Good evening. Thank you for attending today's Pinterest Third quarter earnings call. My name is Bethany, and I will be your moderator for today's call. [Operator Instructions]. I would now like to pass the conference over to your host, Jane Penner with Pinterest. Please go ahead.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the third quarter ended September 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 Q4 2021 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 Form 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 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.

Hi, everyone. Thanks so much for joining the call. Todd and I will give a bit more context about the quarter, and then we'll open it up to questions. I want to just start by saying how grateful I am for our team. In the face of so much uncertainty in the world, we continue to deliver great products for Pinners, creators and businesses. And I'm proud that, despite macro challenges like supply chain shortages, we grew revenue 43% year-over-year to $633 million. That was thanks to increasing demand from larger retail advertisers and growth in our international business. It's another signal that advertisers see different value on Pinterest than in other platforms. On engagement, monthly active users grew 1% to 444 million as we continue to see the pandemic unwind impact our engagement. While we had an uptick in our core out-of-home use cases, like fashion and beauty, they didn't outweigh the downtick we saw with core in-the-home-use cases a trend that began in March. However, we don't believe this is a permanent change in behavior. Although the timing is hard to predict, we think that MAUs will return to a more normal seasonal growth pattern in the future, as more and more people return to looking for ideas for their homes, recipes, their families and so much more. In the bigger picture, we think there is growing demand for a positive place on the Internet to discover great ideas, try them and buy them. And that's why we remain focused on building a place that feels healthy and encouraging; a place to envision your best life with rich new tools; and a place that connects you to ideas, businesses and creators to help you turn inspiration into reality. For a long time, we've talked about helping people make…

Thanks, Ben. I'll share some further details on the trends we saw in Q3 and provide a preliminary outlook for Q4. We were pleased with the financial results that we delivered. Q3 revenue of $633 million grew 43% year-over-year, with adjusted EBITDA margins expanding nearly 1,100 basis points to 32% when compared to the third quarter of last year. While most of the details about our financial performance is in our shareholder letter, I'd like to provide a little bit of additional color. We estimate that absent the macro supply chain issues this year and the benefit from the social media boycott last year, advertising spend from CPG advertisers would have had a positive mid-single-digit impact on our Q3 year-over-year revenue growth. Also, we continued to scale the distribution and placement of Idea Pins during the quarter. We estimate that the negative impact to our Q3 year-over-year revenue growth was in the mid-single digits. This impact was factored into our guidance for Q3. Finally, we don't believe we saw a material revenue impact from Apple's ATT policy changes during Q3. That said, it's still too early to predict the long-term revenue impact of these and future iOS changes. On engagement, global monthly active users grew 1% year-over-year. We continued to face headwinds, primarily from pandemic easing, as Ben described, but also due to a lower contribution to monthly active user growth from Gen Z users and due to SEO changes that impacted web traffic to our service, particularly in certain emerging international markets. We remain encouraged by the fact that global mobile app MAUs continue to grow double digits year-over-year. In the U.S., our mobile app MAUs remained relatively resilient when compared to our web-based MAUs, which declined double digits year-over-year. Turning to our preliminary outlook for Q4. The exact…

[Operator Instructions]. The first question is from the line of Ross Sandler with Barclays.

Two questions. I guess one for Ben. The new creator tools and Idea Pins and Watch tab, it's just all the new creator activity. If we look out 2 to 3 years, what kind of uptake do you think this could get? And what kind of impact on overall engagement? Are we talking iterative? Or could it be material? Any thoughts on that and just how it's going in the early days here. And then, Todd, the 4Q guide actually looks pretty decent. If you look at it sequentially, kind of low 30s quarter-on-quarter, pretty good considering all the moving pieces right now. I guess, any more color on like what's outperforming as you go into 4Q? What's underperforming aside from CPG? And can we get an update just high level on how big the kind of big 3 are, retail, CPG and all other, in terms of like percent of revenue?

