Pinterest, Inc. (PINS) Q2 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Pinterest Second Quarter Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the call over to Ms. Jane Penner, Head of Investor Relations for Pinterest. Ms. Penner, the floor is yours.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the second quarter ended June 30, 2021. I'm Jane Penner, Head of Investor Relations for Pinterest. Joining me today on the call are Ben Silbermann, Pinterest's President and 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, including the impact of the COVID-19 pandemic, may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. In addition, our results, trends and outlook for Q3 2021 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 and 10-K filed with the SEC and available on the Investor Relations section of our website. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and letter to shareholders, which are distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com. And now I'll turn the call over to Ben.

Thank you, Jane. Hi, everyone. Thank you for joining the call today. I'm going to talk for a few minutes, and then Todd will follow up with some additional insight, and then we'll open up for questions. Earlier today, we released our latest shareholder letter. As you've seen, we grew revenue faster than expected. And at the same time, we saw a decrease in engagement as stay-at-home orders eased around the world. I want to discuss each in turn. Starting with revenue. Revenue increased 125% year-over-year to $613 million. We saw more and more advertisers here in the U.S. and increasingly across the globe recognize the value we offer in connecting them with people planning for their lives. It's a clear signal that our investments in shopping, automation and tools are working. And we plan to continue investing to make it easier for advertisers to scale and reach new customers on Pinterest. On the user growth front, we grew globally monthly active users 9% year-over-year. And I'm sure there are questions about this, so I thought I'd take a few of the obvious ones head on. The first question is what happened with user behavior? As we all know, the pandemic was an unprecedented and unique global event. In past earnings calls, we talked about how stay-at-home orders significantly increased usage of Pinterest. And for the past year, we've highlighted how people came to Pinterest for inspiration to reinvent their lives during such a difficult time. Now as the world opens up, we're seeing the similar effect in the opposite direction. That impacted our growth, particularly because some of the core use cases we see on our platform are less common in 2021 than they were a year ago. That shift in behavior in Q2 impacted engagements. Which brings me to the second question, what users did this impact the most? Well, most of the difference between what we guided and what we reported are people who came to Pinterest from the web versus from mobile apps. These users tended to be, on average, less engaged and generated less revenue than people who came directly to Pinterest. In contrast, in Q2, monthly active users on our mobile apps grew in the U.S. year-over-year and internationally by more than 20%. We're continuing to closely monitor Pinner engagement. So later, Todd will talk you through more about what we've learned a few weeks into our current quarter. While we navigate the current volatility caused by COVID, we remain focused on building for the long term. Pinterest is at the beginning of a fundamental transition, going from a place [Technical Difficulty] lifestyle expertise in the form of rich interactive videos. We're doing this in a number of ways. First, Idea Pins are our first publishing tool, enabling creators to share ideas with lasting value. Second, the creator code is our initiative to make sure Pinterest remains a positive and supportive environment. And third, we'll be adding new features to help creators foster community. We intend to go beyond likes and comments, and we'll build tools that let people share their creations, ask and answer questions and offer encouragement and share tips. We're still early in this transition, but those early results are positive. The number of Idea Pins created daily has grown more than sevenfold since the beginning of the year. More and more, creators are publishing ideas and opening up new worlds on Pinterest on everything from outfit ideas, school activities, workout routines and vacation ideas. And Idea Pins are resonating with our fastest-growing audience, Gen Z. This audience grew double digits year-over-year. We plan to continue to execute on this strategy with more product launches like product tagging, which came out this week to help reward creators for their work and get Pinners another way to go from inspiration to purchase till later this year, when we make it possible for all Pinners to create Idea Pins as well as many more capabilities. For us, these aren't just a series of one-off moves; rather they add up to a larger vision on how we intend to pursue our mission. It has to do something we believe Pinterest is uniquely positioned to do: to tie together the lifestyle inspiration you've seen on TV with the positivity and enjoyment that comes with being part of a community of shared interests with the utility that comes from great planning and shopping tools. Creators are an important building block fulfilling our mission of giving everyone the inspiration to create a life they love. Now I'd like to turn it over to Todd for his thoughts.

