Pinterest Reports Q1 Earnings

Investment Analysis Clubs Saul’s Investing Discussions
1

-PINS down after hours due to mixed results (missed on user growth and some warnings in guidance)

-Revenue up 78% YoY to $485 million (vs $474 million forecast by Refinitiv)

-MAU grew 30% to 478 million (vs 480.5 million forecast by FactSet)

-Net loss of only 22 million vs 141 million YoY

-Average revenue per user - $1.04 (vs $.99 forecast by FactSet) Up 97% internationally and 50% in the US.

Guidance = Q2 revenue expected to grow around 105% YoY but management noted slowing engagement and growth.

“In Q2, we expect global MAUs to grow in the mid-teens
and US MAUs to be around flat on a year-over-year percentage basis. Finally,
we expect sequential operating expense growth to accelerate in Q2 as we
continue to ramp investments in our long-term initiatives and growth drivers.”

“Starting in mid-March, the easing of pandemic restrictions slowed US MAU growth and lowered engagement year over year as people spent less time online,” the company wrote in the letter. “In Q1, we saw good retention of the MAUs we gained during 2020, but we still don’t know if or how long this retention will last. Our understanding of future engagement levels is similarly limited.”

Press Release:

https://investor.pinterestinc.com/press-releases/press-relea…

Shareholder Letter:

https://s23.q4cdn.com/958601754/files/doc_financials/2021/q1…

Slide Presentation:

https://s23.q4cdn.com/958601754/files/doc_financials/2021/q1…

Webcast:

https://event.on24.com/eventRegistration/EventLobbyServlet?t…

34 Likes
2

The results looked pretty solid to me. Average revenue per user is growing rapidly and there is still a lot of room for international growth in this category. International revenue per user is currently just a fraction of U.S. revenue per user.

Don

5 Likes
3 

Monthly Active Users
Year      Q1      Q2      Q3      Q4
2019     291     300     322     335     
2020     367     416     442     459
2021     478

MAU Sequential Growth
Year      Q1      Q2      Q3      Q4
2019              3%      7%      4%
2020     10%     13%      6%      4%
2021      4%

Seems like more evidence that the rapid user growth last year was a one-time covid bump.

Bear

25 Likes
4

PINS is a new position for me and the results seem to be a bit of a mixed bag. MAU growth is slowing in part due to the tough COVID comps. On the other hand, the COVID revenue comps are weak because the advertising market shrunk so much last year.

Even with sandbagging, revenue is expected to increase at least 27% quarter over quarter from 78% to 105%. MAU was up 30%, mostly due to international growth. ARPU was up 34% - that is big for me. Increasing the ARPU of the international customers seems to be a big part of the investment thesis and that seems to be still intact. How will reopening affect user engagement? It’s the uncertainty that has got people a little spooked.

In my opinion it is a bit of an over-reaction to see it down 11% after hours

This article lays out the bull case pretty well in 4 points.

https://www.fool.com/investing/2021/04/24/reasons-pinterest-…

  1. Pinterest dominates a high-growth niche

  2. Pinterest has robust growth in users and revenue

  3. Pinterest is improving profitability

Pinterest has reasonable valuations compared to high-growth tech stocks

13 Likes
5

Hi everyone,

I believe focusing on MAU is not the right lens here. It seems totally normal that MAU would slow down after Covid in home market from though comps, while international growth is still huge.

ARPU is up 50% YoY for the US / 91% internationally.

Revenue guide for Q2 is 105% - at 559m vs 485m. That is 15.2% sequentially … and not even accounting for a beat !

Younger generations are also the fastest growing of all users - which a really bullish indicator for me.
They also mentioned excellent retention of this « pull-forward » demand of 2020.
Then adjusted Ebidta was 17% vs 11.9% estimated.

At this stage I feel this is just a good opportunity to increase position while the market focuses on the obvious fact that more users were on the platform during covid … while every other indicator is green.

Would love to hear from more experienced investors on this - why do you think this isn’t a great report by our standards ? Is it solely because of MAU US growth and guidance ?