Thanks for your question, Ross. I'll start by talking about creators, and then Todd will address your second question. So on creators, like maybe just taking a step back, I just want to remind everyone of why we're investing in this in the first place. And there are 2 principal reasons. The first is that Pinterest is fundamentally about inspiration. We have long inspired people with web-based images, but we think that video is a fundamental format for inspiration in the future. And today, mobile video is really still in its infancy. So you're seeing all these different platforms develop video products that play to their core strengths. Some are about entertainment. Some are about social connection. And at Pinterest, we see this opportunity enable creators to produce videos that are really aligned with what people are there to do on Pinterest, which is get inspired and take action. And so we think that we have a unique value proposition in that space. So one strategic goal is to better deliver on our mission through rich interactive video, and we think this will both deepen engagement over time and drive actions to shop behavior. The second goal, and you kind of suggest this, is to give our users more reasons to come back to Pinterest with greater frequency. And historically, people mostly come to Pinterest when something in their offline lives needs attention. For example, they might be planning a project for a home remodel or preparing for a seasonal events such as back-to-school. And that means engagement tends to be episodic and driven by events that are exogenous to the service itself. But on the Internet, when people subscribe to content from their favorite creators and brands, they have more reasons to visit a service and engage more frequently,…

And then Ross, I think your -- the second question was about the fourth quarter guide, and I can give a little bit more color on that. So I know folks look at this in a variety of ways. But we often get the question on a stacked growth basis. I think it's in the mid-90s on a CAGR basis over the last couple of years. We're in the mid-40s, which is largely consistent with trend. So I think your point holds there. The color behind that is we expect that the CPG headwinds, which aren't unique to us, it's an industry-wide phenomenon. I would expect that, that continues through the fourth quarter. The question is whether it broadens beyond CPG, but we haven't seen that yet. And I mentioned this a little bit before, that we had a lot of really compelling product improvements through our work on automation last year, auto bid, campaign budget optimization and other things that had great results through the year. We had a especially strong holiday season last year, and then we had some election year benefits that persisted beyond Q3 into Q4. So we're lapping that. And then we're monitoring, as I mentioned, the impact of higher prices on the platform. But the strength is really around our larger retail advertisers, many of whom are buying consideration or traffic objectives right now, continued strength in international and the benefits of our investments in a full funnel performance platform are working. I mean that strategy that we've been talking about for the last couple of years is working, and we're seeing great success with our larger managed mid-market advertisers as a result, which means we're using our monetizable supply more efficiently. Does that answer your question?

Yes. Yes, it does. I mean I don't know if you guys are willing to give it out, but like the revenue mix, I think, is something that comes up off in our conversations around CPG, retail and other and just some of the moving pieces with those 3. So any color, high level on that?

Ross, at the highest level -- thanks for reminding me about that last bit of your question. I -- we grew the business initially on the back of strength in larger retail and CPG advertisers. And that's been a healthy place for us over the last several years. We've diversified, as you know, into other verticals and deeper into the mid-market, in particular, the larger managed mid-market advertisers, especially as we build out more automation in our ad stack and better serve their objectives. The arc of diversification has moved away on a secular basis, meaning the mix of non-CPG and retail has improved. We still have a lot of exposure to those 2. And given the strength we saw last quarter in retail, we actually saw that kind of mix back toward retail in some respects. Our larger advertisers showed up in force last quarter.

The next question comes from the line of Eric Sheridan with Goldman Sachs.

I wanted to ask two questions, if I could. A lot of the other players in the industry have called out the need to build better internal mechanisms and tools around measurement, metrifusion and intent on the back of the privacy changes Apple has made. Can you just give us a little bit of a sense of how you feel you're positioned against broader privacy headwinds in the industry in the coming years? And what investments might be key to you? And then Ben, I wanted to ask, the company has obviously been written a lot about in the press from a strategy and strategic standpoint a picture lately. How are you thinking about the way Pinterest is sort of positioned against some of the broader industry trends around commerce and advertising and the creative economies you called out? And how much of that you can accomplish sort of organically by yourself?

