Earnings Call Transcript
Pinterest, Inc. (PINS)
Earnings Call Transcript - PINS Q4 2022
Neil Doshi, Head of Investor Relations
Good afternoon and thank you for joining us. Welcome to the Pinterest earnings call for the fourth quarter and full year ended December 31, 2022. I'm Neil Doshi, Head of Investor Relations for Pinterest. Joining me today on the call are Bill Ready, Pinterest CEO, and Todd Morgenfeld, our Chief Financial Officer and Head of Business Operations. Now, 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 Q1 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 the Investor Relations section of our website. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and presentation, which we distributed and made 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.
Bill Ready, CEO
Thanks Neil. Hi everyone and thank you for joining our Q4 earnings call. I'm proud of our team's focus and execution over the past year and in particular Q4. We reinvested in our core product experience that led to deepening engagement and a return to user growth. We built and shipped new ad tech and measurement solutions that resulted in improved returns for our advertisers. And we're just getting started. I have strong conviction that we will continue to innovate and deliver value to our users and business partners. We grew global MAUs in Q4 to 450 million, up both sequentially and year-over-year. Our global mobile app users which account for over 80% of our impressions and revenue grew 14% and our US and Canada mobile app users grew 5%, accelerating from last quarter. More importantly, sessions continue to grow significantly faster than users, demonstrating deepening engagement per user as we focus on driving greater per user monetization. In Q4, we delivered revenue of $877 million growing 4% or 6% on a constant currency basis, roughly in line with our mid-single-digit guidance range. Strength came from large US retail advertisers and international markets, excluding the impact of FX as these advertisers leaned into our full funnel platform during the holiday season. However, this strength was partially offset by CPG advertisers, as well as small and mid-market advertisers in the US who faced headwinds from the macroeconomic environment. For the full year we generated revenue of $2.8 billion, growing 9% or 11% on a constant currency basis. We're pleased with our results this quarter despite headwinds from the softening ad market, which Todd will speak to later. We remain confident in our long-term strategy in our ability to execute and drive value for users and advertisers. We're also increasing operational rigor and have taken actions to control costs in Q4. For example, we significantly slowed the pace of hiring such that our headcount was flat quarter-over-quarter. We reduced our infrastructure spend, which declined sequentially, despite strong engagement volume increases, and we closed some of our smaller offices for future cost savings. These actions put us on the path to meaningful EBITDA margin expansion in 2023 and demonstrate our focus on generating strong cash flow. As we build upon the solid foundation we set in 2022, we're laser focused on our four strategic priorities: one, growing monetization and engagement per user; two, integrating shopping into the core of the product experience; three, improving operational rigor and therefore, margin expansion; and four, strengthening our leadership as a positive and brand-safe platform. First, as I mentioned last quarter, we're focused on growing monetization per user. Given that users come to our platform with intent to make, do or shop, we are well positioned to achieve this by deepening user engagement, driving more intent to action and helping advertisers better monetize our supply. On deepening user engagement, we believe that we have a large opportunity to grow the frequency of engagement from episodic users. With our 450 million MAUs, hundreds of millions of logged-in users come to Pinterest episodically. In 2023, we're pursuing more ways to bring these users back more often and to find the next use case by leveraging our machine learning models and building new experiences for them. We're also continuing the work we began last year to serve more personalized, relevant, and ultimately more engaging content. This effort has already yielded results, including our return to MAU growth and double-digit growth in mobile app users. However, we have more opportunity to leverage the unique first-party signal on our platform. Our users save and organize content to boards, and active human curation at scale is unique to Pinterest. This gives us insights into emerging trends and product associations as well as the ability to assist users when they have intent but have not yet decided what to buy. We're actively working to refresh the Pinterest board experience to make it easier for users to organize their interest, which should yield more and higher-quality signals. This, in turn, enables us to deliver increasingly relevant and timely content recommendations. I'm particularly excited about the work we've done to bring new and emerging demographics onto the platform. In Q4, Gen Z was once again our fastest-growing cohort, growing double digits and accelerating from Q3. We're building an experience that resonates with this audience on Pinterest, specifically around video. In fact, nearly half of all new videos pinned in Q4 were from Gen Z users. And in Q4, Gen Z sessions grew much faster than sessions from our other demographics. As I discussed last quarter, video also drives deeper engagement. We remain focused on growing our supply of videos from multiple sources, including creators, brands, and publishers. Last quarter, we grew our supply of video content 30% quarter-over-quarter. And we recently announced a deal with Condé Nast Entertainment to create high-quality video content aligned with Pinterest's key seasonal and cultural moments like fashion months, wedding season, summer, and back-to-school. We believe high-quality and inspiring content will further deepen engagement, especially for Gen Z. Monetization per user should also be driven by our ads initiatives. Pinterest is unique because users come to our platform with intent, and we are one of the few places where people can go from seeking inspiration to fulfilling that intent through action. And we've built a full ad solution that helps advertisers meet users in their journey across the funnel from top to middle to bottom. In fact, our revenue is roughly split across the funnel with one-third brand, one-third consideration, and one-third conversion. We've seen advertisers who take a