Below are my notes/excerpts from the conf call and Q&A with some of my thoughts in between. I added some themes that I took from the call and finish with my thoughts and what I intend to do as I was quite bullish on PINS in previous write-ups.
Super traction with shopping:
We also saw product searches grow more than 20x year-over-year. Increasingly, people see Pinterest as a place to not only get inspired, but also to shop.
The number of Pinners engaging with shopping surfaces of Pinterest has grown over 200% in the last year as Pinners look to go from inspiration to purchase. At the end of Q1, revenue from retailers with sales objectives were 20% of total revenue and all of this shows that we are making a real traction with shopping on Pinterest.
Traction with SME advertisers:
We grew revenue 78% year-over-year driven by more small-to-mid-sized advertisers and further international expansion.
Great traction internationally:
We launched advertising in Brazil this quarter, an important milestone in growing our global ads business. We expanded our Shopify integration to 27 additional countries to help us further build Pinterest as a destination for shopping. And for the first time, our international business is nearly 20% of total revenue.
Question mark about impact of easing of lockdowns:
We’ve seen a correlation between stay-at-home orders and engagement on Pinterest.
As pandemic lockdowns were eased in some parts of the world during mid-March, we began to see signs of less engagement and user growth on Pinterest, and we assume this means people are spending more time offline.
Question mark about industry changes:
The entire online advertising industry were faced with changes to the privacy landscape.
People naturally come to Pinterest to search, shop and find ideas for brands and creators. Personalization based on its onset activity won’t be affected by the upcoming changes. That said, it’s still early days, it is not yet clear what the long-term impact will be.
WSM: → So the CEO is saying that international is doing great, traction with SME advertisers and Gen Z is going very well and shopping is growing exceptionally fast, but off a low base. So strategy execution firing on all cylinders.
But then he cautions about two things: 1) the negative impact on engagement of lockdowns easing and 2) the massive ad industry changes currently playing out - he’s saying it looks ok, but it’s still early days.
So great execution and performance, but bearish-sounding outlook from the CEO
Drivers of growth:
First quarter revenue growth was propelled by two main drivers. First, we saw strong momentum from mid-market and managed small advertisers who are increasingly finding value in our conversion-focused ad products and the automation of our ad stack. Second, our international business performed really well, growing 170% year-over-year in the first quarter. We are seeing the highest growth in Western Europe and Canada, where we are continuing to expand our sales coverage
We are serving ads in 29 countries today and international revenue comprised almost 20% of total revenue in the first quarter. And we just launched in our first Latin American country, Brazil with Mexico coming in May.
For shopping, we prioritize building an organic shopping experience for Pinners with high-quality inventory, catalog uploads and discovery services before really leaning into monetization.
Not only have we dramatically scaled shopping engagement on the platform, we shared for the first time today, that ad revenue from retailers optimizing for sales on Pinterest is now a meaningful part of our financial performance (WSM: 20%).
WSM: → So everything going according to the game plan: mid-market growth, international expansion, shopping. Nothing here not to like imo
Ben mentioned that we have both headwinds and potential tailwinds for engagement and MAU growth that may play out over the next couple of quarters. In Q2, we expect global monthly active users to grow in the mid-teens and U.S. monthly active users to be about flat on a year-over-year percentage basis. We expect to grow revenue about 105% year-over-year in Q2.
WSM: → pencilling that in, revenue looks like this:
Rev $m Q1 Q2 Q3 Q4 2018 131 161 190 273 2019 202 261 280 400 2020 272 272 443 706 2021 485 558
That would equate to 15% QoQ from Q1.
The big issue is the MaU guide. If MaU’s come in flat yoy this is what that looks like for Q2:
MaU m Q1 Q2 Q3 Q4 2018 239 231 251 265 2019 291 300 322 335 2020 367 416 442 459 2021 478 416
Having a QoQ decline in MaU’s last happened in 2018.
We continue to invest in the growth of the business in accordance with our big strategic priorities. And as a reminder, we are investing in marketing campaigns to bolster comprehension and brand awareness throughout the year. Those campaign launches in Q2 will drive a substantial and sizable increase in our variable spend.
WSM: → so he’s cautioning that S&M expenses will balloon in Q2
Q: Guidance - how much room is there to increase ad load given the flat /declining user growth?
WSM: → this is the core of my question also, as ARPU growth is my basic investment thesis
A: I would say sequentially we are unwinding some of the pulled forward user growth that we had last year and some of the engagement from the unprecedented COVID period that we all went through over the last year. It’s kind of an exacerbated version of the typical seasonality that we would see going into the summer, but compounded by unwinding some of the restrictions that we had around COVID.
