Good afternoon, and thank you for attending the Pinterest Second Quarter 2023 Earnings Conference Call. My name is Elisa, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to your host, Neil Doshi, Head of Investor Relations. You may proceed.

Good afternoon, and thank you for joining us. Welcome to Pinterest's earnings call for the second quarter ended June 30, 2023. I'm Neil Doshi, Head of Investor Relations for Pinterest. Joining me today on the call are Bill Ready, Pinterest's CEO; and Julia Donnelly, our CFO. Now I'll cover the safe harbor. Some of the statements that we make today regarding our performance, operations and outlook, may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. In addition, our results, trends and outlook for Q3 2023 and beyond are preliminary and are not an indication of future performance. We are making these forward-looking statements based on information available to us as of today and we disclaim any duty to update them later unless required by law. For more information, please refer to the risk factors discussed in our most recent Forms 10-Q or 10-K filed with the SEC and available on our Investor Relations website. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and presentation, which are distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com. Lastly, all growth rates discussed in today's prepared remarks should be considered year-over-year unless otherwise specified. And now I'll turn the call over to Bill.

Thanks, Neil, and thank you all for joining our second quarter 2023 earnings call. Q2 was a solid quarter marked by strong growth across our business. We're seeing ongoing momentum, giving us continued confidence that our strategy is yielding results with more potential as we look ahead. We ended the quarter with 465 million MAUs, up 8%. Our total revenue was $708 million, growing 6% or 7% on a constant currency basis. We stay disciplined with our expenses and delivered adjusted EBITDA of $107 million and an adjusted EBITDA margin of 15%. Before we dive into the key highlights from Q2, I'd like to share more about what we've accomplished over the last year since I joined and why I'm excited for the opportunities ahead. During this time, we've become laser-focused on our strategy of building upon our core differentiators and visual discovery to help our users go from inspiration to action. With that focus on our strategic priorities, we've successfully returned to strong user and engagement growth while delivering consistent year-on-year revenue growth and returning to margin expansion despite the downturn in the advertising environment. On the engagement side, we've utilized next-generation AI technologies to service more relevant and personalized content and improve ad relevance, driven more intent to action and focused our content strategy to bring actionable content from a range of sources, including users, creators, publishers and retailers. As a result, monthly active users have grown more than 30 million over the last 12 months. Our users are also coming back more frequently and are engaging more deeply. Engagement metrics such as sessions, impressions and saves grew substantially faster than our users across all of our regions over the same period. It's worth noting that we have seen these engagement gains over the past year during a…

Thank you, Bill, and good afternoon, everyone. I'm thrilled to join the Pinterest team. As you can imagine, it's been a busy and exciting few weeks since I joined in late June. First, I'd like to discuss a few of the reasons why I came to Pinterest and why I'm even more excited about the opportunity ahead. Before joining, I followed Pinterest extensively as a beloved brand with an inspiring and positive consumer app and a strong financial model. From my previous role, I've also watched Pinterest become an incredibly performant and innovative advertising platform. Coming from what I would consider a best-in-class e-commerce advertiser, I've had first-hand experience and how Pinterest is uniquely able to help marketers find users who are in the midst of an inspiration journey where they're looking to buy but not quite sure what they want and then ultimately take action to bring that to life. Over the last few weeks, sitting inside the company, I can attest to the excitement and energy from our teams on everything we are building for our users and advertisers. I'm honored to take on the CFO role and join the management team at Pinterest to continue building on this momentum. Leveraging my background in e-commerce, I look forward to helping us navigate through this exciting next chapter of growth, capturing the significant revenue potential ahead through strong operating execution and sound investments. Looking ahead, I'm excited to develop a productive dialogue with the shareholder and analyst community as well as sharing more about progress to date and future potential ahead at our Investor Day in September. Now turning to our results in the second quarter. In my remarks today, I'll discuss our Q2 financial performance and provide our preliminary outlook for Q3. All financial metrics, except for revenue…

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

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

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

Thanks for the question, Eric. So to your first question, on what we can control and what's sort of in the broader environment. The broader environment is seeing some stabilization and some signs of recovery, but there's still a lot of puts and takes and a lot of choppiness out there. Direct example of that is if you look at pricing impact, which would be sort of a direct evidence of sort of softness in the ad market, that's down 20% year-on-year for us. That's pretty consistent with what you see across other large platforms, some of which have had year-on-year declines last year and year-on-year declines again this year, they were double digit plus or 15 percentage point plus. So you have this pretty strong pricing headwind, which is just the element of like softness in the broader market. And so while there is some signs of stabilization in pockets of recovery, there's still choppiness in that as evidenced by both us and other major platforms with that pretty material headwind on pricing. But if you look at - to your question of what we can control there, we feel fantastic about the progress that we're making. And the things in our control, most noteworthy, the return to user growth, we just put up our largest user growth quarter in 2-plus years deepening engagement on the platform. We've talked about how, given the high commerciality of what users do on our platform, that we can take ad load much higher than what it has been that ads in a commercial context can be really relevant content. And so we can take ad load higher even while driving deeper engagement, and you see that evidence in our results. That's a really unique thing in the ad world to be able…

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

Thank you. The next question comes from the line of Ross Sandler with Barclays. Your line is now open.