full-funnel approach see more success than those who are only active on one campaign objective. In 2022, advertisers adopting a multi-objective media strategy saw up to a 50% improvement in sales lift compared to those who use one objective based on our conversion study. I believe ads, when relevant and personalized, can be highly valuable content for users, fostering authentic interactions between brands and consumers. In Q4, we launched ad load management with whole page optimization, which flexes ad load opportunistically in context where ads are most well-suited for the user. In our initial testing, this drove double-digit improvements in ad relevance on search, while simultaneously reducing CPAs for advertisers. We expect the whole page optimization will enable us to continue to improve the efficiency with which we monetize our platform over time. In addition, we continue to improve conversion visibility through our measurement solutions in a privacy-centric way to demonstrate the value that Pinterest brings to advertisers. For example, in Q4, we launched our conversion API, and we recently integrated this API with Shopify so that merchants can use our conversion measurement tool. Based on our tests, for advertisers using our conversion API with the Pinterest tag, we found an average of 28% lift in the attributed checkout conversions and a 14% improvement in the checkout CPA metric. At CES this January, we announced our new privacy safe clean room solution with LiveRamp and Albertsons. Pinterest's integration with LiveRamp provides a protected third-party space where brands can join the first-party data and Pinterest platform data in a secure, privacy-safe environment. Our second strategic goal for 2023 is to lean into the high intent that users express on Pinterest by integrating shopping into the core of the product experience. Based on surveys of our users, over 50% say they view Pinterest as a place to shop. Yet we haven't made it easy for them to shop historically as shoppable content was not integrated into core experiences. In our endeavor to make Pinterest the home of taste-based shopping, we're integrating shopping across our most trafficked surfaces, including home feed, search, and related pins to show users products most relevant to them. Over the long term, we also want to make every pin shoppable. To that end, we're making video content on Pinterest more actionable using the same playbook we applied to static images. Over the course of this year, we will be deploying our computer vision technology across our video corpus to find products and videos and make them shoppable. To make Pinterest more shoppable, we're creating a more seamless handoff by taking the user directly to the product detail page on the merchant's app. To this effort, we continue to deploy our mobile deep linking format, or MDL, on shopping ads. During the Black Friday, Cyber Monday period, MDL accounted for 40% of our shopping ads revenue, which grew 50% in Q4. People are shopping on Pinterest, and we are helping merchants find end-market consumers. Third, we're driving operational rigor and are committed to delivering value to our shareholders. While 2022 started off as an investment year, we took steps to cut down on costs in this challenging macroeconomic environment starting in early Q3, and we are continuing to find ways to reduce our expenses so that we can meaningfully expand EBITDA margins. As I've said before, I'm a strong believer that constraints breed creativity, and I believe our teams will deliver more compelling products and experiences that set us up for sustainable growth long-term. Furthermore, Todd and I have been evaluating our broad capital allocation strategy, including investing in the business, maintaining flexibility for strategic acquisitions, and options for returning capital to shareholders. Given the significant cash balance at Pinterest today, combined with our robust ongoing operating cash flow generation, we're planning to execute a stock buyback program of up to $500 million, which we plan to commence this quarter to help mitigate dilution from stock-based compensation. Todd will go into more details on our buyback program. Finally, one of the biggest differentiators of Pinterest is that we are an inspirational platform and we're intentionally tuning our business to be a positive place on the internet. Pinterest's mission is to bring everyone the inspiration to create a life they love. And I believe in an online environment that is increasingly full of toxicity, this is more important than ever. Not only does it help our users, but also our advertisers as they look for more brand-safe environments to attract customers. From a user perspective, we've long been investing in being a more positive platform from products like inclusive search to important business decisions like banning political ads because we want our users to be in a positive space for inspiration and action. Users are noticing this investment. We have research confirming the positivity of our platform and emotional benefit to our users that we're planning to release in the coming weeks. We're seeing this sentiment come through with our advertisers as well. Some of our latest research also shows that ads that appear in a more positive environment drive more purchases at every stage of the funnel. We believe that positivity makes people more open to brands, more likely to remember them, and more driven to purchase. As I mentioned in our last call, I value the communication, input, and feedback with the investor and analyst communities. As part of that, we plan to host an Investor Day later this year, and we'll update you in the future on timing and additional details. Finally, as you may have seen in our press release today, Todd Morgenfeld, our CFO and Head of Business Operations, will transition from the company to pursue new career opportunities on July 1st. Todd has been instrumental to Pinterest's growth over the last six-plus years and is committed to ensuring a smooth transition, while we search for a new CFO. I'd like to take a moment to recognize Todd for his dedication to our employees, our Pinners, advertisers, and our shareholders. Todd has made significant contributions to our business over the last six-plus years, including leading the company's IPO process, helping the company navigate the pandemic, advancing our revenue functions, maturing our business operations, and partnering with me when I joined the company last year. So, Todd, we thank you for your partnership and leadership. Everyone at Pinterest will be cheering for you in your future endeavors, and I intend to be cheering the loudest.