Ys

20 Likes
6

Hi newcomer here,

Regarding Bear’s point about the slowdown in MAU additions in 1Q21 above, I believe that the market is not disappointed with the 4.1% QoQ MAU growth in 1Q21 (as consensus was for 4.6%). I think that the guidance of c15% Total MAU and 0% US MAU YoY growth (-2% sequentially) for 2Q21 was the contentious point.

On the surface, this MAU decline seems to confirm everyone’s fears that PINS was only a COVID-play. I personally do not agree as PINS was growing nicely in the pre-COVID world with revenues +60% and +51% for 2018 and 2019 respectively.

I think that there are two key points when reading the MAU additions:

(a) Second quarter is seasonally the weakest quarter in terms of MAU growth (even before COVID – Total MAU sequential growth for 2Q18 and 2Q19 was -4% and +3% with US faring worse at -6% and 0%). I am not 100% sure why but it could be due to the lack of specific events in 2Q - e.g. no wedding seasons or Christmas shopping etc.) and

(b) PINS have increased ARPU +37% YoY in 1Q21, but will grow it +78% YoY in 2Q21 using the company’s outlook revenue growth of +105% and mid-teens MAU guidance.

Looking forward, MAU growth will likely return to higher levels in 3Q as specific events come back (admittedly not to 2020 levels but still better) but the growing ARPU will remain healthy as the increased success in monetizing the platform will stay in the numbers. This should lead to strong revenue growth, even before taking into account important initiatives in Brazil / Mexico etc.

I am long $PINS.

P.S. I would like to quickly thank everyone on this board for the invaluable insights - it has been eye opening for me! Hopefully, you found my contribution interesting and apologies in advance if I did not obey to the board rules (Saul - I promise that I read them a few times prior to contributing).

Thanks you, AL

34 Likes
7

Bear is correct that the rapid MAU growth from COVID is a one-time thing…but that is not a bearish sentiment (pun intended). If one focuses solely on the MAU story, then yes this looks bad, but this company is increasing revenue and profitability from international monetization and expansion of the platform; this ranges from refinement of advertising tools to incorporation of shopping. Also keep in mind that the ARPU number is calculated using MAU as the denominator so they even mentioned that the rapid increase in MAU from COVID was a HEADWIND for ARPU and yet they still have seen 100% increase YoY internationally and 50% increase YoY in USA. This quarter is perfectly aligned with my investment thesis and I would be buying more if I wasn’t already at my sleep-soundly-at-night allocation level.

-Junomean2
Long PINS

10 Likes
8

There is seasonality that affects PINS active users and there by revenue and earnings. Q1 and Q2 (even more) are slower than Q3 and Q4. Management did state that Q1 and Q2 of 2020 benefited in terms of user engagement due to covid.


MAU
Year    	Q1	Q2	Q3	Q4
2018 (Global)	239	231	251	265
2019 (Global)	291	300	322	335
2020 (Global)	367	416	442	459
2021 (Global)	478					

MAU Sequential Growth
Year    	Q1	Q2	Q3	Q4
2018 (Global)	-	-3%	9%	6%
2019 (Global)	7%	3%	7%	4%
2020 (Global)	10%	13%	6%	4%
2021 (Global)	4%

They warned about slower growth especially amongst US population but also are not sure about international. I think US is a no brainer. They have 98 MM active users in US. Thats about 40% of all above 18 years of age.

I think monetizing active users is the key. With economy opening, advertisement demand is picking up. As long as they keep the users they acquired during covid and add some they can boost the revenue significantly. Here is how it looks:


US ARPU
Year     Q1	 Q2	 Q3	 Q4
2018	 $1.59 	 $1.98 	 $2.33 	 $3.16 
2019	 $2.25 	 $2.80 	 $2.93 	 $4.00 
2020	 $2.66 	 $2.50 	 $3.85 	 $5.94 
2021	 $3.99 			

US ARPU Growth
Year	Q1	Q2	Q3	Q4	
2018	-	-	-	-	
2019	42%	41%	26%	27%	
2020	18%	-11%	31%	49%	
2021	50% --> ARPU grew 50% but the overall revenue (dollar amount) grew **63%**. 