Sure, Eric. Well, why don't we start with your question on measurement? Look, we've been talking about being prepared for the shifts in the privacy landscape for quite a while. And so for past 3 or 4 quarters now, we talked about investing in first-party measurement. Now look, we don't believe that in Q3, we saw material results. But over the long term, we think that any loss of signal is not helpful in our effort to provide value to advertisers. And it's just early to tell. The long-term revenue impact of Apple policy changes. The reason we don't think we've seen as much of an impact is multifold. One is that historically, app install ads, which depend heavily on the usage of IDFA, have not contributed a meaningful amount of revenue. We deprecated that format altogether in 2021, so we didn't have much exposure to the loss of signal. Number two, because our users often have commercial intent and because our service encourages deep engagement, we do have a rich set of first-party data, and that makes us relatively less dependent on third-party signals to serve highly relevant ads. And so we think our models have been pretty resilient to the loss of offsite data. And then finally, as I mentioned at the top, we've been investing in our ad tech stack just to improve conversion visibility in a privacy-centric solutions. So that's kind of the mix. I think 1 area that we want to continue investing in, honestly, because it makes the product better for users, is more and more seamless checkout. And that's another area where, over time, as we see more traction there, it will sort of help dampen effects of some of those privacy changes. So that's sort of the first part of your question.…

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

I have two. Just the first one, I want to go a little bit more into the fourth quarter guide and the factors you helped us out with. Could you just help us understand a little bit? You mentioned the supply chain challenges for CPG, potentially going into other categories. What are you already seeing in October? Are you already seeing CPG companies pull back? Or are you seeing other categories pull back, et cetera? I'm trying to figure out what you've seen in October versus what you're just sort of having conversations about so far. And then the second one, maybe it's for Ben. I always appreciate the staff about product searches being up 100% and the Gen Z winds up 200%, et cetera. Can you just help us out a little more understand what percentage of the people who come to the platform, even high level, are coming on there and searching with intent as opposed to just looking browsing? I think it'll probably help investors understand a little bit just the value of the social shopping opportunity.

Thanks, Brian. So on the Q4 guide, I would tell you that the guidance reflects what I know through this call about how we're trending into Q4 and what I see in terms of likely demand and delivery through the end of the quarter. So I'll start there. I'm not trying to communicate anything that nuanced in that message. It's literally a continuation of the trends that we saw in Q3 that I haven't seen abate thus far in the quarter in core CPG -- in the core CPG market. And I'm reading the news as you do every day about supply chain challenges in that part of the market. And I'm not seeing anything that's unique to us at all with respect to their advertising demand. It harkens back a little bit to what we saw in the initial part of the COVID period where we saw a pullback from CPG and omnichannel retailers who were either sold out or had stores closed. We're kind of in a same similar dynamic in CPG, where advertising, when you can't deliver product, is challenging, and that's not a Pinterest-specific comment. There's nothing that's changed over the last few weeks relative to what we saw in Q3 that I would call out. And the caution I provided about extensions in other industries is just something that is on my mind, but I'm not yet seeing in the quarter. So hopefully, that's a little bit -- there's no -- I'm not trying to communicate anything that's more nuanced than that.

Brian, on your question of how do we think about shopping engagement on the platform, how many folks are searching and kind of what's going on there. We don't disclose the specifics of the engagement breakdown. But what I can tell you is that search is one of the fastest growing areas of engagement on the platform in general. And what we try to do in our philosophy in shopping is to make it so any place that you're feeling inspired, we want to make it seamless for you that it connects to a shopping surface. So in search, that means that we'll surface products. And then if you scroll down, you can see related products. Those are shopping surfaces. And over time, there's a lot of opportunity to grow the number of shopping ads within those surfaces. When you're just searching generally, we make it easier and easier for you to find individual retailers. That's been a big push by the team this year. And even when we talk about new inspirational services, our long-term plan is to connect those to shopping as well. So we talked a little bit about Idea Pins and Pinterest TV, and we want to make sure that experience is great. But a lot of people want to do there is they want to eventually buy the things they see. And so we'll be experimenting ways to connect Idea Pins and Story Pins into those shopping services. Our goal at all times is to make sure that Pinterest feels inspirational. No one wants to feel like products are being shut down in a road, but at the same time, to make it really easy for you to pivot from that moment of inspiration when you see that perfect scene, where you see that perfect product and make it seamless for you eventually buy it. And so it just started to experiment with some of the seamless checkout work in partnership with a couple of folks, including Shopify in Q4, we're helping them learn. That's just an early pilot. But again, it's about shortening the path from inspiration to purchase without disrupting the user experience at the same time.