Todd Morgenfeld, CFO
Thanks Bill. I appreciate the kind words and the partnership. I also want to thank the entire Pinterest team and the Board for the opportunity to contribute over the past six years. I look forward to watching the company continue to innovate, execute, and grow. I'll now discuss our results. In my remarks today, I'll talk about our Q4 financial performance and our preliminary Q1 outlook. All financial metrics except for revenue will be discussed in non-GAAP terms unless otherwise specified. And as a reminder, all comparisons will be discussed on a year-over-year basis unless otherwise noted. In 2022, we made platform-wide innovations that resulted in improving the user experience through more personalized content, showing more relevant products that fit users' tastes and preferences, and delivering increased value to advertisers through ad stack innovation, new measurement solutions, and more seamless handoffs to merchant sites. Even though softening demand lowered ad pricing across the industry, including on our platform, we grew revenue in the fourth quarter. Furthermore, we expect our 2022 investments in our ad stack to help deliver competitive cost per action as the demand environment normalizes in the future. As we continue to innovate on new products like mobile deep linking, whole page optimization, and improved measurement solutions, we believe these investments will drive better returns on ad spend for our partners. As Bill mentioned, we remain focused on deepening engagement with our existing and episodic users, which should allow us to grow our revenue per user over time. From Q4 2019 to Q4 2022, our revenue grew at a compound annual growth rate of 30%, while our monthly active users grew at a compound annual growth rate of 10%. Our growth opportunities should continue to be robust as we improve frequency of visitation, make Pinterest more shoppable to satisfy intent to action, deliver more solutions for advertisers and improve the relevance of our advertising to match our users' commercial intent. During the quarter, 450 million global monthly active users came to Pinterest, growing 4% year-over-year and 1% sequentially. We believe that our investments in relevance and personalization are the primary drivers of our return to seasonal growth. In the US and Canada, monthly active users were 95 million, back to year-ago levels. As we've noted before, our mobile application users are our most monetizable users and account for over 80% of our total impressions and revenue. Global mobile application monthly active users accelerated to 14% growth, and US and Canada mobile app MAUs accelerated to 5% growth after returning to growth for the first time this year in Q3 of 2022. Furthermore, global and US and Canada sessions grew significantly faster than monthly active users and accelerated from the third quarter. In addition, we saw growth in many of our core verticals as well as some of our emerging verticals like travel, vehicles, and men's fashion. Turning to our financial performance. Q4 global revenue of $877 million grew 6% on a constant currency basis or 4% on a reported basis. Strength came from large retailers looking to drive sales during the holiday season, and we had solid growth from our international markets when adjusting for foreign exchange headwinds. There was also resilience in our awareness objective or brand ad spend, as advertisers continue to lean into the brand safety and positivity on Pinterest. Furthermore, some emerging verticals, including automotive, travel, and financial services, posted strong revenue growth. While we saw pockets of resilience from some CPG advertisers, many of our CPG partners and our US mid-market and SMB advertisers continue to face some challenges stemming from the current macro climate. In terms of revenue by region, US and Canada revenue was $722 million, an increase of 5%. Total revenue from Europe was $123 million, growing 5% on a constant currency basis but declining 7% on a reported basis due to foreign exchange headwinds. Total revenue from our Rest of World region was $32 million, growing 33% on a constant currency basis and 26% on a reported basis. Turning to our EBITDA and expense profile. Adjusted EBITDA was $196 million in Q4 with an adjusted EBITDA margin of 22%. This EBITDA figure includes several actions we took in the fourth quarter that we believe will reduce our expense profile for 2023 and beyond. Most notably, this included a realignment of our resources against our shopping strategy as well as reductions to our recruiting staff and closures of some of our smaller and less utilized office spaces. Collectively, these actions accounted for about two percentage points of EBITDA margin. I'd also like to provide more color on how these actions impacted some of our expenses. Total operating expenses were $508 million, up 17% quarter-over-quarter. If you adjust for the costs associated with the actions I described during Q4, our operating expenses grew 13% quarter-over-quarter, in line with our guidance. These costs were