IntL ARPU
Year	 Q1	 Q2	 Q3	 Q4
2018	 $0.05 	 $0.05 	 $0.06 	 $0.09 
2019	 $0.08 	 $0.11 	 $0.13 	 $0.21 
2020	 $0.13 	 $0.14 	 $0.21 	 $0.35 
2021	 $0.26 

IntL ARPU
Year	Q1	Q2	Q3	Q4	
2018	-	-	-	-	
2019	60%	120%	117%	133%	
2020	63%	27%	62%	67%	
2021	100% --> ARPU grew 100% but the overall revenue (dollar amount) grew **174%**

They are partnering with shopify, etsy and other retailers to enable frictionless buying experience. Management acknowledged last year that they are behind monetizing their active user base and thats what they will focus on next. I can see clear evidence of that in these numbers. I think they still have more room to grow ARPU from US and International users. Their international ARPU is less than 10% of US ARPU. I do not think it will ever match US ARPU but can it get closer to 25%? That would be between 1-1.5 rev per user for each international user. International users make up approx. 80% of their total user base. That would mean extra 280+ MM USD from international users per quarter. It might take two years to get there but that would add 1.1 Billion to yearly revenue considering there is no more user growth.

So all in all the results were fantastic. They had forecasted revenues of 460 MM and they did 485 MM which 78% growth YoY. Street had been expecting 473 MM. So that was a significant beat as well. The only blemish was they cant predict what covid reopening will do to its user growth. I think thats prudent. However, as I mentioned thats not really the whole story. They are still forecasting solid revenue numbers for q2, 556 MM - growth of 105% YoY.

Welcome any counter arguments.

Thanks -
Ruhaan

56 Likes
9

I think monetizing active users is the key.

Unfortunately, I agree. Since meaningful user growth is largely behind them, it’s as if they’ve already had their “land” and all they can do now is “expand.” This doesn’t seem likely to lead to hypergrowth. Have they talked about how much they think they can wring out of ads targeting the US customers? What about international?

You can see how this puts a cap on long term growth. I wouldn’t expect PINS to double or triple any time soon.

Bear

11 Likes
10

FB has an annual ARPU of $159 in the US/Canada and $31.4 globally. The corresponding numbers for PINS are just $16.3 and $4.3 respectively. PINS has the potential to be a better monetizing platform than FB.

FB has 231M US MAUs (if you strip out Canada proportionally) and 2.8B global MAUs. PINS has 98M MAUs and 0.48B global MAUs. Not unreasonable to assume that PINS will get to about 50% of US and 30% of global MAUs as FB.

Put the above 2 together PINS has a long way to grow over the next 5 to 10y. This is not a 1 or 2 Q story. I plan to hold long term.

30 Likes
11

The MAU is definitely getting the headlines but there was a lot of good news in that earnings call. I think the major reason why I like this business is because its confused as a social media company. Ben Silbermann and the team are doing a great job in turning it into an inspirational e-commerce platform. Users don’t come on the site to compare themselves to others. They come to look for inspiration on what to buy, directly and indirectly.

For me it was a very upbeat and bullish earnings call from management. A couple of call outs:

Strong growth coming from Gen Z, “a persistent trend that we’ve seen for several quarters”. This is important because they have been discounted in being able to tap into this area of growth.
Product searches up 20x Shopping inventory being built out, early days. On-platform transactions are coming this year which I think the market is totally missing
“It’s very early in our journey to achieve scale or drive meaningful monetization at this point” they are seeing the early innings affect of their auto bidding ad platform and the shopping integration.
In terms of the MAU miss. “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.” So a double whammy but this is far from the death of their user base growth.
The CEO spoke about tailwind events like Halloween, weddings, and general outdoor events that didn’t occur last year but are hopefully to return this year. “So there could be tailwinds and we’re just not baking them in”.