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

Thanks, Ross. So on your point on the Amazon Ads partnership, as I've said before, we really believe that the commerciality on our platform can allow us to take ad load much higher. We don't break out ad loads specifically, but we've talked about the 30%-plus growth in monetizable supply, which is meaningfully faster than our engagement growth overall. That's really been driven by bringing more relevant shoppable content onto the platform for users. So Amazon as a partner, we're quite encouraged that they can bring more of that shoppable content plus a great buying experience for users. And so while it's a multi-quarter implementation and again, a reminder that the biggest element of that revenue we expect to start hitting in early '24, we're really pleased with the pace of implementation. And in those early results, if I explained a bit on those early results that we're so happy about one of the biggest things we're happy about is that we're seeing improvement and relevancy even beyond what we're already very optimistic expectations on our side. And so as we see that it's contributing to more relevant shopping content that further bolsters our view that we can take ad load much higher. And if you compared to other analogs that I've seen in past life and that you all could see as you sort of count ad load or add slots on other sort of shopping experiences. -- ad load provided we have the right relevancy, Adlocan [ph] be a multiple of what it is today for our users particularly when users are in commercial context and more than half the users are here to shop. So I think that says that there is still a lot more runway ahead, quite a high ceiling for where we can go…

Great. Next question.

The next question comes from the line of Lloyd Walmsley with UBS. Your line is now open,

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

Thanks for the question, Lloyd. So on the partnership with Amazon and sort of your broader comments on bringing on third-party demand, as we said, yes, we are very pleased with the pace of implementation and even more importantly, pleased with the significant improvement in relevancy and what that says about the long-term potential of that partnership. And so a couple of things I would note. You asked about the pace there, yes, we are pacing ahead of expectations. At the same time, as we get relevancy really right that places a much higher ceiling on the long-term potential of the partnership. So in the near term, we're making sure that even though we're really pleased with the pace and the progress and the results, then we want to make sure we do that in a methodical way, getting the relevancy really right for the user because as we do that, that gives us a much higher long-term ceiling. So we're not going to sort of sacrifice the long term to sort of go faster than is necessary in the short term, but we are seeing really positive progress there. And I'd say our long-term view of that partnership just continues to expand, even though we want to be careful not to get ahead of ourselves in terms of revenue contribution for this year. We do think that when you step back and say, our big opportunity here is about making our platform shoppable, in content to users. What we're seeing there is extraordinarily encouraging. I think the ceiling only continues to lift as you look at the long term there. And the pacing again is better than where we had expected. You had asked about other partners. We've mentioned this previously, we do expect to have multiple partners to…

The next question comes from the line of Mark Mahaney with Evercore. Your line is now open.

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

Thanks, Mark. Appreciate the questions. So on LLM models, two things are simultaneously true. O ne is we are seeing tremendous benefit, and we are pretty far along with what we're doing there. The second thing is true, though, is that as you look at the longer, I think there is a lot more runway to go in terms of what we can do with that core technology, particularly when you consider the fact that, that technology is going to continue advancing. So to be more specific, on larger models and next-gen AI capabilities moving from CPUs and GPUs, things like that. I mentioned in my prepared remarks, we really started into that nearly a year ago. These things were available prior to sort of a lot of the sort of big uptick in sort of the news cycle around earlier this year. These things were available, and I worked close with them in past lives, knew the potential there, and it's something that we really started to lean into nearly a year ago. We started first on the organic side. And so as you look over the past several quarters, the fact that we've been able to take our recommender models up to be 100 times larger than what they were. I mentioned on the call that 10 percentage point improvement in perceived relevancy by the user. In the world of search, advertising, discovery, 10 percentage point improvements in relevancy are like completely unheard of, like the magnitude of that like cannot be overstated. So I think that says, okay, we're seeing really tremendous impact from that, and we're well on our way on that on the organic side. On the ad side, we just started bringing that over to the ad side now with models 100 times larger.…

Thank you. The next question comes from the line of Rich Greenfield with LightShed Partners. Your line is now open.

Bill, you were talking about sort of the AI and targeting. And I guess there's just this growing fear among investors that everyone not named Meda [ph] Google, Apple will be sort of a little struggle to compete in AI as we look out over the next 2 years? And given the importance of AI bot as you were talking about from content recommendations and ad targeting, and I know sort of the history you spoke to at Pinterest in terms of computer vision. But would love to get a sense of how you think about how you compete with the - what is, I guess, the juggernaut in tech, especially given your background at Google. And then I just got a quick follow-up on demographics?