Thanks, Ben. I'll share some further details on the trends we saw in Q2 and provide a preliminary outlook for Q3. As noted in our shareholder letter, fewer monthly active users came to Pinterest in Q2 than we expected. Ben's remarks on the letter detail why we think this happened. But in summary, we believe that nearly all of what we're seeing now is the unwinding of some of the engagement benefits that we got during an unprecedented period of time when people were stuck at home and had more time to spend on some of our core use cases. We also continue to monitor other factors, including competition and the impact of Google's recent search algorithm changes while continuing to improve our product and ramp up our marketing efforts to increase engagement over time. We're encouraged that our most engaged monthly active users, those that use our mobile applications, grew year-over-year, both in the U.S. and globally. These users contributed a significant majority of both total impressions and total revenue in Q2. Additionally, the investments we've been making to more efficiently realize value from the unique existing engagement we have is working well. Specifically, the engagement we have on shopping services appears to be more resilient than overall engagement. We plan to continue investing in helping Pinners shop for products they love at a price point they want and in helping merchants get discovered and connected to people who will love their products and services. While we're still early in the journey to fully monetize our shopping engagement, we believe that we have the right sales coverage model, and we're delivering conversions to advertisers who are seeking sales on the platform. Looking beyond the COVID-19-driven volatility, our view on the long-term opportunity to grow our user base, both in the U.S. and globally, is unchanged from what it was before the pandemic. Turning to our financial performance. Year-over-year revenue growth accelerated to 125%, with adjusted EBITDA margins of 29%. This remarkable growth was propelled by 2 main drivers. First, we saw momentum from large advertisers, especially retailers, who returned to the platform in force as consumers resumed social activity when pandemic restrictions leaves. Other going out subverticals like beauty and travel also returned to strength in Q2. Second, our international business again performed really well, growing 227% year-over-year in Q2 and contributing 22% of total revenue. Both of these trends show the growth and diversification of our active advertiser base, which grew both sequentially and year-over-year. Turning to our preliminary outlook for Q3. The engagement headwinds we observed in Q2 have continued in July. As of Tuesday, U.S. monthly active users have declined approximately 7% and global monthly active users have grown approximately 5% year-over-year. The evolution of COVID-19 and pandemic restrictions remain unknown, and we're not providing guidance on Q3 2021 monthly active users, given our lack of visibility into certain key drivers of engagement, which could continue to play out for a few quarters. On the revenue side, we expect total revenue to grow in the low 40s on a percentage basis year-over-year. Please note that our Q3 revenue guide takes into account a few things: first, Ben talked about the important transition we're making from being a place where people view static images safe from the web to the place where people go to discover the best native immersive lifestyle content. That's a big behavior change for us. To build a new ecosystem for creators, we have to invest, and that means giving distribution to Idea Pins at the expense of some high-value advertising inventory, which impacts revenue. We believe that in the long term, this strategy will be engagement accretive and that we'll have a significant opportunity to monetize that engagement. [Technical Difficulty] through the course of the year and in Q3. There was a big rebound in ad spend during the quarter as large CPG and retail advertisers reengaged after the initial shock of COVID, and we believe we benefited from being a positive platform during the social media boycott amidst the 2020 election cycle. Finally, we're carefully monitoring the impact of increasing prices on the platform. These increases are consistent with our strategy to grow our advertiser base, increase auction density and deliver ads more efficiently over time, but that may increase the churn for some price-sensitive advertisers whose cost per action has increased. Before opening it up for questions, I also want to touch on expenses. We continue to invest in the growth of the business in accordance with our key strategic priorities of inspiring content, the Pinner experience, advertiser success and shopping. Non-GAAP operating expenses grew 51% year-over-year, driven in part by our brand marketing campaign. We increased our head count 21% year-over-year, our third quarter of sequential acceleration. We expect sequential non-GAAP operating expenses to grow modestly in Q3 as we continue to ramp investments in our long-term strategic initiatives and growth drivers and resume our brand marketing campaign again in early Q4. Thank you to our teams at Pinterest, our advertising partners, our creators and all of the people that come to Pinterest to find inspiration. And with that, we can open it up for questions.

[Operator Instructions]. Your first question comes from the line of Ross Sandler from Barclays.

One for Ben, one for Todd. Ben, you mentioned in the letter and just now some of these at-home categories where MAUs or use cases are kind of dropping off, which makes sense, given where we are on the reopening. But just, I guess, can you just -- since we haven't talked about this before, maybe kind of break down these use cases into how much of the behavior is around the home versus other things? And is it relegated -- or is the drop-off solely in those areas? Or is there something kind of more systemic going on? And then, Todd, the 2Q numbers are obviously outstanding. The low 40s, I think, is a little bit lower than we had thought and there's probably some conservatism in there. So is that what you're describing around this swapping out the ads for the creator pins? Or any more color on what you're seeing thus far in 3Q from your large retail and CPG clients? And do you think the 2-year stack should hold at this level that you're talking about with the 40% in 3Q on a go-forward basis?

