Q3 2020 Pinterest Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Sun Trust third quarter earnings Conference call at this.
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Star Zero I would now like to hand, the conference over to your Speaker today, Jane Penner head of Investor Relations. Thank you. Please go ahead Adam.
Good afternoon, and thank you for joining US welcome to contribute earnings conference call for the third quarter ended September 30, Twentytwenty. Joining me today on the call are Ben Silverman, our president and CEO and Todd Morgan filed our Chief Financial Officer, and head of business operations now.
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 Coca 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 role our results trends and outlook for Q4 22000.
Our preliminary and may not be 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 10-K filed with the SEC and available on the Investor Relations section of our website.
Right.
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 that Pentrust Inc. Dot com.
Now I will turn the call over to Ben.
Hi.
Thanks, Jim Hi, everyone. We appreciate you joining today.
By now you've seen our shareholder letter just profit brief comments, but the quarter I'd.
I can follow up with some additional details and then we'll open it up to questions as soon as we can.
All servicing that we're happy with the performance this quarter.
Q3 revenue is a lot of unknowns because of Carbonite team, but we were able to focus on what we can control and thats executing our strategic priorities that we set at the beginning of the year.
Turning on the most inspirational content. Thank you.
Interest more engaging and useful serving and diversifying our advertiser base and finally, making countries more shoppable.
All this led to strong results.
Monthly active users grew 37% year over year to $442 million in revenue grew over 58% year on year.
We're seeing a number of our investments paying rocks like growing our international presence in places like Western Europe.
Our progress with automation to make it easier for small and medium sized advertisers and finally make interest more shoppable.
We also launched a number of new products like tools to help creators to reach new audiences and bring even more inspirational content onto interest and more recently, a new suite of merchant tools to help retailers reach more customers this holiday season and beyond.
Overall, we accomplished a lot.
Obviously, there is still lot of and those in the future because of Coca 19, but I'm confident about our team's ability to innovate in the midst of all this change and I want to give a quick thank you to the entire interest team for their hard work in an unpredictable year.
Part of the resilience of the team demonstrated and excited about the opportunities that lie ahead.
With that I'll turn it over to Todd who will give more color about our business performance.
Thanks Ben.
I want to give some brief color on the trends that we saw during the third quarter as well as to provide it in formal outlook for both revenue and costs going into Q4.
Again with a quick summary, the headlines and leveraging volume more detail.
As Ben mentioned, we grew overall revenue 58% year over year, we also generated a positive 21% adjusted EBITDA margin.
Monthly active user growth remained strong with all major regions once again growing in the double digits.
We did experience a modest monthly active user uplift at the end of the quarter related to iOS 14 updates younger users in particular turns of interest to find inspiration for customized backgrounds. We.
We estimate the single use case drove an incremental 4 million monthly active users globally.
Looking ahead, we expect these 4 million in the U.S.
More likely to churn in Q4, given the digital wallpaper is relatively transient use case as.
Additionally, we expect our business to maintain its momentum in Q4 with revenue growing around 60% year over year.
We saw a much more demand for our advertising services than we expected in Q3, there were three primary drivers of the strong.
Onest.
The investments we've made over the past year and technology and in sales coverage or continuing to pay off a.
And the returns exceeded our expectations in Q3.
Over the past year, we've invested in conversion optimization early CPM ads shopping ads and auto bidding to help diversify our advertiser base and we also expanded our sales team in western Europe to monetize our engagement there.
These investments continue to pay off.
Specifically auto bed was a meaningful contributor to the strength of Q3, especially for small and medium sized businesses.
And our international business grew 145% year over year, now representing 16% of total revenue up from 10% of revenue in Q3 of last year.
Given the enormous opportunity ahead of us will continue to invest opportunistically to best serve printers merchants and advertisers.
Turns from these investments may not always be linear, but we do believe we have a strong roadmap ahead in 2021 and beyond.
Second beyond our own investments the macro environment is very supportive in Q3 advertising demand improved overall and we saw both brand advertisers and large retailers that have paused spending Q to return to our platform.
We also saw continued strength on the conversion oriented small and medium sized advertisers, who gravitated to pay interest in Q2 because of the native commercial intent of our users.
And because of the ongoing secular shift towards E commerce, but has been accelerated by the cosy crisis.
Our sales team was able to lean into these favorable conditions in Q3, helping to introduce advertisers to new tools and features and operating with high efficiency overall, our go to market effectiveness has also been bolstered by the unique insights that we're able to provide to advertisers.