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

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

Okay. Great. Thank you, Rich. So on your first question on AI, I think there's a question of do the benefits only accrue to the largest. I think we're already providing a pretty strong counterpoint to that. And actually, if you step back, I think if you look at like cloud computing, while yes, cloud computing had a lot of benefits to the largest providers of cloud computing, it also created a lot of ability for a broad swath of people to engage. And I think you're seeing that with AI that yes, you have some of the largest players that are providing a lot of great capabilities there, but they're also externalizing those through cloud compute. It's also the case that the open source community is advancing really rapidly, and you're seeing some of these open source models are actually comparing quite favorably to some of the things that you would have seen come from the very largest players. And if I step back for a moment, I would actually take the view that I think in this sort of first round of next-gen AI, I think you've seen a lot of value accrue to the model creators. As you play that forward, I actually think there's going to be a lot of value that starts to accrue to the places that have really unique signal and really unique user interactions. The AI is only as good as the signal of home, which is acting. And when you look at it through that lens, we have a really unique signal at Pinterest. We've talked about this that unlike the rest of social media, we have very high commercial intent. But if you go further in that, it's not just we have commercial intent, it's not just that we know…

Absolutely. The last question comes from the line of Doug Anmuth with JPMorgan. Your line is now open.

Thanks for taking the questions. Bill, I know you touched on Tapi [ph] I guess I just want to understand what's keeping advertisers from adopting here? And what are you doing proactively to move them along the adoption curve? And then secondly, any comments on the MAU decline in Europe in 2Q. I don't know if that was part of the birthday collection dynamic that you've talked about. And just curious if you have any thoughts on the overall 3Q MAU outlook? Thanks.

Thanks, Doug. I'll take your first one and then give Julie the second one. So our conversion API is important to hit. Our conversion API, we've only recently put that out there. It's been on the market less than a year. So we're early on with that. So to say what's keeping folks from adopting it, we're really pleased with the progress that we've been making on that. It's a recent product for us, and we've seen really significant uptake of that product. So we feel really good about it overall. But of course, we want to be faster, given the magnitude of its impact is so consequential for us and the advertiser. I think the spirit of your question of like, hey, how do we move along the adoption curve faster. We very much are mindful of that. So a few things that we're thinking about. The first is with that being a recently introduced product, we've really been getting our own go-to-market really tight in terms of how our sales team is engaging. The more we have proof points, I talked about having large sophisticated advertisers that are speaking about how impactful it's been for them. That - those reference points are really compelling that's really helping us drive better and better go-to-market with our first-party efforts there. But the other thing that we're doing is working to meet the advertisers where they are because there's a broad-based adoption curve on these things, it's not just us with the larger platforms are putting these things out there as well. And so advertisers are moving through an adoption curve on this. So we're making sure that we're working with third-party partners. We've mentioned some of them like LiveRamp and Tealium or Google Tag Manager and then certainly, our recent partnership with Amazon's ad platform, these are all examples of integrating to the platforms where those advertisers are already integrated. So that sort of multipronged approach of saying we're going to get better and better with our own go-to-market, which is working really well and advancing quite nicely as well as meeting the advertiser where they are. Those things are sort of the two-fronted approach of how we're accelerating that. And again, the most encouraging thing is that consistently as those advertisers adopt these measurement solutions, they're seeing better performance than they expected from us and increasing their spend with us. So we think that is right now, the balance of those advertisers given us a new product being tilted towards not yet having that tool while that creates some headwind for us. We talked about that cohort being a mid-single-digit decliner. But the ones that have adopted those tend to be growers on the order of 30%, that headwind flips around a tailwind as we get more of that balance of adoption. And we are seeing strong pull-through on that.

And then, Doug, just on your second question about lumpily active user kind of trends, specifically in Europe and globally and now look for Q3. I'd say, as Bill noted, we feel really great about the monthly active user growth that we've seen globally. So we're at a 2-year high, both globally and in the U.S. and in rest of world and near-tear high in Europe as well, if you look at year-over-year. Comps on MAUs. So I think we're feeling really good there. There is some seasonality in the business on monthly active users as we called out on our prior earnings call. This is Q2 is a 30-day look back and during the month of June. And so you do typically see a little bit more seasonal weakness in Q2 and then that reverts back in Q3. So it's important to really focus on year-over-year metrics looking here. And on that basis, we're continuing to feel quite strong. Birthday collection was something we noted on the prior call that ended up being a nonfactor and not material. So overall, feeling very good about all the trends that we're seeing on MAUs, the return on our marketing spend and all the user and growth engagements that we're investing in. And I would expect that we don't guide on MAUs for Q3 specifically. But in general, we feel really good about being able to maintain those year-over-year increases going forward.

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

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