Sure, Ross. Thanks for the question. I can start with your first one, which was a little bit more color on the changes in user behavior that we're seeing. And as Todd outlined, there are a few things that are changing as the pandemic is eased. One, overall time at home has shifted. And two, a lot of the use cases that were especially relevant last year, things like redecorating your home, educating your kid at home, cooking meals at home, those have lessened. Now it's early to say how those will normalize over time. I wouldn't describe the current user behavior or the current social environment exactly the same, but we're seeing some promising early signs. We're looking at things like back-to-school, we're seeing an uptick in fashion. And as mentioned, we continue to see strength in areas like Gen Z, which engage and continue to be our fastest-growing demographic. I don't know if that starts to answer your question. Todd, I'm not sure if you want to add any more color there.

No, I think that's great, Ben. Ross, why don't I take the second part of your question, which I tried to talk about a little bit in my prepared remarks, but I'll pause and double-click on it a little bit. I think you are interested in the impact of our creator and content ecosystem and particularly the distribution of Idea Pins. There were really 3 reasons that were -- 3 factors that are kind of influencing that low 40s guide. From a quantification perspective, it's difficult to pin down exact numbers, but 3 things are in my head when informing that guide. The first is we are building out a content and creator ecosystem with our Idea Pin format. That will require some investments to get up and running. There are things around that, around pivoting people from the grid format to streaming experiences, consuming some of our highest value ad slot inventory to distribute those Idea Pins. And the cold start issue because we don't have enough content yet, relevance is a bit of a challenge until we get this marketplace, this content marketplace in effect. So it is an investment in the long-term engagement and growth potential of the company to use some of that supply to distribute Idea Pins. We believe that, that will be accretive to engagement longer term, and we know and have talked about in the past that we've already seen some evidence we can monetize that format. I'm confident that given the short-form video nature of that content and our enormous success in scaling video advertising over time that we'll find similar success with these creator efforts. I might remind folks that we went through a similar exercise with shopping over the last couple years where we made an investment in the user experience first to find product market fit before we put our foot on the gas around monetizing. And I view this similarly: we're investing in the user experience to get this content marketplace up and running with Idea Pins on the belief that with the right product market fit, we'll drive organic engagement and be able to follow with monetizable [Technical Difficulty] self-explanatory and we went through it in detail on the call, the Q3 call from last year. But the impact of high returning automation through the course of 2020, the big rebound in CPG in retail and the benefits to us of not being a social media platform during the social media boycotts during a contentious election cycle last year makes for a pretty tough comp in Q3. And then as I mentioned, we're out looking at the things that are on strategy for us, which is diversifying our advertiser base, delivering more auction pressure, driving more cost per action on the platform, and that may cause some rotation amongst our most price-sensitive advertisers. But advertisers value the commercial intent we bring, they value our demographic and they value our brand safety narrative. And for those advertisers, we're continuing to see tremendous success. But we're in an escalating pricing environment that may squeeze out those that are -- that value some of those characteristics less. And so those are the things that are on my mind as we guide to the low 40s for the quarter. Does that make sense?

Your next question comes from the line of Brian Nowak from Morgan Stanley.

I have two. First one, yes, I understand there'll be a lot of questions about users. Maybe just to give us a little more clarity. Can you just tell us what percentage of the U.S. or the global users are part of that app user base? Just so we can sort of better understand the magnitude of some of the dynamics you're talking about, app users versus web users. And then secondly, I think in the past, you talked about your new initiatives like Lat Am, APAC and native checkout. Maybe just talk to us about where you are on sort of those three growth areas.

Yes. So on the user base question, Brian, our mobile app users contribute a significant majority of our total impressions, they're higher frequency and therefore, they deliver a significant majority of our revenue. If you look globally, and there are a lot of ways to cut this. But one way we think about it is globally about 75% of our users are mobile users. And a large majority of those users are mobile app users, so that dimensionalizes it to some extent. Now these web users that come in not on the mobile app are important to us because they're upper funnel user acquisition, right? They're not heavy consumers of impressions or big delivery of near-term revenue, but they do inform growth potential over time. So they're important to us, just not as important to the near-term revenue performance of the company. Folks may remember a couple of years ago in, I think it was the second quarter of 2018, we had some external factors that impacted user growth, but continue to grow our revenue right through those engagement issues, and it's a similar dynamic that we saw last quarter. And apologies. Can I -- can you please repeat your second question?