Advertisers increasingly depend on these insights to understand the leading indicators of consumer demand in this environment, which earns us both mindshare and outspend.
Third.
We continued to benefit from marketers, who are prioritizing positivity and brand safety.
Advertisers tell us that Pentrust as brand say relative to other consumer internet platforms.
We benefited from this in Q3.
So it's still not clear how sustainable this trend will be particularly after the us election is over.
Turning to our informal outlook for Q4, I want to provide some color here as well.
We expect that our momentum will continue in Q4 as many of the Q3 drivers persist into the holiday season. These include the positive trends driven by our investments in conversion and shopping EPS auto.
Automation and international sales coverage.
There are also two external unknowns that could impact our business first the impact of the current situation remains hard to predict both on user engagement patterns as well as on advertiser demand.
In addition to ongoing uncertainty related to continued disease spread lockdowns across the globe.
Our visibility into Q4 is further limited by uncertainty about the impact that will have on seasonal engagement and outspend.
Tenders may likely plans to the holidays differently and it's hard to know how marketers will respond to these changes.
Second a known as the tailwind we've experienced from the advertiser boycott of social media that began in July.
On one hand, it's because of advertisers accelerated their spend on interest in Q3.
On the other hand, the attractiveness of a positive brand safe consumer platform may wane somewhat after the us election cycle is over in November if some of that spend may weigh in too.
To be clear, we think the positivity of Pentrust as a long term competitive advantage for many reasons, but.
It's just difficult to predict near term advertiser behavior, particularly in an election season finally.
Finally, our.
Our current understanding of how both of these unknowns will play out is limited given that Q4 advertiser demand is typically back end loaded quarter.
Finally before opening it up for questions I want to touch briefly on expenses, we continue to navigate a more remote working environment, while maintaining investments in the long term strategic priorities of the company. We took the steps to end of future lease obligation for the company during the quarter.
Put a finer point on this we believe a more distributed workforce will give us the opportunity to hire people from a wider range of backgrounds experiences.
In Q3, we grew headcount, 19% year over year at a similar pace to last quarter.
As we look to Q4, we expect to modestly grow total non-GAAP operating expenses compared to the third quarter.
We will continue to invest in our key strategic priorities, including content engagement advertiser diversification and shopping.
Thank you to the teams of entrust, our advertising partners and all of the people that come to interest to find inspiration and with that we could open up open it up for questions.
Thank you as a reminder to ask the question you'll need to press star one on your telephone to withdraw your question. Please press the pound or hash key please standby, we compound MCU and aster.
Your first question comes from the line of Mark Mahaney from RBC. Your line is open.
Okay. Thank you.
Talk about making interest more shoppable.
Could you just try to relate that into how that should show up.
The financials of the company does that lead to.
Is that something that causes.
Inflation accelerated growth in AD rates will how would from a financial perspective, what's the impact how do we see that thanks a lot.
So.
Mark.
Thanks on the financial impact perspective, what we're trying to do right now in shopping is in.
Improve the inventory of Shoppable products on to insurance and then improve the discoverability of those products over time until the investments we've been making we've talked over the last couple of calls about things like.
Our success in ingesting more catalogs to get Shoppable content onto the service.
We've talked about partnerships that accelerate that work.
And then we've talked about high intent shopping surfaces that weve been building and designing to.
To make it make it easier for printers defines.
Not only inspiration Russia bring those those items into their lives.
That's been the primary focus of the consumer experience and what we've talked about over the last couple of quarters is consistent with the way that we're thinking about it today.
We'll eventually monetize that overtime, but were majoring in the consumer experience today and monitoring and Robert revenue shop.
Shopping oriented revenue is growing.
Quicker than the overall business, but it's just a small contributor to the overall mix I would expect that to be a driver over over a longer period of time.
Okay.
Okay. Thank you.
Your next question comes from line of Brian Nowak from Morgan Stanley Your line.
Great. Thanks for taking the question I have two the first one in the letter you mentioned that automated bidding for shopping launched in September I was curious if you could just sort of give us an early read on what you've seen from the automated bidding from shopping impact and what is the overall advertising business growing in September and secondly, you also talk.
About anti you talked about sort of the roadmap you talked about more tools to common for Q and in 2021, maybe just high level talk to us about some of the still existing friction points that you hope to solve for your advertisers over the course of the next 12 months. Thanks.
Sure.
Let me note a number of things that worked in a quarter and I think we touched on a number of them in the opening comments, but I'll pause on the first one which is the ads are working on interest rate now advertisers are.