spread across sales and marketing and G&A. More specifically, our sales and marketing expenses grew 29% quarter-over-quarter. The actions I referenced accounted for approximately five points of that growth, while our brand marketing campaign that I've referenced on past calls drove the vast majority of the rest of the growth. G&A expenses grew 25% quarter-over-quarter. Over 80% of that growth was driven by the actions I previously mentioned, as well as increased taxes and bad debt expense. Excluding all of these items, our G&A would have grown 4% sequentially. Finally, we ended the quarter with approximately $2.7 billion in cash, cash equivalents, and marketable securities. As we look ahead, while the macroeconomic environment remains volatile and we're experiencing softer advertiser demand, we want to share our best judgment around our guide based on the signals we have today. For Q1, we expect revenue to grow in the low single-digit percentage range year-over-year. Quarter-to-date, our revenue growth is trending nearly in line with our reported revenue growth from Q4. However, similar to last quarter, we believe the error bars are a bit wider given the volatility in the market. Our guide includes about one to two points of foreign exchange headwind, and we also expect headwinds to persist from our US small and medium business and mid-market advertisers as they continue to face outsized challenges in this macro environment. While we've made significant progress in opening up more monetizable supply and reducing cost per action, these advertisers remain price-sensitive. For the first quarter non-GAAP operating expense, we expect a sequential decline in the low double-digit percentage range. First, we're not planning to invest in a brand marketing campaign in the first quarter as we did in the fourth quarter. Second, the net impact of the actions we took in Q4 and to date in Q1 related to expense reductions are reflected in the guidance. While these actions resulted in additional costs within these quarters, we believe they will contribute to our full-year goal of returning to margin expansion. As you think about our operating expense cadence through the year, you should expect a meaningful deceleration each quarter in year-over-year growth in OpEx, especially as we move into the second half of the year as we will be lapping the significant investment in hiring we made into the business in the first half of 2022. On monthly active users, as you know, we generally do not provide guidance. We are encouraged that our investments in relevance and personalization brought us back to top line MAU growth, and we're focusing on deepening engagement within our core and episodic users. As Bill mentioned earlier, we're focused on providing long-term shareholder value, including through our capital allocation strategy. Our Board of Directors has authorized a share repurchase program of up to $500 million. We plan to commence repurchasing shares this quarter, and we intend to complete the program over the following 12 months. We believe it's important to have equity as a portion of our overall compensation program as it fosters an ownership culture with our employees, and this share repurchase program will help offset the dilutive impact of this equity compensation. Our repurchase program is in addition to an operational approach to mitigate dilution that we implemented in the second quarter of last year called Net Settlement, under which we, as a company, hold back shares to cover the taxes on employees' vested RSUs and pay for those taxes from our own cash reserve on behalf of the employees. Net Settlement could amount to a use of cash of approximately $275 million in 2023, depending on a variety of factors, including the stock price and the number of grants that vest throughout the year. Finally, I want to thank our teams at Pinterest, our advertising partners, and all of the people that come to Pinterest to find inspiration. And with that, we can open it up for questions.
Operator, Operator
Certainly. The first question is from Eric Sheridan with Goldman Sachs. Please proceed.
Eric Sheridan, Analyst
Thank you so much for taking the questions. Maybe two, if I can. And first, Todd, congratulations on future endeavors. I'm sure we'll probably have one more earnings call together, but just wishing you best of luck in future endeavors. Maybe on the first question, obviously, visibility remains low in the overall advertising environment. Can you give us your perspective on how you're managing through that sort of low visibility that you're seeing right now versus managing towards building what you want to build on the advertising side for the long-term and how we should expect the interplay of those factors in the coming quarters? And then second, as we exit 2022, and you guys sprinkled a lot of this into your prepared remarks, but how should we think about what the top priorities are for investment into 2023 and how, again, that maybe plays back against sort of the broader growth environment that you're seeing? Thanks so much.