It's all good. Yes. Just sort of looking for any update on timing of some of the new growth initiatives you talked about in the past like native checkout, Latin America expansion on the monetization side and then APAC on the incremental website side or incremental app side.

Yes. So on the native checkout side, I think we said last quarter that we were planning to begin testing at some point this year in less friction filled or friction-free way for our users to buy what they found on Pinterest, which is one of our big request from our users. How do I buy what that sounds on Pinterest? And we've enabled that over time, but we're making it even easier for people to do that as a result of some of these tests that are on track for later this year. Our investments in Latin America are early. We've got a great team in place. The early returns are scaling nicely. We're building great relationships. It's working, but it's still incredibly early. We just launched a couple of months ago in Brazil and Mexico. And while I'm really encouraged by the user base that we have down there and the market opportunity, it's still very early, and that will continue to scale over time. And then lastly, we're investing in growing our user base in some markets in Asia Pacific that we think we could open up over time, but that's not on the road map for this year yet.

Your next question comes from Rich Greenfield from LightShed Partners.

I guess, just from a high level, a couple of housekeeping points maybe just first, just because I think there's -- just to make sure everyone is on the same page. When you're saying U.S. DAU is down 7% so far in the quarter, I believe that just makes U.S. DAUs effectively flat sequentially. And on an international basis, those subs would actually be up sequentially. Just wanted to make sure we're all reading that properly in terms of what the interpretation is. Could you just also give us a sense of how many -- Idea Pin seems to be such a focus of what Ben and sort of the product team are working on. Is there any way to think about what percentage of your MAUs globally are interacting even -- or U.S. or globally, whichever the best way to look at it is, are interacting with Idea Pins at this point? And then just sort of the main question, just when I think about sort of the comment that's in the letter of advertisers being driven by the adoption of measurement solutions, was wondering if you could sort of give a little bit finer detail of what you actually mean? Like what is attracting advertisers into Pinterest based on your measurement solutions? Like what are you actually seeing? If you could give us a couple of concrete examples where that's actually making a difference?

Sure. Why don't I take the first and third, and Ben may take the second. [Technical Difficulty] I think users rather than DAUs. And we are -- as you mentioned, we're down through Tuesday, about 7% on a year-over-year basis, those are preliminary numbers. I think we're just trying to get some direction post the end of the quarter to show some updated trends.

But they're not notably flat sequentially?

Yes, if it were to hold. I think that's right. If it were to hold through the quarter. What I would want to caution folks -- so yes, that math is correct. But it implies that we stay current at these levels, which is something I didn't want to lead people to believe on this call because I don't have enough visibility into how these pandemic restrictions easing or any other pandemic-related changes in user behavior may play out because it's been very difficult to discern. We look at -- just for color commentary on this, we look at pretty detailed time series analysis. We've looked at historical seasonality, and we've done using third-party analysis based on time spent at home to correlate usage against what we see as mobility data in geographies where we have users. And so our best judgment right now, just given the volatility is to give the update on where we are in July, because our experience in forecasting recently has been a little off of where it was historically, if that makes sense. So yes, there's a lot of words to say, yes, your math is correct, but I would caution people that we're not guiding to this Q3 end results at this point, given the uncertainty around the pandemic. Does that make sense?

It does.

Okay. And then on the advertiser side, we've made -- part of the value of being on Pinterest, and we hear this from advertisers a lot, they love the brand safety and the inspiration that the platform brings. They love the early commercial intent that our user base brings to the platform because you're looking for ideas to bring into your life. And a lot of the activity is unbranded when people come. They're looking -- they don't yet know what they want, but they're effectively shopping. They're looking for new ideas, considering those ideas and eventually purchasing them. So the value of being out in front, and we've demonstrated this with our delivery of insights over the last couple of years tied to seasonal moments where we can see consumer behavior before it unfolds and help our advertisers design campaigns against those seasonal moments. That speaks to the value of an earlier touch. And the industry has been conditioned on last click analysis for a long time. So a lot of our marketing and sales work is designed to prove that earlier touch is where you want to be when you're diversifying your spend for consumer Internet advertising. Tools like our Pinterest conversion analysis, conversion insights, which looks at the GMV delivered by organic and promoted shopping behavior and then our Pinterest conversion lift tool. These are all innovations that we've delivered over the last several quarters, couple of years to better demonstrate the value of longer attribution windows and that earlier touch. And so those are the things that we've delivered. But this is part of our go-to-market and our marketing program in general is demonstrating the value of inspiration on the platform, demonstrating the value of insights that we can uniquely glean from our consumer behavior and help show increasingly the value of that earlier touch for those that are willing to consider that as a factor in their spend. Does that make sense?