But what I wanted to make sure, we highlight, and I think this is your question, is that we are more efficiently using or utilizing the unique engagement that we have on Pinterest and that strategy is working. So when you boil it down to your question about ad impressions and realized pricing or effective CPMs, our revenue growth was mostly driven by effective CPM gains in the quarter versus impressions, especially in our performance products.
And the thing that most stood out to me was that our ad load in the U.S. and globally actually ticked down in the first quarter year-over-year despite U.S. revenue growing 65% and overall revenue growing 78%. So we are much more efficiently using – utilizing the ad supply that we have because we’ve automated – we’ve built the right products with the right automation and ads are working for advertisers on the platform.
WSM: → He’s basically saying ARPU growth was driven by more efficient use of available ads and that ad load - number of ads per MAU - decreased yoy. So their revenue growth was driven by increased prices per ad basically. Ideally I would like better pricing to be only one factor of three: higher MAU’s which attract the advertisers (which will be down next Q) higher ad load (which was already down this Q - so have they reached the limit?) and higher price per ad (which was the only one causing the big revenue increases)
Q: I think there are some use cases on the platform around home design that could benefit from the housing market or party planning that benefit from reopening or maybe even travel or there could be a case that maybe you could retain some of this engagement. I guess, talk to us about why you are or are not seeing that as a way to sort of retain some of these users in that engagement as the world reopens?
And then the second one, just on IDFA and some of the platform changes, talk to us about how you think about further emphasizing on-platform transactions for shopping
A: During COVID people spend a lot more time online. They spend a lot more time creating new patterns and behaviors for their stay-at-home life and Pinterest was the beneficiary of that. And as thankfully, we want more people spend time outside their home out there in the world and we expect some of that engagement to go away.
That said, I’d observe a few things: First, in a lot of the core categories, particularly the commercially strong categories, things like interior design, fashion, we’re still seeing a really good resilience. And we have early data that indicates that engagement in those core commercial categories is going to be stickier than engagement overall. And we think that’s a good thing. That’s evidenced in the strengths and uptick in shopping surfaces, the significant increase in the number of shopping related searches, as well as what we’ve seen in overall user behavior.
Second, as you mentioned, there could be certain tailwinds, but we try to communicate what we’ve seen rather than what we think in the future. To your point, historically certain events, whether it’s Halloween, holidays, wedding planning, they were big drivers and engagement on Pinterest. We saw that go away. So there could be tailwinds and we’re just not baking them in.
The second question I heard was really about IDFA. We put in place efforts to improve first-party measurement solutions, few things like shopping solutions. But more to the point, we’ve also really increased the amount of engagement that Pinners have on shopping surfaces more directly. The next step in that journey will be early pilots in testing seamless checkout kind of removing the friction. I mean, that’s been the sequence that we’re pursuing for awhile and early results are really good.
WSM: → So potential tailwinds from things like weddings are not baked into guidance and ito IDFA they are seeing good initial results esp in shopping.
Q: You talked about the upcoming potential for I think seamless on-platform transactions. Would that open the opportunity for new types of revenue models? And then secondly, just ongoing broad question about closing the ARPU gap between your international markets and the U.S. market.
A: we’re not committing at this point to any new revenue models. But over the longer-term that’s something we could evaluate.
Second, on the ARPU opportunity. I think what I was mentioning before around all of the investments we’ve made in product and in coverage, bringing with a long-term goal of having advertisers bringing their budget, their goals, and their content, and automating the rest, serving especially the SMB market and diversifying our advertiser base, allowing them to easily onboard scale and see results from their spend.
We’ve had a great track record over the last year of delivering that kind of automation and we’ve invested in exactly the right sales coverage model in the U.S. and internationally to generate demand against that. That has been the recipe for driving ARPU growth. I think we posted 50% ARPU growth in the U.S. last quarter as a result of all of those investments in product and coverage. We’ve seen that that model works in international markets too are seeing great traction. And so a lot of the international opportunity is really down to execution, and I think we’ve got the right team in place to deliver against that over time.
Q: First on the shopping stuff. It does sound like you’re seeing a lot of growth in attributed conversions. So beyond getting better visibility in conversions, do you think your users are starting to engage in Pinterest more throughout the funnel closer to the point of purchase such as you can get more credit for this engagement than you have in the past?
And then the second one, is there still a ton of runway there to drive monetization without really depending on pure price?
A: Do we feel that users on the platform are really going through more of the funnel who has seen Pinterest increasingly adds the destination to shop? And the answer to that, in short is yes.