18 Likes
12

“Since meaningful user growth is largely behind them, it’s as if they’ve already had their “land” and all they can do now is “expand.”” - PaulWBryant

Especially in the US, I agree that the main focus is “expand” but there a two primary avenues of huge potential growth in the “expand” bucket that have me excited and adding today:

(1) Significant room to expand ARPU. PINS ARPU was ~9% of Facebook’s ARPU in the US in 2020 [PINS 2020 US ARPU = $14.95, Facebook 2020 US&CAN ARPU = $163.86 (https://www.statista.com/statistics/251328/facebooks-average…]). Since advertising is much more positive on Pinterest’s platform than it is on Facebook’s (from a user’s point of view) and PINS has partnered with ETSY and Shopify to grow this monetization, I think growth in US ARPU is just getting started.

(2) Optionality of visual search. As PINS builds out this capability and functionality, there will be a huge number of additional applications of effective visual search in the coming decade (potentials I can think of include travel destinations, clothes shopping, medical diagnoses, and many others)

I think there is significant runway ahead in the US, not to mention the international portion of the business, which is also growing nicely.

SharpTexan
(very long PINS)

11 Likes
13

Oh and don’t forget Story Pins. This is their new video product that seems to be taking off and helping with the new Gen z users. I think this will go a long way in fuelling the ARPU ala Facebook quoted above.

“I mean, we think that Story Pins are the next step in that evolution. So letting people have a closed loop where they can publish directly onto the platform, they can engage users, not about entertainment, but about their interests. And those users can contribute back and can build more of a community around that media. We think that’s something that’s different. It’s not really a new that’s met in the market in the same way that Pinterest is approaching it. And so while we don’t forecast that into growth because it’s early days, we think long-term, it’s something that’s going to really improve the growth and the engagement on the platform.”

6 Likes
14

great discussion here…

PINS management did again what they do best - deliver strong results and keep underselling to investors… this is a consistent pattern for many many years… which is very very different from people like Jeff Green (TTD), Jeff Lawson (TWLO) and George Klutz (CRWD).

Its amazing that they delivered 78% y/y top line growth
AND delivered $270M FCF (on $485M revenue)… even if you take seasonal pattern into account, you are looking at 12% FCF on a TTM basis…
AND guided 105% y/y growth for June quarter…

It is easy to get negatively swayed by analyst focus on user growth and also caution statement from management about user growth related pandemic…
real story for PINS is accelerating monetization in the US AND super charged international growth (both user and ARPU growth)…

AND by the way, user growth is not gone negative… all they said was that pandemic pulled forward some of the user growth that will slow down with re-opening (early phase)… and going forward user growth will get back to pre-pandemic pattern (where user growth was seasonal and events driven)…
so yes, 2021 NA user base may remain flat… 2022 onwards NA user growth should regain to low single digit (this is my interpretation)…

However, big story for 2021 remains super charged monetization AND international growth… Here are a few management comments worth considering - From transcript on SA

“Our monthly active users grew 30% to more than 478 million users globally with strong growth coming from Gen Z, a persistent trend that we’ve seen for several quarters. 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.”

“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”

The last statement means (to my understanding), they had reduced number of ads on per page basis… yet increase total number of ads served and substantially increased price per ad delivered… IMO this spells hyper charged period of monetization…

IMO, PINS was growing in 50%s pre-pandemic, they went a bit down and super charged up during the pandemic… and 2H onwards they should be back to mid 40%s or low 50%s y/y growth range… and consider that this is on a $2B+ scale… while delivering ~10%+ FCF…

At current valuation of 23PS TTM, this seems to have a lot of upside…

49 Likes
15

Favorite quote from the call-
“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”

Nilvest pointed out in one of his excellent posts…
“The last statement means (to my understanding), they had **reduced number of ads on per page basis… yet increase total number of ads served and substantially increased price per ad delivered.**IMO this spells hyper charged period of monetization…”

I believe ad load decreased number of ads per page and this also addresses the fact that global ad spend was down significantly. With my primary investment thesis focus on this company being a programmatic digital advertising play, I love what Pinterest did here. And I expect ad spend to rocket higher the second half of this year adding to why I am bullish on continued hyper growth for this company.

I did add a little here. That all being said, As I said last month, I’m keeping this under 5% because I have more confidence in the other companies in my portfolio having gobs of growing ARR and that they’ll grow their businesses faster.

I hope this added at least a little to this great thread,

Jason

16 Likes