It does.

Okay. And then I don't know, Ben, if you had thoughts on the Idea Pins question.

Sure, Rich. So I think your question was kind of like how many people are seeing these Idea Pins? Where are we in that journey? And I think it's probably worth just taking a moment to visit like why we're going through, why we're describing it as a big transition. Today, the much of Pinterest content is based on users' pinning items for the web, and it's creating enormous value for businesses, enormous value for people looking for ideas. And over the last few years, we've told you about increasing importance of video content, which has grown significantly. And Idea Pins are the next logical step because they not only enable people to save a video, but they enable creators to produce original content that's aligned with our unique brand and purpose, which is inspiring useful ideas that encourage people to try something new. But as Todd mentioned, that's a new user behavior. And so the reason we say it's early is because we're going to get our Pinner community used to the idea of following and subscribing creators. And on the flip side, we're going to empower creators with not only publishing tools, ways to engage that audience and eventually to make a living. We think there's an enormous opportunity there because while there's a lot of long-form video and there's a ton in short-form entertainment video, there isn't as much in the type of things that Pinterest specializes in, which are inspiring ideas, ideas that have durable value and ultimately, ideas that can drive action. So we're really excited about that. And the early results are really promising. So in Q2, we launched Idea Pin, that is the ability to publish them in 22 markets to those with a business account. We have not yet released it to everybody on Pinterest. So if you don't have a business account, you can't yet create Idea Pins, but that will be coming. But already, Idea Pin's created daily. It's grown more than 7x. And on the user side, we're seeing really good adoption with daily impressions growing more than 10x since January. So this is going to be a big shift for the company. As Todd mentioned, we're really leaning into it, investing. Investing in helping these traders build a community. But over the long term, we think they can change Pinterest from a passive experience where you're browsing imagery to one where you're following people. And we also think that it can bolster all of our other initiatives around not only giving people inspiration, but helping them take action by letting them purchase the things that they've seen.

Are there milestones that people should be judging you on in this transition as you think about this rollout?

Sure. I mean I think that the first step, Rich, is we're really going to make it much more broadly available. And we're going to make it so people encounter creators and Idea Pins a lot more often. And that's really the first phase, and we're focused on helping these creators build a community. And that's the first phase. And then we're going to build out from there. So that's how we're approaching it internally.

Your next question comes from the line of Mark Shmulik from Bernstein.

A couple, if I may. Ben, just to kind of follow on, on the creator point. It seems like every platform is kind of focused on the creator economy. And so can you share a little bit more details on like who these creators are? Are they already on the platform? And this is about empowering them to do more? Or attracting new types of creators? And then for Todd, can you provide a bit more color on that shopping behavior and what it looks like? I think you mentioned at the top of the call that it's been more resilient. But wondering if there's any more color you can share around whether it's product searches to the shopping tab or what it might be?

Sure. I'll start, Mark, with this question of who the creators are. I mean I think it starts with like what's our mission and our unique place as a platform. Pinterest has always been a place that provides lifestyle inspiration, things where people aren't there just to get in their team. They're also there to do something. And we're focused on short form. And so that means there are a lot of creators that exist on the platform but there are also creators where other platforms that are focused more on pure entertainment aren't serving their needs as directly. And so we've seen a lot of really interesting early kind of creator success, things that are core to our use cases but are expressed in a much more engaging way. Make him breakfasts, work outs, cleanup products for a glow up. And just to put a point on it, one example is a fashion photographer who's been in the early beta. His name is Shane. He's cultivated an audience of 18,000, average 9 million monthly views in only a few months. And what he does is he uses these Idea Pins to take Pinners kind of behind the scenes at fashion shoots and share tips how to succeed as a young entrepreneurial photographer, creative ideas. And what he says is that Pinterest is allowing him to connect with his audience or his community on a deeper level that's harder for him to reach on other platforms. Part of that is because of its search engine-like nature. People are actively looking to churn. Internally, we call that kind of intent. And then the feedback that he's received, he describes as really breathtaking. And so he's excited about cultivating the audience that's more intentful versus browsing, more inspiring or entertaining person after another. So that's kind of the character. We think there are a lot that are on the platform that haven't had the publishing tools. We're focused on that. We think there are a lot of outside the platform, and we're eager to bring them on and give them the best tools to inspire their community and eventually make a living from it.