Bill Ready, CEO
Thank you, Eric. To address your questions about our broader landscape and our progress towards our goals, I'd like to start by noting that although a 4% to 6% revenue growth might not seem remarkable, we are actually outperforming many of our peers. We believe we are capturing market share, particularly with our larger and more sophisticated advertisers, where we are increasing our share of wallet. As mentioned, we have significant growth potential ahead, and I'll try to outline that potential. When I joined Pinterest two quarters ago, there were burning questions from analysts and investors. Could we regain share with our core user base post-pandemic? Could we compete in an environment focused on short-form video? And could we create a monetization engine at scale? Now, after a little over six months, I am more confident than ever that we can achieve all of these objectives, and we are committed to implementing operational discipline across the organization to make it happen. Regarding the first question, can we return to user growth? Yes, we are seeing year-over-year growth in our monthly active users (MAUs), and more importantly, we are observing double-digit growth in our most monetizable and engaged mobile app MAUs. Overall engagement is also growing at double-digit rates. We are encouraged by the increased sessions and the fact that sessions are growing even faster than our user base, with this growth accelerating. In fact, our upcoming 10-K filing will show that our ratio of weekly active users to monthly active users is at an all-time high of 61%. This indicates that we are enhancing engagement, which we have discussed over the last couple of quarters, and we are achieving significant success in that area. As for the second query about competing in a landscape where our peers are heavily focused on short-form video, I can confidently answer yes as well, but we are doing so on our own terms. Our content supply is increasing, with video content rising by 30% quarter-over-quarter. We are discovering more effective ways to provide engaging content on Pinterest to meet our Pinners' needs, from inspiration to action. Importantly, while over 10% of our engagement now comes from video, over 30% of our revenue is derived from short-form video. In terms of monetizing short-form video, where there has been broad uncertainty, we are experiencing solid success, which is distinctive and noteworthy. Furthermore, in response to the question about building a monetization engine at scale, the answer is absolutely. I am genuinely excited about the advancements we have made in our advertising stack, which has enabled us to increase our monetizable supply by over 15%, outpacing overall engagement gains due to technological innovations like whole page optimization. This approach opportunistically enhances ad load when a consumer is in shopping mode or has commercial intent. We are developing solutions to assist advertisers in measuring results on our platform, such as our conversion API and our new clean room solution. Although we are still early in the adoption phase for these measurement capabilities and new tools for advertisers, we are finding that our best growth is coming from discerning advertisers who are utilizing these tools. The more visibility they gain into our performance, the clearer that performance becomes, which bodes well for our future as more advertisers adopt these tools from us. Even while we are navigating a demand-challenged environment, I believe the improvements we have implemented to deliver value to advertisers are yielding positive results. This is likely why we are growing faster than many of our peers. While demand does not shift overnight, we think the combination of deepening engagement and the growing supply on our platform, alongside innovations like whole page optimization, is enhancing the relevance of our ads and allowing us to serve more targeted ads in a commercial context. Coupled with our progress on measurement tools and the performance we are witnessing with discerning advertisers, we believe this positions us well for the medium to long term, even as we contend with some short-term fluctuations, like everyone else.
Operator, Operator
Thank you, Mr. Sheridan. Your next question is from Ross Sandler with Barclays. Please proceed.
Ross Sandler, Analyst
Hey. Just following up on the earlier question regarding priorities and investment levels. Todd, if we assume revenue remains at low single digits in the first half and then improves in the second half of the year, what kind of margin expansion could we expect based on the planned investment levels you mentioned for 2023? Additionally, Bill, you have discussed using an ad partnership model to complement your direct ad sales by bringing in demand from retail media networks, DSPs, and other third parties. Could you provide more details about the timing and scale of this initiative? It wasn't mentioned in the previous discussion, so is this more likely to be a 2024 event? Also, how would you balance the partnership approach with direct ad sales if you move forward with it? Thank you.
Bill Ready, CEO
Yes. Thanks a lot. I'll hit your second question first then give it to Todd to hit your first question. So we definitely think about sourcing ad demand as an opportunity for us. Our first priority is always going to be our direct sales and the partnerships that we're driving there. We feel really good about the progress that our sales team is making on that and how we're winning with those advertisers that have implemented our latest tools and the most sophisticated and discerning advertisers seeing our performance be the strongest. We feel really good about that first-party selling motion. But we do believe there's an opportunity to augment our demand with third parties. And you mentioned one of those that we've done already around Retail Media Networks. We think there's a lot more opportunity in those. We also think that leveraging third-party demand has been an underutilized lever here, particularly compared to other platforms. And so that is something that we will continue to explore. While no specific updates on specific deals or specific partners or those kinds of things, I do think that is something that we'll look to take more action on. We're already taking action on it with Retail Media Networks and something that we'll look to continue taking action on more in the near-term. It is not something that I'd put into 2024. It's something that we're actively exploring. And again, no specific updates or specific announcements on what we do there. But we are very much looking at that as a meaningful opportunity in the near-term versus something that would be relegated to the medium or long-term.
Todd Morgenfeld, CFO
Regarding your question about margins, considering the current volatile demand landscape and some uncertainty this year, it’s crucial that our revenues surpass our costs. We previously discussed our commitment to significant margin expansion, and we still have a clear understanding of the necessary strategies to achieve this. We aim to grow as demand stabilizes, as Bill outlined. Our strategy of deepening engagement is proving effective. We have increased monetizable supply at lower prices and developed tools like whole page optimization and mobile deep linking to maximize this supply. Our measurement tools are demonstrating improved ad performance. I am confident that as demand normalizes, we will see positive revenue growth. However, we must also focus on the cost side. In the current quarter, our cost of revenue decreased compared to the previous quarter after considerable growth throughout the year. This is due to enhanced discipline in our infrastructure, and we plan to keep investing in optimizations this year, which will allow for more operating expense flexibility. As Bill noted, we significantly slowed hiring last summer and took actions in the fourth quarter, with more planned. We are also reviewing additional cost-saving measures, including our real estate portfolio, to ensure we achieve margin expansion. If you are modeling the year ahead, you'll notice from my guidance that year-over-year operating expense growth for the first quarter represents a significant reduction compared to our fourth quarter growth. We anticipate this downward trend will continue throughout the year as we move past the headcount-related investments from the first half of last year and reduce expenditures on brand and marketing campaigns in the second half, including discretionary creator rewards programs. This modeling indicates a much lower operating expense growth throughout the year, which should enhance our margin expansion even at modest revenue growth levels.