Are telling us that the ads are working and it's in large part due to the investments we've made in technology that make it easier for advertisers to hit their goals on the platform and so there are really two areas, where we're seeing that the first is around conversion activity.
And especially in this environment. What we're hearing is that returns accountable performance formats, the drive measurable conversions and online sales, particularly in the mid market segment.
Our sweet spot for us.
We've been making those investments we've talked about the the work we've done on tag integration partnerships on making sure. The tags are working what we call tag health.
Building tools to deliver better insights things like our book interest conversion analysis tool in our conversion insights tool.
That work has been incredibly impactful and we're seeing the results and the growth of our.
Some b segment, which really drove the ball a significant part of our growth during the quarter.
The second thing and you touched on this is the vision for automation.
You can imagine a world this will take us a long time to deliver in reality, but the vision is that an advertiser brings us the budget there.
Their goals and their content and we automate the rest.
We started chipping away at this over the course of the last couple of quarters with our investments in auto good it started with traffic objectives.
Several months ago and over around 80% of our CPC.
Our traffic objectives are now running through bottom that bottom auto bid.
We launched auto bid for conversion optimization in July and we are now.
50, plus percent of revenue through auto bid on that format and we launched for shopping as you mentioned.
In September the uptake there has been quick as well so I.
I think we've got a great roadmap ahead as I mentioned in the opening remarks, I don't know that the returns will be linear on those things, but the vision around making it easier for advertisers to onboard.
And not be as much manual management of their campaigns is something that we think will drive long term returns for us.
Great. Thanks.
Your next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open.
Thanks, guys two questions. If you don't mind first the shareholder letter mentioned that the covert cohort of users had even higher levels of retention and engagement in threeq you than previous cohorts wondering if theres enough signal kind of beyond the pandemic factors that give you a sense of whether this is kind of be terribly more engaged.
Aged.
Anything you could share there and then just just secondly.
You talked about budgets expanding associated with the Cpms spend for automated bidding do you feel like there's capacity for those budgets to scale up meaningfully or are there kind of limits either an audience size or otherwise to just how much room is left for that kind of existing clients to.
Unlock more budget through optimization anything you can you can share there would be great.
Sure Lloyd I can take the first part of your question.
What I heard was and how durable we think that the cohort of users that have come on during coded.
Is and what do we know about how they engage platform so far.
What we know right now is that the people that used.
The joint interest during this Kobe period, and they do tend to engage at higher level across a basket of metrics on that folks that.
Joining us at the same time last year.
But there are few things that we've learned that are kind of worth sharing.
First we have a team that engagement tends to increase were locked out orders intersect and decreased when orders are lifted and so while we believe that that will net out into positive place. We think that there's some effect from people spending more time at home and the things. They are doing at home are often things they've done for years, but in any way we talked in the last earnings call.
[music].
Setting up a home office or home school that even applies to things like seasonal events, where parents are trying to reimagine Halloween or think about what is what are the holidays. The pipeline instead of having a lot of families over it might just be your family for Thanksgiving or Christmas.
The second thing that we observed is that are these users often come for a specific purpose in.
And therefore use features like search more.
Then more browse features like the home feed.
And we think that that offers an opportunity because search is obviously high intent service, but it also raises the bar on the relevance of ads that we have to provide that's.
Thats why our long term strategies around relevance and one of the drivers of that relevance is increasing the number of advertisers that we can serve by making it easy for managed small and mid sized businesses to work with interest. So I don't know that we have a quantitative answer to your question knowing exactly where it is.
Total net out.
We assume there might be some erosion, but we do think that a lot of the early trends are positive we still see upside.
Okay Lloyd on the second part of your question on capacity I think benefit on those the most important point which is around.
The high intent.
What we see on the platform and increasingly seeing search and related pickup activity as being an opportunity for us to bring more medium sized advertisers more advertisers overall, but specifically.
Small and medium sized advertisers on the platform to continue to deliver relevant advertising against those interests.
But to be even more kind of tactical about your your question. What we're seeing right now is definitely more efficient spend through on existing budgets.
So we were taking the man the manual nature product campaign management and automating it to better returns for our advertising partners and better clearing existing budgets.
And we're seeing early returns on those budgets, increasing but I would say it's too early to talk about specific and clear answer to your question about where the limits will be on that.
Okay. Thank you all.
Your next question comes from the line of Ross Sandler from Barclays. Your line is open.
Hey, guys nice job on the quarter.
So Todd it seems like.