So on the shopping question, I'll go into a couple of things. Number one, we've continued to invest in the product experience. And so that's shown where our ability to deliver more inventory has continued to increase. We've delivered 50% more sequentially in terms of product inventory through catalog uploads in Q2 versus Q1. We've rolled out shopping features to Australia, Canada, France and Germany. We launched shopping list which is a way for Pinners to save product pins in 1 place for easy shopping and enable notifications when price drops on, say, product pins. And these are all in service of creating a better shopping experience that we talked about. Those through early tests show that our Pinners are 7x more likely to buy products they've saved. As we talked about earlier, we're also launching the -- we're testing a plan to test that on platform transaction experience later this year. But to the most direct way of talking about it and the thing that we had, like, pointed to in terms of shopping behavior was our weekly shoppers in the U.S. was more performant than our overall monthly active users. They're about flat year-over-year versus down a few points. Does that answer your questions?

Yes.

Your next question comes from Mark Mahaney from Evercore ISI.

Two questions. One is nitty-gritty, and one's bigger picture. The nitty-gritty one is that update you gave on MAUs, could you also do that for the mobile, the really engaged MAUs? What those trends look like through the quarter to date, both globally and in the U.S.? I.e. is there -- or U.S. MAUs declining year-over-year, but that whatever that 5% to 7%, but the hard quarter, your mobile ones rising, any comment there? And then secondly, just step back a little bit and just talk about with COVID, what impact do you think -- that clearly created this kind of comp issue for you, we get that. But talk about if there were wins, and I think you probably had some sustainable wins, you probably had a large cohort of users who came on and have permanently stayed on with you. So just talk about the kind of the what you saw from that COVID cohort. I think at the time, you talked about this a year ago, those engagement trends were relatively similar to what you had seen in prior or maybe even greater. So just talk about all those users that came in. What trends do you think you saw from those that are sustainable?

So Mark, I'll start with the first one, and I'll let Ben comment a little bit on some of the user behavior that we've seen. I don't have an update through Tuesday on the mobile app MAUs, but what we saw last quarter was they were modestly positive year-over-year in the U.S. and grew about roughly 20% globally. And so that gives you some sense, but I didn't update them through Tuesday and don't have them to share on this call.

Mark, the second question was what have we observed about folks that joined during COVID, what's the same and what's different. So the things that are the same are we continue to see that these core lifestyle verticals, fashion, food, beauty, health, they continue to be really important. And while coming from last year to this year, the overall usage is lower. We think those are durable things. Those are things that people care about and they're going to continue to care about. And so in terms of progress, we continue to invest to make sure those experiences, including making all those experiences more shoppable, continue to be really great. One interesting thing that we have noticed is that we continue to see Gen Z grow on Pinterest. So the U.S. monthly attributes [Technical Difficulty] women's fashion. But it's a really exciting early trend. And it's one that we're really excited to cater to because it's obviously a future demographic that will grow into an incredibly valuable cohort in the future.

Your next question comes from Justin Post from Bank of America Merrill Lynch.

Maybe one for Ben. When you take a step back and you look at 91 million DAUs in the quarter versus 85 two years ago, how do you feel about your progress kind of getting new demographics on the site? And where do you think you can go from here? I mean you still have aspirations of maybe getting 150 million users. How are you thinking about really driving growth in new demographics from here? And then I guess on the catalog, really interesting growth there, 50% quarter-over-quarter. Can you just help us understand what that puts up on the advertising side? And does that put you in a better position for shopping on the site? How you're thinking about that?