Operator, Operator
Thank you, Mr. Sandler. The next question is from Brian Nowak with Morgan Stanley. Please proceed.
Brian Nowak, Analyst
Thanks for taking my questions. I have two. The first one, you've made a lot of progress around users and sessions and engagement. I was just wondering if you have any stats to share at all about clicks to advertisers, interaction with advertisers, or anything on transaction? I know it's early, but just any way you can quantify sort of some of the early progress you're making on your users engaging more with your advertisers? And the second one, Bill, I guess, if you sort of look at your user behavior as well as the key merchants and inventory you're putting on the platform, what are sort of two or three of the most important verticals in e-commerce that you think are going to really catalyze the advertising growth to materially faster growth over the course of the year into next year? Thanks.
Bill Ready, CEO
Maybe on the first question, on the progress we're seeing there, I mentioned in my remarks, shopping ad is growing 50% year-on-year as well as not only solving for shopping but giving easier conversions, easier ability for the user to connect with the place to buy through our mobile deep linking capabilities. I shared how significant the percentage of revenue from shopping ads is coming from mobile deep linking. I think that is an early indicator of just how much we can do not only to make more of our content shoppable but also our ability to drive that full-funnel engagement where we've historically been much stronger at the upper and mid-funnel. At the lower end of that funnel, we're seeing that low-funnel conversion objective being about a third of our revenue overall in things like mobile deep linking, which we have not had that adopted across the board, but the early adopters of that have seen really strong performance. So, I mentioned that part of what gives me a lot of confidence in our future is much of our performance is coming from the early adoption of new conversion tools like our conversion API and new capabilities like mobile deep linking that right now have been adopted by a smaller set of our larger, more sophisticated advertisers. As we move along that adoption curve, I think that bodes well for how we can compete more broadly, particularly on shopping-type actions, conversion objectives, and these lower-funnel objectives. So, those are really good early indicators that as we move on the adoption curve, I feel quite good about. You asked also about which categories we think of. Shopping is pretty broad-based on our platform. There are some obvious ones that you would think about, women's fashion and apparel and those kinds of things that are definitely places where we have very large engagement, significant opportunity. We have other large moment engagement, things like weddings and home redesigns and these kinds of things that are meaningful user behaviors as well. We have some really interesting emerging behavior also. Todd mentioned growth in things like autos and men's fashion, Gen Z being our fastest-growing demographic. So we feel like shopping is a broad-based opportunity. While there are some categories that we will lean into first, we see it as quite broad-based, probably more broad-based than many may appreciate on our platform. Todd, I don't know if there's anything you would add to that?
Todd Morgenfeld, CFO
Yes, I believe there is another perspective to consider. Everything Bill mentioned is completely accurate. We can also look at this in terms of the joint business partnerships we've established. If we analyze the market by size rather than retail type or shopping category, we experienced a 25% growth in joint business partnerships in the first half of 2022 compared to the same period in 2021. At that time, we noted this growth as a sign of confidence that our advertising model was effectively serving the largest and most sophisticated advertisers. By the end of the year, we observed a 27% year-over-year increase in joint business partnerships. This growth indicates that some of the largest and most sophisticated specialty e-commerce and retail brands are achieving significant success on our platform, transitioning from brand awareness to consideration and purchase behavior. We have strong confidence that the success of these larger entities is being sustained throughout this cycle, especially given their resilience.
Operator, Operator
Thank you, Mr. Nowak. The next question is from Rich Greenfield with LightShed Partners. Please proceed.
Rich Greenfield, Analyst
Hi. Thank you for the question. Bill, how should we interpret your comments on the time spent on deepening engagement? Is the goal to get users to visit Pinterest daily? You mentioned Gen Z and video. I'm interested to know if users who interact with video pins spend significantly more time on Pinterest or create multiple boards. What insights have you gained since you took over Pinterest? We're trying to understand what you're aiming for to increase user engagement and what frequency you're targeting—daily, every few hours, or weekly? It's a lengthy question, but I hope you can clarify.