Sales really cranking right now and you are seeing a lot of adoption of Cagun and auto bidding. Some of these new features can you parse out.
I don't know because even possible, but if you look at the growth rates that you were seeing before three Q.
And then the growth rate now you're seeing.
50, 60% range.
In third quarter. After July how much of that is because of some of these these are new feature sets that are in the AD stack.
Versus just kind of a recovery in budget from macro conditions.
Similarly, if we look at brand advertisers like CPG.
Are they increasing budget futures.
Overall environments better or are there also tools that theyre using industry interest and stock too.
Online that higher run rate any color there would be helpful.
Yes.
Yes.
Yes, I mean.
Ross, it's really hard to parse I mean, I would love to be able to disaggregate that and say, we're getting X amounts in the technology investments. We've made we're getting why amounts on demand returning.
From a macro perspective, our insights give us.
In and out in the brand safety equates to.
The remainder in reality at the combination of all the above.
Ads are working I think we went through this a little bit on.
On Bryan's question, but making it easier for especially medium sized advertisers to onboard.
And automate spending their budgets effectively against their desired online conversion and sales objectives has been a big driver for us.
It's been driving our advertiser count up and it's been a significant component of our growth story.
We've seen a major impact just around brands CPG advertisers and brand advertisers returning to the platform. After a pause in Q2 and the return of retail, especially the larger omnichannel retailers that have paused in Q2.
We're seeing a lot of interest in the insights that will bring to advertisers. The notion that are that the commercial intent of our users translates into.
A leading indicator of where demand is going to go is really resonating, we're seeing that with advertisers like Hershey.
Around Halloween at home.
Is that as a trend I think I may have mentioned that before we had great conversations with nickel miracle Gro around home gardening trends, but.
That enable them to deliver much more effective advertising campaigns.
Followed by the insights that we delivered.
Well just as another example around somewhere celebrations and back to school, where we were able to help them with their campaign management and creative to deliver a much more performance.
Advertising campaign, so those insights.
Really differentiating and are causing a lot of traction with advertisers and then finally this brand safety.
Concept, especially post.
July in the boycotts that we saw I would imagine that we're seeing a sustained benefit just due to the election season, but I think it's a secular trend where advertisers want to be around positivity as they build their brands.
And that that's contributing to our growth as well that's what we're hearing so it's a mix of proud.
Product and technology macro recovery, the insights that were able to deliver and the brand safety and positivity that interesting uniquely brings and the world of social media.
Your next question comes from the line of Eric Sheridan from you May ask your line.
Okay.
Thanks, so much for taking the question maybe two if I can.
National AD revenue definitely we've made a lot of investments over the last 12 to 24 months can you talk a little bit about where we should be expecting to the yield from those investments and the international opportunity on the monetization side continues to evolve versus what you've seen on the user engagement side of the equation I think coming back to an earlier question.
The newer quarter of users.
Which seem to be younger skewing only to you are doing on the product will be good for him to keep those users engaged to keep that cohort evolving just wanted to come back seasons, and active management of sort of notification from an engagement broke the company might be doing to sustain some of that thank you.
Thanks, Eric I can take the first part and then.
Banking, probably speak to the second.
On the international I would say, we we started investing.
More aggressively about a year and a half ago.
To staff out.
Offices in Western Europe, and get direct coverage on the ground.
Up our teams in an English speaking countries outside of the us.
And those efforts scales in terms of the investments over the course of last year and into early early part of this year.
And I would say, we're seeing those results.
Hundred 45% growth in revenue in international markets is being driven.
Really by a handful of English speaking countries outside of the U.S. in Western Europe were from the loss of 10% of revenue in the year ago quarter to 16% of revenue now from international this quarter.
And the momentum we are seeing there has been remarkable we're still staffing those were still hiring to staff those offices out as we believe those markets present, a lot more upside even from where we are today.
And so I feel very good about what we're doing from an execution standpoint. The teams are doing a terrific job building relationships with advertisers and delivering great results and so.
That's been remarkable and I see a lot of other opportunity for us beyond those markets as we move forward, we're hoping to.
Begin monetizing is the next region Latin America in the first half of next year and I think there is a lot more than we can be doing across our existing monetize markets outside the U.S. and into new regions is the next few years unfold.
And Eric will answer your second question you had mentioned in his opening remarks that we saw particular certain KBR users. Following the IRS 14 release as a lot of young people look to customize their phones, but that trend of our users under the age of 25, joining and growing at a faster rate than users over the.