Sure, Justin. So I think at a high level, you're asking where do we think that future growth is going to come from. And we've covered a little bit new demographics that are going. But maybe one way to interpret it is what are the functionalities? How is the platform improving to be more useful to more people at the time? I think that we covered at some length on why we think the creators, while a long-term initiative is pretty fundamental. If you think about large-scale consumer Internet platforms, you have social platforms, and then you have a long list of ones that have some form of publish and subscribe, when you can follow people to create content. And usually, that's video content. Pinterest is somewhat unique in that it's grown as a utility where you browse and look at content. And so we're introducing something that we think that our users are really looking for, our users tell us that they want a place where they can browse video content, they can follow inspiring people who really major in expertise and lifestyle and minor in celebrity and entertainment rather than the other way around. And so we're really excited about that long-term prospect. On the flip side of that, you have utility, like how useful is Pinterest at helping you go from inspiration to actually a purchase. And there, we've made tremendous progress. A year or 2 ago, one of the most common user concerns was that I would see an image, I would want to purchase it, but I couldn't reliably get there. But a lot of investments we've made from increasing the amount of products uploaded through catalogs, to better ways to pivot from an image or a video to products and interrelated products and then to a brand page, to future things like the shopping list that we leased, test to needed checkout, make Pinterest itself more and more useful for taking us on a full journey from inspiration all the way to purchase. So I think both of these things are long-term tailwinds. I also do believe we're still early days in terms of international growth and expansion. And so we're going to continue to invest there. And I think there's a lot of great future growth to be had.

And then, Justin, I think the second part of your question was about the impact of the 50% sequential increase in catalogs on the platform. I think around a little bit to say, you may remember this little echo of some of the conversations we've had over the last few quarters, but I'll remind folks that similar to how I kicked off the call, we're majoring in the user experience and product market fit with respect to shopping. So our investments in catalog ingestion were designed to improve the inventory of shoppable content we have available to us to deliver and then marry that with better access to natural high-intent discovery services for our users to find that content in a natural journey from inspiration to purchase. The catalog ingestion success that we've had really improved the first of those, the inventory available to us to deliver products to users that match their aesthetic from a retailer that they trust at an appropriate price point. And so we have seen nice growth in our shopping revenue, consistent with that product market fit that's still developing and improving as advertisers see the value of promoting the shopping content that our users are increasingly engaging in. So that is, hopefully, that's a little bit better, helpful color on how I think about the catalog piece. Our availability of shopping content means that we have a bunch of potential content to promote for advertisers who are seeing that GMV success on the platform.

Your next question comes from Douglas Anmuth from JPMorgan.

I just wanted to circle back to the 3Q revenue. Just trying to understand the low 40s growth better. Just as you're shifting from static images to more Idea Pins, can you help us quantify the impact there at all in terms of dollars? And how do we rationalize that just with the comments that mobile users are still growing overall and that they monetize better? And then separately, is there any risk as you go through this transition? Is there any risk to users and engagement just as you shift the user experience more to Idea Pins over these next few or several quarters?

Yes, I can kick off with the guidance piece, and then maybe Ben can talk about these or the second part of your question. The way I think about it is we do have highly engaged mobile app users where we drive the bulk of our revenue. But for those users as we pivot and introduce the creator ecosystem and more Idea Pins, there are a couple of things we're doing even with those users, right? We're pivoting them from a grid format to a streaming format that consumes some of the time they would have spent on the platform. We're using some of our highest value add slots for those users, and we're replacing them with Idea Pins. So the distribution is coming in place of known economic return [Technical Difficulty] find that it's a compelling way to go from idea to action. We're also evaluating this relevance question. We've talked a lot about how diversifying our advertiser base is important because we want to increasingly deliver ads that feel like content to users. In this particular area with Idea Pins without an abundance of content, relevance is challenging to get up and running. And so that has some implications for engagement as people have a less than satisfying experience on site. So these are all things that we know we will deal with as we get this marketplace, this content marketplace up and running. But I wanted to be clear about how I was thinking about it. It's an investment in monetizable supply to get that content marketplace up and running and successful, that we think is the right long-term investment for the company. It's unclear how the adoption rates will go. Some of it's within our control to some extent, too, how it unfolds. But I wanted to give you my best judgment of where we're headed based on my current assessment of road map, what we're seeing in the quarter and where we're heading. Does that make sense?

It does.

Okay. And then on the user experience, I don't know, Ben, if you wanted to add any color?

