another big picture question. I think last year, coming into this year, there was a debate in both the advertiser industry and among the investment community around how smaller platforms like Pinterest and Snap and others are able to keep pace or not with the larger platforms, given levels of investment. I would say these Q1 results fly in the face of that or at least answer some of that debate. How are the conversations with marketers changing? You obviously sound pretty good about the sustainability of the growth that you're seeing. But what gives you that confidence? As you look out over the next year or two with things like the TikTok situation going on, how do you see those conversations with marketers changing in your favor going forward? Thank you.

Yes, thanks, Ross. We feel great about our competitive positioning. We believe we have a unique and distinct use case for our users. We have strong commercial intent and are delivering more performance for advertisers. We're seeing those advertisers shift budgets to us, notably moving us into performance budgets versus the experimental area that Pinterest historically played in. What fuels that is the uniqueness of the use case we solve for our users. Regarding the way AI plays out, it's true that some early conversations in AI were about value accruing to those who hold the largest general-purpose models. However, there is a distinct value creation opportunity around fit-for-purpose models, leveraging unique signals. Our training on larger models with the proprietary data we have gets us results that we wouldn't achieve otherwise. Our advancements in AI and the unique way users curate give us insight into how they interact with the platform. With our new collage format driving three times engagement compared to traditional pens, we feel good about moving forward. While we recognize the competitive landscape, we feel well-positioned to continue delivering value as evidenced in our results.

Thank you. Our next question today is from the line of Anthony Post of Bank of America. Anthony your line is open. Please go ahead.

Great. Thank you. So we saw the U.S. really accelerate this quarter and some of the international markets were strong but decelerated. Can you talk about how much the drivers in the U.S. or maybe if they were unique to the U.S. and then if Amazon was above your expectations in the quarter? Finally, as you think about some of these drivers, whether it's partnerships or your own internal efforts, is there more to come internationally in the back half or next year? Thank you.

Yes, on international, I'd say again more opportunities in front of us than behind us. As I talked about, our Google third-party partnership is just getting going, so that didn't contribute significantly in this quarter. Those shopping improvements we made starting in the U.S. that we're beginning to implement internationally are resonating with users as well. Our accelerated user growth speaks to how broad-based the product improvements are. We're taking advertiser tools into these markets as well, focusing on both first-party perspectives and our third-party efforts. We see much more opportunity internationally still in front of us.

To add to that, on the U.S. side, we're seeing strong growth in our first-party business particularly in retail but also an emerging contribution from our third-party ad demand as mentioned. On the international side, we did face currency headwinds in Q1 that, when viewed on a constant currency basis, Europe and the rest of the world's growth was actually the same or stronger compared to Q4. So, we encourage you to keep an eye on the FX changes that are expected in Q4, Q1, and Q2 as we talk about guidance for the second quarter.

Thank you. Our next question today is from the line of Doug Anmuth of JPMorgan. Doug, your line is open. Please go ahead.

Thanks for taking the questions. Just when you think about the progress in shopability and moving down the funnel, can you just talk about how that's translating into growth in advertiser count and the degree to which you're seeing a pickup in auction density? Any early learnings from the third-party deals with Amazon and Google, anything that surprised you thus far? Thanks.

Great. I would say our growth and strength have been most pronounced in the lower funnel, particularly in U.S. retail and among the largest most sophisticated advertisers. However, we see that broadening out as other retailers adopt privacy-safe measurement techniques. Our business is less SMB-centric yet, the improvements in shopability benefit all retailers, big and small. Most value capture is occurring with the larger, more sophisticated advertisers who are quicker to respond. We see a multi-quarter adoption curve for these improvements that will allow us to tap deeper into smaller and midsize retailers as well. On the third-party side, it's performing as we anticipated. When we first introduced our third-party partnership with Amazon Ads, we considered it helpful for our auction by rounding out demand gaps, leading to greater relevance and shopability for our users. We've heavily invested in our first-party business even as we pursued third-party opportunities. Our first-party strength benefits from that partnership as it adds density to our auction while our third-party efforts are slowly growing and should continue to do so as anticipated.

Thank you, Bill.

Thank you.

Thank you. And our final question today will be from the line of Mark Mahaney of Evercore ISI. Your line is open. Please go ahead.

Hey, thanks. Two questions please. You talked about, Bill, adding potentially more partners beyond Amazon and Google. If you could just put some expectations, set some expectations around there. It's kind of hard to see any partners that could be as material as those. But maybe I'm not being creative enough and thinking about it. And then secondly, Julia, I know you quantified the impact in the March quarter from Leap Day and Easter Timing. Is it safe to assume that the emerging contribution from 3rd-party would have been less than that? And that's why you didn't quantify it? Thank you.

Yes, thanks, Mark. So, we're just getting started with our third-party efforts, and we feel like they are performing in line with our expectations. We are ramping up internationally, and those efforts should bring significant amounts of relevant inventory for our users. While our current partnerships are great, we continue to evaluate other partners to augment our auction going forward. I won't comment on any new partner specifics before they're signed, but we remain positive about the potential to round out our offerings. Regarding your second question, we generally do not break out third-party versus first-party for several reasons, primarily their complementary nature. I didn’t call it out because I wanted to highlight specific seasonal factors contributing to Q1 that wouldn't continue into Q2. Meanwhile, the third-party contributions are anticipated to be ongoing and ramping throughout the year. So, I wouldn’t draw additional conclusions on that front.

Thank you, Julia, thank you, Bill.

Thanks, Mark.

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

Thank you. This concludes today’s conference call. You may now disconnect your lines.