The next question comes from the line of Rich Greenfield with LightShed Partners.

I actually got a couple of questions. I guess, one, just to sort of add on to Eric's questions, Ben. I just -- listening to you, I think the thing that a lot of people are thinking about is your ARPU is still really low versus your peer group, and you don't have the ETT issues that many others have because of your first-party data. So whether it's Q4 or even thinking about 2022, I guess the bigger question is just like why isn't advertising growing dramatically faster just given where your ARPU level is? Is it a -- do you need different ad products? Do you need a different ad selling team? It just feels like there's a big disconnect between the size that you are and the level of monetization. Just curious how you think about that. And then two, we've heard about Facebook sort of changing the way Instagram looks and moving to a more video-centric feed. I was just thinking like, as you think about Pinterest, does it need to shift as you lean into the creator economy and sort of video? Do you need a different sort of look and feel to how Pinterest just functionally works? Does it need to be more spikable or more video-centric from the start versus sort of the historic Pins on the main page as you go to it? I'd just love your view on sort of both of those issues, especially thinking about mobile.

Sure, Rich. I'll start with your second question first. And I think it's really about like are we continuing to evolve the user experience to keep up with changing user expectations and changing behavior patterns? And the answer is absolutely yes. So we launched a set of features in October 20. For the first time, we provide things like the Watch tab, which is sort of an immersive vertical strolling format. We think that's certain customers who become really accustomed to. And we think we can provide that format and then we can differentiate the type of content that really aligns to what Pinners are there to do. And so that's just 1 example. But you'll be seeing us rolling out more and more new experiences that are all sort of principally designed to make it easy to be both kind of browse and inspiration, go deep when they want to and eventually purchase the things they're looking for. So you're right, you're right to ask, and our teams are hard at work in building the changes. I'm really excited actually to get them in front of more users. That just started to roll out all over the world. Your first question was, why don't we make more money? Why is your ARPU is still low? And I would say -- let me say a few things. First of all, I'm actually enormously proud of the team. We are growing revenue really significantly. And we talked before about a few different significant opportunities that we see for further revenue growth. The first is international. So we continue to scale international revenue. We're opening up new geographies, and we're getting faster and faster at rolling out products such as shopping that are developed in the U.S. into markets that are earlier…

If I could just tag on, as you think about '22, like do we start to see some -- you talked about a lot of things there, and I appreciate the depths of the answer. How much of that do we start to see as we move through '22?

Well, I'll let Todd expand on it more. I mean I think improvements in things like automation, improvements in ad formats and measurement, those are things that are kind of always driving better and better efficiencies. And I don't think that we've exhausted all those opportunities. And so we continue to work on that. International, we're investing pretty significantly, and Todd can speak more about new markets that we're opening. We're building out operational teams there. I think farthest away are probably the monetization of Idea Pins and Idea Streams. Those are brand-new experiences. And what we like to do is really get those experiences working well. And we're willing to take a hit on short-term revenue to make sure that users are having a great experience and then find out how to fold in the right monetization opportunities over time. So Todd mentioned that, that may be a headwind in the coming quarters. That's true, but I also think it's an intentional choice. We want to make sure that we're giving creators clear guidance on how to build the most inspiring content. We're growing our ability to show the right content to the right person, so people feel like they're getting information relevant to them. When those things are established and are driving engagement, we'll find bright ways to add revenue. We're beta testing idea ads. We're beta testing, some really interesting partnerships with brands and creators, but I wouldn't expect those to be big revenue contributors in the short term.