And as mentioned before, things like the increase in the number of catalog uploads, it’s up 14x in the last 12 trailing months has really improved the quality of the inventory.
So increasingly, if you use Pinterest, when you see a product, you’ll find that there’s up-to-date pricing information and stock information, and that’s the continuous improvement in quality.
So I think the short answer is yes, the longer answer is that’s the journey we’re on. It’s not going to be a flip to switch.
Conversions and purchase activity has increased, that was the reason we called out the stat about 20% of our revenue coming from retailers with conversion objectives because it’s an important trend.
A lot of our early business was built around awareness and consideration objectives or traffic baseline. But what we’ve seen recently is that shopping ads or catalog-based ads, coupled with conversion optimization ads with checkout or add-to-cart objectives are now for the retail community are now 20% of our overall revenue. And that seems like a mouthful, but it’s designed to show exactly what Ben described. The user experience is more lower funnel, and we’re increasingly taking our users from inspiration to action through that purchase journey, and it’s showing up in our advertising results.
WSM: → So shopping is going very well but it will take time.
Q: How will you drive user growth in the more mature US and EU markets?
A: So we said over the last few quarters that there’s a sustained trend, particularly Gen Z users are engaging with Pinterest more and more. I think that’s pretty interesting because historically Pinterest has attracted a lot of millennials and folks that are a little bit older. this is a group of users that loves fashion. They love exploring their creativity. They’re looking now more and more into things like food. This is a group that’s not yet really looking into decorating. And so it kind of reflects the same spirit of what Pinterest is about, but at a different stage of life and we see a lot of growth opportunity there.
Past that, we do see two big opportunities to just improve the quality of the experience both utility and how inspirational it is. I spoke a little bit about Story Pins as a new media format, and we’re talking about it as new, but it really follows a trend that we’ve been working on for a while and talking about of moving from just imagery to videos and then to interactive videos. So for the last couple of quarters and we talked there’s been an enormous increase in the amount of video consumption. That’s reflected in the amount of time people are spending in watching videos, it’s reflected in a disproportionate contribution to ad revenue.
WSM: → So growth will come from Gen Z and making the Pinterest experience more compelling, with Story Pins and video the big bets .
Q: Story pins: could you give us a sense if you were looking at sort of end of Q1 or even where you are today versus where you were in Q4. How many people are now have Story Pins available to them and what is it doing like - what it means to either time spent monetization or both?
Wondering as you look at sort of the ad units, we’re seeing more and more video throughout Pinterest, but a lot of them are sort of what I would call video ads you could see elsewhere on the Internet. How do you start to begin to get brands to actually work with kind of native Pinterest creators so that ad units feel more natively Pinterest and something really unique to Pinterest versus just video that could be anywhere?
A: So the number of Story Pins has increased substantially and across Q1, it roughly doubled quarter-over-quarter, but it was off a small base.
And just to give a little bit of visibility, we’ve started small and we’re expanding slowly for two reasons. The first is that a lot of what Pinterest brand is anchored in is positivity. And so we wanted to set a really high bar for the content safety and set the tone for what the platform is.
The second reason that we’ve started a little bit smaller, although we’re now preparing to expand that more broadly is that we’re really trying to build a new supply demand marketplace inside of Pinterest. So I think it’s a little bit too early to say with confidence exactly what we’re seeing in time spent monetization.
WSM: → HOWEVER Story pins are still very small and they are taking it slowly.
Q: I just wanted to revisit some of your earlier comments, just on the U.S., you talked about moving more in mid-March, just the easing of restrictions, how you saw slower U.S. MAU growth and lowered engagement. Just curious did that reflect as well in terms of U.S. revenue growth or revenue growth is fairly disconnected right now from users in the engagement just given the higher pricing that you’re seeing?
A: I think we had a little bit of unwinding towards the end of March as people started to go outside from a monthly active user and engagement perspective. But I think Ben spoke before, a lot of our shopping oriented engagement was very resilient. So yes, I don’t want that to be a misunderstood. We’ve had like a remarkable increase in the number of Pinners engaging with shopping surfaces. Our product searches were up 20-fold. So we were actually – I think we ended up increasing our ad impressions 22% globally in the quarter. And our effective CPMs are realized, pricing was up 46% just to give you a sense globally of how that happened. And our ad load was actually down on a year-over-year basis in the U.S. and globally, which is pretty interesting fact to consider when you think about that question that you pose.
Q: Are you seeing increases in auction density that you’ve been looking for as you built out the number of advertisers on the platform?