Well, I think we've covered it. I think the important thing to understand is that we are introducing a new user experience. And we had a large-scale service, it takes some getting used to. But there are a few things that I think are really encouraging and really will cater to the unique nature of the platform. One is where we've seen a lot of Idea Pins be successful early are items that have utility. And so as people add more content, that begins to fill up a content corpus that has long-lasting value. So it's not a highlight of today's party, it might be a recipe you can cook, an outfit that you can try on, a new way to style something, a new workout. And so over time, as more and more of these Idea Pins are generated, we have a larger and larger body of pins to recommend. That increases relevance. And it helps people find those 1 or 2 creators that really connect with their interests. The other thing I would say is that historically, we have and we continue to be focused on the long term. We took a really long bet, as Todd mentioned, on shopping. And we had a very similar dynamic where we had to help merchants get some of their products. But as we've grown the volume, it's improved relevance and now we're systematically removing friction out of the purchasing experience because we think long term, that's what's great for users. Similarly, we think that users would love to go from that passive experience, which won't go away, but have the option to be able to connect directly with creative people who want to share their passion and expertise. And we've been experimenting with new ways to deepen that experience. From uploading your version of an Idea Pin to a beta that we ran, where you can take a live class or directly engage with the creators. So laying that kind of foundational subscription system is really what we're building out right now. And we think that as that gets built out, it opens up great possibilities for our users to fulfill our mission, and it opens up great possibilities for businesses who want to connect with Pinners in different ways.

Your final question comes from the line of Colin Sebastian from Baird.

I guess, first, a follow-up on users. With U.S. MAUs reverting back essentially to pre-pandemic or March last year levels, I guess what gives you confidence or conviction that we won't see more of a decline in some of the international markets as they reopen for travel and recreation? And then secondly, with respect to the on-platform test transactions that you'll be doing in Q4, curious what that will look like compared to some of the other formats we see in other platforms. Are these buy buttons and rich media ads that take you to a Pinterest checkout page? Or will this have more marketplace functionality through category searches or product listings? If you could add a little more color there, it would be helpful.

I can start -- thank you for the questions, Colin. So I'll start with the user question about what we're seeing in the U.S. and how that might cascade internationally or a perspective on that. And then maybe Ben can talk a little bit about the user experience around shopping that we're envisioning and the vision to that. So I want to be clear about where we are in the quarter and the factors that I'm looking at that influence the outlook for users in the short term, number one. And number two, I wanted to reiterate that what I'm feeling in the moment and what I believe is that we're dealing with pandemic-related issues. Of course, there are other things that we monitor. This is a competitive market for user attention and there are other consumer applications out there. And we mentioned that there was a Google SEO change. Those are small relative to the -- what we believe was almost entirely a pandemic unwind in the quarter that impacted our user engagement. I don't know how that will unfold even in the U.S. over the course of the next few months. And I don't know how it will unfold internationally because this could go in a variety of directions. So what I am confident in, though, is that this is a service that could appeal to people, a wider array of people than we had on the service prepandemic, if we continue to execute on the strategic initiatives that we've outlined. I'm highly confident that the work we're doing on our creator and content ecosystem will deepen engagement. Ben talked about the success we've had in growing our Gen Z audience as an example. They're engaging more than most on the Idea Pins and this is a natural format for sustained growth in that area. So that gives me confidence we're investing in the right things to be accretive to engagement and revenue over time. I don't know, however, how it will unfold over the next couple of months. So that's why we gave the update that we gave with an intra-quarter update and made it clear that we're just -- we're evaluating the pandemic in real time. So Ben, I don't know if you want to talk a little bit about the experience, the transactions experience.

I think that I'd probably just say that we want to significantly reduce the friction for the user. And so we're probably not going to talk about the specific solution yet, but you'll see it soon enough, you'll see it this year. And then if you put it together into the broader shopping vision, I think it begins to paint a really compelling story. Today, we want to help you go from an inspiring image that you might see. You can identify products in there. You can browse related products, filter by price, and we want to add to that, then built to check out with just 1 click. But as I mentioned at the beginning, I think over the long term, there's also a way to connect that vision to a vision where creators are actively sharing their expertise and passion. And you saw this week, the launch of 1 small step in that direction, which is the ability for creators to tag products in their shops or in their videos. And in early tests, we find that Pinners are significantly upwards of 90% more likely to engage on products tag and Idea Pins than on just a picture of a product on a white background. So we see these things working in tandem over time. And we're really excited because that's core to our mission of giving people inspiration, but not stopping there, helping them go all the way to a life they'll love, which often involves purchasing a product.

I think that's our final question, operator, and welcome back Ben to close the call.

Well, I just want to thank everyone today for participating and for the thoughtful questions. Enjoy the rest of the day, and please do stay safe and healthy.

Ladies and gentlemen, that does conclude the Pinterest second quarter earnings conference call. Thank you for participating. You may now all disconnect.