The next question comes from the line of Mark Mahaney with Evercore ISI.

I want to ask about MAU retention and reactivation strategies that you're thinking about. You obviously had a good number of users that came on, tried Pinterest and probably had decent experiences, but maybe like your very -- or first users only saw it for 1 use case and may not have appreciated the breadth of use cases that one could find on Pinterest. How do you get those people who kind of were one and done for that COVID period? How do you get them to come back and look at a broader -- uses broader applications of Pinterest?

Thanks, Mark. I think it's a great question. I mentioned it at the top, but unlike more social service where you engage with it almost daily to talk to your friends, Pinterest is something that you might come in, use it for a product, a project and then you may pause. And historically, we've seen a lot of our users use it for a period of time and then come back. Two answers to that. One is that we can do a better job at reengaging those users. And so we're continuing to invest in things like the taste graph and better personalization, which will enable us to do that more and more efficiently, and this is ongoing work to do it really well. The second answer, and this is longer term, is we'd love for folks actually continue using it from the getgo. And so part of the reason why we're excited about building more published subscribed model is that people can find creators that resonate with them and visit the service more frequently. And again, we're early on in that. But think of those as the 2 approaches. Like one is resurrecting folks by showing them use cases that are relevant in doing that by improving the quality of our personalization and the quality of outreach. And the second, not letting people lapse in the first place because we connect them with creators and use cases that really resonate, and that keeps them using the service more and more often to do more and more different things in their lives.

The next question comes from the line of Colin Sebastian with Baird.

I have a couple of questions also. I guess, first off, regarding the commentary around new services as a near-term revenue headwind. I guess what are your expectations in terms of time frame needed for those to shift from a negative impact to a positive impact, if there are particular hurdles you're looking for, particularly if you're seeing cannibalization and usage away from legacy surfaces? And then secondly, with respect to the loss of Gen Z users, just curious from what you can tell. Is this part of the cohort that came on during the pandemic? Or could this be a loss of attention to other platforms?

Thanks. So a couple of things. One, Ben, I think, went into a fair amount of detail on what we're building around our creator strategy, which when we execute, will bring people back to the platform more frequently and give them a reason not to churn. So I'm excited about that published subscribe aspect and Pinterest-based communities, keeping people on the platform. All that said, we're in fairly early innings on all that. We just launched our -- a series of products a couple of weeks ago, which are a great start. I think it will take us a few quarters to get that up and running in a way that builds a great ecosystem across the creator community and our user base. And the reason why I think it takes time is, where Ben started, we take a long-term investment philosophy on these big new initiatives. If you go back to what we did around international audiences and monetization, that was a multiyear effort to localize content, make sure the user experience resonated outside of the U.S. in the same way it does in the U.S. across the world; and make sure that, that advertising opportunity is as robust relative to market sizing, and those places is what we've seen in the U.S. So that has taken us a few years, and we're seeing great success. And going back to -- yes, I think it was Mark's question around what does that mean? It means we're still opening up more Latin American markets next year, 3 more markets. We'll open up Japan next year as well. And so those things take years to unfold. The same is true with shopping. It was a two-sided marketplace where we needed dedicated high-intent surfaces for our users to find products, and we…

This will be our last question, from the line of Rob Sanderson with Loop Capital. Mr. Sanderson, your line is open.

I'm sorry, operator, do we have Rob on the line? Or should we move to close the call?

Mr. Sanderson did not answer. You can now conclude the call.

Great. I'll hand it over to Ben to end the call.

Well, I just want to thank everyone again for joining and for all the thoughtful questions. I want to thank again the Pinterest team for another quarter of great work. We look forward to keeping the dialogue going, and enjoy the rest of your day or your evening.

That concludes the Pinterest's third quarter earnings call. Thank you for your participation. You may now disconnect your lines.