A: We are definitely seeing benefits from advertiser diversification in a number of ways, but I would point again to more efficient use of our monetizable supply built against that commercial mindset and planning behavior that our users bring. That’s the biggest driver of our performance.
Q: I was hoping you could expand a bit on the growth in the Gen Z on the platform. If there’s any additional context around how much that group now represents of users or activity, or where are you seeing as an offset less engagements, which cohorts or which generations? And then outside of your comments on recent user trends, I just wanted to follow-up on advertiser activity. I think you’re making the point that you’re seeing strong growth or engagement with advertisers in spite of some of the sequential trends in users.
A: Gen Z: we’re seeing continued growth and they’re growing part of our user base, but we’re far from being penetrated entirely. They do have slightly different interests, categories than our historical user base. So there’s over-representation of interest in art, entertainment, women’s fashion, there’s less of a pronounced interest in things like home decor.
They tend to be more engaged with native content relative to our historical cohorts. Things like video, there is some other early adopters of products like Story Pins or they tend to have a higher activation rate and they tend to have a higher retention rate.
On the advertiser activity, I’ll try again on this one maybe from a different perspective or angle. It’s probably – I don’t know if the question is really around the 78% growth we posted this quarter versus 77% in Q4 with a slightly easier end of quarter comp. But it’s worth just remembering where we were in Q4. We had a longer shopping season. It was started earlier and ended longer. So it was a big shopping season for us.
And then we had unusually strong election year-driven social media avoidance on other platforms that we benefited from that proceeded a bit in Q1. But I thought our performance was exceptionally strong on a global basis and the team executed really well across product and go-to-market. And we’re seeing that in terms of advertiser activity is that our number of joint business partnerships, which are indications of intent to spend. The number of joint business partnerships doubled year-to-date versus last year. So that’s an indicator of how we’re thinking about the advertising demand.
WSM: → So ending the call by saying the spring is coiled with advertising demand.
I’m left feeling a little confused. They posted a great set of results. Revenue growth beat of 78% vs guidance of 70% and consensus of 74%…positive Q1 EBITDA for the first time ever. ARPU up, MAU up, new territories starting, ads with shopping intent growing exceptionally fast. A really great quarter in which is seasonally not their strongest.
But looking forward they guide for a sequential reduction in MAU’s for the first time in years and lower engagement driven by a reopening of the economy and what they saw end March in the US. This even though the rest of the world is still firmly in lockdown and international growth was exceptional in prior Qs. So even if easing of lockdowns causes MAU to slow, why would they forecast international MAU’s to contract? Germany and France, and large parts of Europe are still firmly in lockdown and likely to open later than the US, not to speak of Brazil, the country they call out for having just entered?
On IDFA and the huge changes in the online ad environment, they indicate that first-party insights (which they have a ton of) will be very important and that they’ve spent the last years investing in that, but then go on to say it’s early days and not yet sure how things will pan out.
They talk about excellent strategy execution and growth in SMB advertisers and Gen Z, coupled with great traction in shopping, video, story pins. But then they also say that all the new stuff are off a very low base - almost signalling to analysts to curb their enthusiasm.
And then, when pushed again on this point, they close the call by pointing to great advertiser traction, which is an indication of future demand and ARPU increases.
My thesis for this stock is ARPU increases coupled with MAU growth.
I can definitely see the case for continued ARPU expansion. There is still huge scope to grow and the pipeline of advertisers is strong. In addition the macro tailwinds in Pinterest’s favour are huge imho.
Ruhaan showed that ARPU growth is firmly intact and nilvest is also very bullish and makes a ton of very valid arguments for the bull case - the company is really executing exceptionally well and the results were great.
Bear is bearish. Bear makes the point that if ARPU growth is the only driver of growth, PINS is likely to not continue in hypergrowth mode for too long. I don’t fully agree - if PINS have fully penetrated all adults in the US and are only now really starting to monetise, then PINS could grow a lot by ARPU increases. And international is a huge opportunity on top of that. And ARPU does have a long way to run still when compared to the likes of FB.
What I don’t like or understand is why they would guide to lower MAU’s internationally in Q2, which is what I understand they are saying. And they seem genuinely more cautious about the future vs prior Qs. Or at least that’s how I’m hearing it.
Even though this was clearly a great set of results, the one rather big negative, of their MAU guide, feels to me not well enough explained (vs say a DDOG which explained their Q2 pullback last year exceptionally well). I’m feeling a little less sure of PINS at this moment and will trim my position.
Long PINS 7.6% as of now, but intending to trim.