Pinterest, Inc. (NYSE:PINS) Q4 2023 Earnings Call Transcript

Pinterest, Inc. (NYSE:PINS) Q4 2023 Earnings Call Transcript February 8, 2024

Pinterest, Inc. beats earnings expectations. Reported EPS is $0.53, expectations were $0.51. Pinterest, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and thank you for joining today’s Pinterest Fourth Quarter and Full Year 2023 Earnings Call. My name is Kate, and I will be the moderator for today’s call. At this time, all lines are in a listen-only mode. And there will be an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the call over to your host, Neil Doshi, Head of Investor Relations at Pinterest. You may proceed.

Neil Doshi: Good afternoon, and thank you for joining us. Welcome to Pinterest’s earnings call for the fourth quarter and full year ended December 31, 2023. I am Neil Doshi, Vice President of Investor Relations for Pinterest. Joining me today on the call are Bill Ready, Pinterest CEO; and Julia Donnelly, our CFO. We are providing a slide presentation to accompany our commentary, and this conference call is also being webcast. Please refer to our Investor Relations website at investor.pinterestinc.com to find today’s presentation, webcast and earnings press release. 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 outlooks for Q1 2024 and beyond are preliminary and are not an assurance of future performance. We are making these forward-looking statements based on information available to us as of today, and we expressly disclaim any duty or obligation to update them unless required by law. For more information about risks, uncertainties and other factors that could affect our results, please refer to our most recent annual report Form 10-K and quarterly report on Form 10-Q filed with the SEC and available on our Investor Relations website. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures is included in today’s earnings, press release and presentation, which are distributed and available to the public through our Investor Relations website.

Lastly, all growth rates discussed in today’s prepared remarks should be considered year-over-year unless otherwise specified. And now I’ll turn the call over to Bill.

William Ready: Thanks, Neil. Good afternoon, and thank you for joining our fourth quarter and full year 2023 earnings call. In Q4, our team executed well against our strategic priorities, growing users and engagement, gaining further traction with our lower funnel advertising offerings and delivering on operational efficiency. Our efforts to grow users and deepen engagement continue to yield strong results. Global MAUs hit another all-time record of $498 million, growing 11% accelerating from last quarter and growing sequentially in all of our geographic regions. Q4 revenue of $981 million grew 12%, marking continued double-digit revenue growth in the second half of this year. And while growing revenue and engagement, we continue to demonstrate operational efficiency and disciplined expense management, resulting in Q4 adjusted EBITDA of $365 million, or a 37% margin up more than 1400 basis points from last year.

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Q&A Session

Our strong product delivery in Q4 and throughout 2023, with investments focused in lower funnel offerings like mobile deep linking, shopping ads, API for conversions and most recently direct links are delivering sustained ROI improvements for advertisers. This is leading to advertisers growing their budgets with us and has resulted in further acceleration so far in Q1, which is reflected in our guidance that Julia will describe in further detail later in the call. Before I discuss Q4, I’d like to reflect back on the progress we made over the past year. We entered 2023 with a backdrop of a challenging macroeconomic environment and a weak digital ads market. However, we delivered strong execution against the strategic priorities we laid out during the second half of 2022, which enabled us to grow through the downturn and get back to double-digit revenue growth in the back half of 2023.

During this period, we made significant investments in AI that drove improvements in our overall platform for users and advertisers and we significantly accelerated product velocity across our most important priorities, propelling growth last year and laying the foundation for the future. We focused on helping users find new reasons to come back to Pinterest more often. We also invested in the elements that made Pinterest so-beloved and unique in the first place, like human curation, through saving and organizing content. And as a result, MAUs are growing and users are engaging more deeply with the platform than before. We also made significant advancements on the shopability of the platform. More than half of our users view Pinterest as a place to shop.

But historically, it was not easy to click out and go to a merchant site to buy the product you found on Pinterest. Last year, we improved the shopping experience by bringing shopping content front and center into our home feed, search and related services. As a result, we saw engagement with that shoppable content accelerate, as users clicked and save that content at rates significantly higher than in the past. This was clear evidence to us that people come to Pinterest with intent and will take action when we make it easy for them to do so. On the monetization front, the teams innovated across the entire funnel with particular emphasis in the lower funnel as we made it more seamless for users to pivot from inspiration to action through increased shopability.

In fact, 2023 was one of our most productive years for ads innovation, as we accelerated product delivery and launched more ad formats, tools and solutions than ever before and continue to drive adoption of our lower funnel solutions for advertisers. These include seamless handoffs like mobile deep linking and direct links, new ad formats like Premier Spotlight, travel catalogs and lead ads and measurement solutions like our API for conversion and clean room integrations. As a smaller player in the overall digital ads ecosystem, adding third-party demand to increase the comprehensiveness of our catalog and the relevance of our ads was a key priority for us. Last year, we announced and launched our first third-party ad partner with Amazon ads, which is scaling well, and we will continue to advance our third-party demand efforts this year and beyond to bring relevant ads that can enhance the user shopping journey.