Bill Ready, CEO
Thank you for the question, Rich. As I mentioned earlier, we see a significant opportunity in encouraging Pinterest users to move from occasional use to more frequent use. For example, shopping is a behavior that can shift from being done monthly or quarterly to more daily interactions. Much of the progress we've made in recent quarters has involved leveraging AI and machine learning to enhance our recommendations and personalization, which helps users discover new use cases on Pinterest. We have strong early evidence supporting this approach. Our focus on personalization and the underlying AI technologies has been key to improving engagement. Our goal is to convert users from sporadic use cases to more regular weekly and daily activities, and we believe we are making good strides in that direction. Seeing engagement sessions and other engagement metrics increase by over 10% is encouraging. Additionally, the work we've done on whole page optimization is crucial. It shows that ads can be valuable content for users. While we aim to grow our monthly active users, we recognize a significant amount of engagement is being lost when users don't fulfill their intentions on our platform, leading to monetization elsewhere. By improving our ability to respond to what users are already searching for, we can capture more of that lost engagement and monetization and motivate users to return more often. Our advancements in whole page optimization launched in Q4 are proving that we can supply more relevant ads in commercial contexts that address user intent while enhancing monetization for us. This strengthens our long-term outlook, as we have various growth strategies in play to transition users from infrequent to more regular engagement, while also addressing past engagement and monetization losses. We've established a strong base to dynamically increase ad delivery in ways that benefit both users and advertisers. Before pursuing additional third-party demand, it’s essential to have sufficient supply to meet that demand. Our growth in engagement is outpacing user growth, and our supply is increasing faster than engagement. We now clearly have the capacity to deliver relevant ad content effectively, which we believe will unlock greater potential for our ad platform in the future.
Todd Morgenfeld, CFO
I would like to mention that we have aimed, over the last few years, to encourage people to return to Pinterest for various aspects of their lives, which we believe enhances user retention. Last year, we invested significantly in personalization and relevance to improve engagement. This quarter, we've seen positive outcomes with an increase in monthly active users and a 14% growth in our mobile app users globally, as well as a 5% year-over-year increase in the US and Canada. Bill highlighted that our weekly to monthly active user ratio is at an all-time high, and sessions are growing even faster. The success of our deepening engagement strategy is evident thanks to our investment in personalization and relevance, reflected in our financials with an increase in gross margin and cost of revenue last year. This increase was primarily due to the expansion of our machine learning models to leverage unique first-party signals. We are now witnessing the positive impact on engagement metrics, providing us with a stronger foundation to introduce new use cases for our users in the future.
Operator, Operator
Thank you, Mr. Greenfield. The next question is from Colin Sebastian with Baird. Please proceed.
Colin Sebastian, Analyst
Great. Thanks and good afternoon everybody. Maybe first, just as a follow-up on the comments around the episodic users. I know this is in early stages, but what's sort of the time frame you'd expect where we could see an acceleration in MAUs above sort of the seasonal trends? I think, Todd, you talked about that you saw in Q4. And then secondly, regarding features like Watch and Pinterest TV, which you're gaining more visibility on the app, curious how these are impacting monetization or ARPU? Bill, I think you mentioned a stat around video and the portion of monetization growth. So, I didn't quite catch exactly what that was, though. Thanks.
Bill Ready, CEO
Thank you, Colin. Regarding the transition from episodic to more frequent usage, some of that shift is already evident. The advancements we've made in personalization, as both Todd and I noted, are contributing to the increased engagement, which is growing faster than our monthly active users overall. When it comes to the timeline for monthly active users exceeding seasonal trends, I suggest focusing more on overall engagement and revenue per user instead of just the MAU figure. As I pointed out earlier, we have hundreds of millions of users who engage with Pinterest episodically, but they aren't included in our MAU count. Our main goal is enhancing engagement with the users we currently have. We have insights into where these other users are and which ones are likely to monetize well. If we wanted to pursue MAUs purely as a metric of pride, we could, but those users might not be the ones that provide the best monetization opportunity or need the most attention on our platform. We intend to deepen engagement with the users in critical competitive areas where we have the strongest monetization prospects. I would direct your focus to the growing engagement and increasing revenue per user as our key indicators. On the topic of video, particularly its monetization, this is one of the most exciting developments we've encountered at Pinterest. Before I joined, there was a prevailing skepticism about the economics of short-form video engagement. While we see over 10% of our engagement coming from video, it accounts for more than 30% of our revenue. This positions us uniquely compared to others who are still navigating the challenge of monetizing short-form video effectively. There's tremendous potential for us in this space. Given that our platform encourages active participation rather than passive entertainment, we believe we have the opportunity to engage users with short-form video in ways that others might not be able to. A significant part of our upcoming strategy involves making video shoppable. We have a strong capability in computer vision, which is a pivotal aspect of the next wave of AI advancements. We are leveraging computer vision to enhance video shoppability and have already seen promising early results. Our new computer vision model, which consists of over a billion parameters, has improved visual search shopping relevance by 8%. These initiatives demonstrate our ability to harness short-form video for both engagement and monetization, and we believe there's even more potential ahead. I hope this information is helpful.
Todd Morgenfeld, CFO
Thanks, Colin.
Operator, Operator
Thank you, Mr. Sebastian. The next question is from Mark Mahaney with Evercore ISI. Please proceed.