25 is something Weve seen for a couple of quarters continuously high when we talk to these users what they tell US is they are excited to have a place where they can get inspiration. They feel well served with wonderful tools. They can use to keep in touch with their friends and follow celebrities, but interest offers them something different which has a chance to get inspiration and everything.
From what they were two hobbies that they might have a future plans on your question was what we are doing for these users in particular.
We're doing a few things first the top priority for the company has been to make sure interest the home transpiring content.
In previous calls we talked about a really significant increase in video and young users I'm really expect video is the primary way they get inspiration and we've seen a really fantastic growth in viewership of both organic and paid video.
This quarter, we introduced new tools for people to publish video stories to capitalize on that trend and then we also have some experiments that are in place and this week, we launched an iOS, which it im not sure people take that inspiration whether it's inspiring quote.
For inspiring styles and put it directly on to their phone and we'll continue to try things to see how we can make the integration as useful and relevant and accessible to the extent you just possible im so.
We do think that we pay close attention to that under 20 high cohort, we don't see significant divergence in behavior, but they are they tend to be trendsetters and so we monitor them closely and see what we can learn.
Great. Thanks, so much.
Your next question.
Tim comes from the line of Mike coming from Canada. Your line is open.
I mean, I know there were a couple of questions book Tour guide around.
Around shopping traction here look to hear maybe a bit of an update of how much of this is really seen the big unlock around shopping partners like shopify versus some of the internal efforts that you guys have made regarding catalog ingestion and I guess the secondary question is that is it.
What are you learning things from working with Shopify, that's actually allow you to get smarter as you're you basically are doing more to onboard on your own.
Sure Mike I can I can start and Todd feel free to feel free to add on Pip more so we've we've outlined for several quarters in a row that are shopping strategy really has two major goals one is improving our inventory of reliable products.
So as you mentioned on the improvements that we've made to.
<unk> retailers ability to upload the catalog on those do indeed have a really really big impact there.
This quarter, we've released.
Improvements to make it simpler and we've increased the speed Im uploading.
We've also introduce things like scheduling I mean, all of this thing it's really about building a base of very very high quality inventories from trustworthy retailers.
Hi, with accurate pricing information and Shopify is that part of that story Shopify is home to some of the most inspirational retailers and so we're really excited to partner with them and really remove friction from retailers that want to upload their catalog to the audience on interest that are really looking for inspiration.
And do it with just one tap so thats kind of that first part about inventory and then the second part of the strategy is taking out inventory how do we improve discoverability of those products.
Interest, we have a little bit of a different approach than what some people might call spear phishing.
People on picture start with something they want to achieve a scene of living room seen if you look at when they work backwards into the products and we've been building dedicated shopping surfaces. So you can take that inspirational in edge and then see that create catalog of aspira inventory, I'm, so which might come from shopify or any of that to the merchants that we're working on.
And thats been.
I think thats been going really well, although we still have a long way to go on.
Over the last six months the number of tenders that are engaging with a shopping surfaces its grown.
More than 85%, so really really significantly.
And we're really working to balance to make sure that people start with inspiration and then when you are ready to go ahead and make that purchase you can do it.
Really easily.
The last thing I'd add is that we think are that trend ultimately will be global and we just took our very first step internationalizing that in Q3, where we launched shopping in the UK.
Okay.
Your next question comes from the line of Mark Schwartz from Bernstein. Your line is open.
Yes, hi, thanks for taking my question.
I know that press release yesterday called out.
Operationalized digital shopping.
Certainly talked on this call lot about kind of some of the new features brand pages et cetera. So a lot of changes to the consumer product and.
If we think about some of the kind of loyalists users are the longer the older vintage users any.
Color you can share and how they're adapting to all the product changes I know you had 85% number on shopping but any color on how theyre engaging would be very helpful. Thank you.
Thanks for the question Mark.
So I think there are two ways of looking at that question. The first is our new users engage in and using some of the new features we are launching.
And the answer in general is a lot of the features we're building our thing is that our users have been asking for a store for years and years. So the number one user request for years is I see something it looks great I'm already to buy it and then I can't find it and that's what's really driving our investments in shopping a similarly.
As the web it's become more video on more video based people have wanted a richer and more immersive way to experience those and so while things like storage bins are very new we are optimistic given the success we've seen.
I did mention earlier that one thing we are observing is that some of our newer users.
Contribute more for search based so it's still inspiration and visual discovery, but they're actually searching for specific things on it.