Putting all this together, we were able to achieve year-over-year revenue growth in every quarter in 2023 and get back to double-digit growth in the second half, and we did this while controlling our costs and expanding margins. When we started the year, we laid out a plan to achieve around 200 basis points of adjusted EBITDA margin expansion for the full year. With revenue growth, operational rigor and cost optimization, we were able to deliver 660 basis points of adjusted EBITDA margin expansion for 2023. I believe that constraints bread creativity. And in this environment, our teams are able to deliver better experiences for our users and our advertisers with clarity, focus and discipline. Lastly, with a strong executive team, many of whom joined in 2023, we have the right leadership and a strong foundation to execute against our strategic priorities in 2024 and beyond.

Now let’s take a closer look at the initiatives we launched in Q4 to advance our strategic priorities. During the quarter, we made key updates along the entire inspiration to action journey to grow our users and deepen engagement. These investments are paying off. We had our fastest global MAU growth since Q1 of 2021, and we’re seeing our best product market fit in years, as evidenced by the strong growth in our Gen Z demographic and the fact that our most recent user cohorts are significantly more engaged in user cohorts from prior years, consistent with what we shared at our Investor Day. Starting with inspiration. We’re enhancing the way users find inspiring content and hone in on exactly what they’re looking for by making improvements to our core search capabilities.

In Q4, we began testing generative AI-based search guides which help users to refine their understanding from broad queries like kitchen ideas and to more structured avenues of exploration like Rustic Farmhouse Kitchen or Kitchen Organization Hacks, helping users get closer to the point of action or purchase. Additionally, these generative search guides highlight the advancements we’re making in AI on the platform in ways that are additive and authentic to the user and that we expect will lead to continued improvements in engagement and retention. After users search for and find the content they’re looking for, we’re developing new ways to help users curate that inspirational content. At our Investor Day, we introduced Collages, a new interactive pin format composed of cutouts that users can engage with.

Users can tap on an image within a scene to cut out components of the image they love and combine them with other cutouts to create interactive collages of their favorite ideas, all in one place. In addition, users can tap on a cutout within a collage to see its associated products, if available, or the source pin that the object was cutout of. This has the potential to create a flywheel of content creation and engagement, which we’re excited about. In Q4, we rolled out the collage functionality to nearly all iOS users globally. I’m pleased that this feature is now broadly available for our users as cutouts in collages are a new frontier of creation on Pinterest and allow users to express their creativity and taste in even more visually immersive ways.

It also provides us with great first-party signals on what users are interested in, product associations, emerging trends and how we can surface more content and products that are aligned with users’ evolving tastes. And we’re seeing strong early results and positive feedback from our users. They’re finding collage as highly engaging with users three times more likely to save collage pins versus other pins on Pinterest and the majority of collages are created by users who had not previously created a pin. Collage is also skewed heavily towards shoppable content with approximately 75% of collages utilizing a product pin showing the intent our users bring when creating and engaging with content on Pinterest. Moving further down the inspiration to action journey.

We’re enhancing our board functionality to help users better understand and organize their tastes. Boards are an essential part of the curation flywheel on Pinterest and provide us with important signals on user tastes and preferences, which feeds into our recommendation algorithm and further augments our ability to serve relevant content back to our users. In Q4, we launched our first auto organization feature. This feature leverages AI to simplify the Board creation process by automatically grouping similar pins into suggested boards based on what users have saved in the past. For users who generally don’t curate on the platform, this feature resulted in a nearly 30% lift in boards created, highlighting how auto organization can unlock the magic of Pinterest for more users.

Finally, we’re making it easier for users to shift from inspiration to action and shop products they discover on Pinterest. Over the past few quarters, we’ve launched shopping modules that help us further capitalize on our audience who come to Pinterest with intent and improve the shopability of our platform. Last quarter, we discussed a few of these efforts for women’s fashion and home decor categories, including shop the look and guided shopping modules, which surface shoppable product pins based on past saving and clicking history. In Q4, we launched Shop Similar for mobile in the same categories. While Shop the Look is activated when a user clicks on a lifestyle image such as a celebrity wearing the latest outfit trends or a beautifully curated living room, Shop Similar is activated when a user clicks on a shoppable product pin from a merchant catalog.

It then showcases a carousel of similar product pins across a variety of other brands and price points, complementing the feed of related pins below. We’re in the early stages of ramping, and in our experiments, shop similar drove double-digit lift in both outbound clicks and checkouts. I spent the last few moments discussing the key product updates we’ve made across the funnel to help users find the content that inspires them most and take action on it. The billions of intent signals we get from this on-platform, search, click and curation behavior gives us the unique ability to see trends in real time and predict consumer trends for the upcoming year through our annual Pinterest predicts report. We’ve had an 80% success rate in predicting future trends four years in a row.