Mark Mahaney, Analyst
Hey, thanks. When you mention that sessions are growing faster than users, could you elaborate on that? Are users spending more time in the categories they’re interested in, or is there evidence that they are exploring different categories? That's my first question. My second question is regarding the expected margin expansion in 2023. Previously, you mentioned that non-GAAP operating expense growth in fiscal 2023 would be slower than in 2022. Could you provide more qualitative or quantitative insight into what fiscal 2023 looks like? Does meaningful margin expansion imply a few hundred basis points of EBITDA margin growth? Any additional information would be appreciated. Thank you.
Todd Morgenfeld, CFO
Thanks, Mark. Regarding sessions, we define them as meaningful engagements with the platform, which generally means users are active for over a minute instead of just visiting briefly. These quality interactions mainly come from mobile users, leading to more impressions and revenue opportunities compared to our historical web users. We've observed strong engagement in several of our key verticals and, as I noted earlier, we've also seen some new areas gaining traction. I'm particularly optimistic about men's fashion, which might surprise some. We're noticing diversification of use cases into sectors like automotive and travel as people resume activities post-COVID. To answer your question, we are indeed seeing use case diversification across both our core and emerging verticals, which gives us confidence in our path forward. Regarding non-GAAP margin, we mentioned a couple of quarters ago that we anticipate around a couple of hundred basis points of margin improvement, and we are committed to achieving that. This will require a significant reduction from our fourth-quarter results in terms of year-over-year growth. The implied year-over-year OpEx growth based on my forecast of low double-digit sequential decline is likely in the low 20s compared to the 40% growth we experienced in Q4. You can expect substantial reductions in the second, third, and fourth quarters. So, when you calculate the overall impact for the year, it's more than just a slight slowdown; it represents a full reset. Thank you.
Operator, Operator
Thank you, Mr. Mahaney. The next question is from Lloyd Walmsley with UBS. Please proceed.
Lloyd Walmsley, Analyst
Thank you. I have two questions. First, regarding the earlier comments about partnerships related to monetization with Retail Media Networks or other DSPs, how do you view the opportunity to expand ad coverage in certain categories, enhance monetization in new regions, or influence pricing? Do you believe your current benchmarks are so low that leveraging other platforms could increase pricing? Any insights on this would be appreciated. Secondly, I understand that video accounts for 30% of monetization and 10% of engagement. I appreciate the information you've already provided, but I would like to know whether that figure pertains to specific brands or if it aligns with your overall direct response mix. Are you selling those ads directly, or are media partners sometimes handling the ad sales for that content? Additionally, is the effectiveness due to the ad creative leading to higher click-through rates? Any clarification you could provide would be helpful. Thank you.
Bill Ready, CEO
Thank you for the question. When it comes to partnerships, I believe each aspect you've mentioned represents an opportunity for us. By using the platform, it's clear that we can enhance ad relevance. I'm really pleased with the progress made by our sales team. However, being a smaller platform means that even the largest auctions often improve their demand through third-party sources. Despite our sales team's strong efforts to generate first-party ad demand, which we are dedicated to continuing, it's an important asset for us, and we will keep investing in it. If larger auctions benefit from using third-party sources, we can certainly do the same. This should lead to improved ad relevance. I previously mentioned the foundation we've built with whole page optimization, which allows us to think of an integrated approach to delivering ads that are relevant content for users. This has dual benefits: it enhances engagement, especially in cases where the ads provide value to users, and it enables us to serve more ads and increase our ad load, which has previously been significantly lower than what you might expect given our commercial intent. As a result, ad coverage, relevancy, and ad load will naturally improve over time. We also see opportunities in partnering with third-party sources and exploring different geographies. Regarding pricing, it's crucial to acknowledge the significant progress we've made as the entire industry transitions towards privacy-safe ad measurement solutions. We've introduced our conversion API and initiated cleanroom efforts, with early positive indications, although we are still at the beginning of this adoption curve. As we advance on this curve, we believe our performance is actually better than many advertisers are aware of and beyond what they can currently measure. Enhancing measurement is a real opportunity for us. These initiatives will primarily be first-party, but we are also exploring various partnership opportunities across the industry. We've previously shared some of these efforts, such as our cleanroom work with LiveRamp and Albertsons, and we anticipate more initiatives that will aid measurement and improve pricing as advertisers gain better insights into the value we deliver. Regarding your question about video, we are not providing the level of detail you are seeking, but we are observing solid overall engagement with video.
Todd Morgenfeld, CFO
I'd say, in general, it tends to be more of an awareness opportunity. That's kind of where it started. We have built performance video and have seen decent returns there. But I think the opportunity going forward is, as Bill has talked about before, building a real full funnel video advertising experience, it takes people through conversion. I think there's a unique opportunity given the shopping mindset where more than half of the people come to Pinterest to shop. Video advertising can take you through the full funnel in a super compelling way. So, I'm excited about the opportunity there.
Bill Ready, CEO
Okay. Thank you, Operator.
Operator, Operator
Thank you. That concludes today's call. Thank you for your participation. You may now disconnect your line.