So if there was a difference I would say, particularly the Cobra cohort in the more recent cohorts have been engaged more deeply in search I mean, so we're always looking to think how do we take the areas that users are engaging with a lot at amplify them, but also share with them on parts of the service. They may not yet had a chance to experience.
Your next question comes from the line of Colin Sebastian from Baird. Your line is open.
All right. Thanks Krish.
Appreciate the time.
With the concurrent trends of brand advertisers returning to the platform as well as the launch of some of the more shopping or auction related AD formats and tools wondering what the rough split is now between brand and direct response and then maybe as a quick follow up to a few of the earlier questions on catalog ingestion I guess, given what appears to be.
An earlier start to holiday shopping this year and concerns around delivery does that mean that the newer shopping ads you know CPM are getting perhaps and then seasonal boost here in September October and then what you might otherwise expect.
Normalized year. Thanks.
Okay.
On.
Thanks, Colin I appreciate the question so on the first point on brands.
Versus performance advertising, we've long been the majority performance oriented meeting shop.
Traffic conversion optimization and shopping versus awareness advertising.
The mix a little bit more toward performance in the quarter, but.
In general this is across the board strength across.
Our brands are awareness objectives, all the way through performance and I think that highlights one of the.
The unique aspects of the platform that we often hear from advertisers and theres value in the full funnel experience going from inside.
Inspiration and finding a new idea all the way through a transaction is something thats, a powerful mix and I think we're seeing the results of that.
On to your point on the shopping experience. This is just really hard to to know and this kind of environment, how things will play out in our Q4 has typically been pretty back end loaded in the month of November and December.
We're definitely seeing shopping.
Happening a little earlier probably than last year, but.
It just remains to be seen how the rest of the quarter plays out and how.
The seasonal moments may adapt to it if you think back to last quarter, we talked about back to school being a risk in Q3 and.
We ended up seeing a fair amount of back to school span that just happened in slightly different verticals and at different times and a little bit more dynamically.
Then what we have typically seen so even in Q4 right now the planning cycles the dynamism around spend.
In the flexibility and nimble nature that advertisers are bringing to the season is a little bit unprecedented for us.
All right. Thanks, Doug.
Your next question comes from the line of Scott Alba from Jpmorgan. Your line is open.
Great. Thanks for taking the question there too.
First just wanted to get some more color on the trend in the AD load I know you are more demand constrained than supply constrained, but how do you think about AD load in terms of where you are now versus where you could be over time, and then second just on the expenses and.
You know kind of how this leads to Fourq EBITDA just wanted to clarify Todd you said expenses would only be up modestly threeq to Fourq you.
And with that am I wrong in thinking that your near term margins could be significantly higher than your long term targets that you laid out last year, which I believe are 25% to 29%. Thanks.
Thanks, Doug so on its.
I'll take both of those on on the AD load point.
We saw a mix of contribution from impressions and price globally in the quarter. So is much more balanced in terms of the impact of price and volume on revenue performance.
As one way of thinking about your question I think overall.
The message is still consistent with what we started with when we went public which is.
Yes. This is a platform where as if they are delivered to the right person at the right time can feel like content and we're more constrained by relevance and advertising then.
Messaging or social media, where ads are a tax on the experience so for us it's mostly about how do we.
We deliver relevant advertising content that speaks to the interests in the commercial intent of our users.
One of the benefits of having higher test shopping services surfaces. As an example is that.
We're better equipped to serve a higher density of advertising if you're if you're on interest to find a home decor items you probably welcome.
Advertisements that are from a retailer that you trust for the next aesthetic that matches your taste.
Cetera. So.
Think were.
We're a little bit further along in the U.S. than we are globally. There is a ton of room globally on AD load, we're probably a little closer to our guard rails in the U.S. than than we are on a global basis, but there is a lot of upside if we can continue to get.
More advertisers on the platform continue to deliver high intent shopping so surfaces and through our technology make sure we're serving the right AD to the right person at the right time.
On expenses.
When I thought about long term margins, we were thinking about them on a on an annualized basis and you can imagine.
In a seasonal business like ours, where Q1 revenue is.
Quite.
Small contribution relative to the annual amount in Q4 as much larger.
As we go into Q4 that will typically be the highest margin quarter for the company over the course of the year.
You are right that in a world, where we grow our expenses modestly that margins would expand in Q4.
And it's probably worth calling out to that even in the year ago quarter, We did.
Some brand marketing tests to the tune of nearly $10 million and spend that we won't be doing this year.
There's a lot of those sorts of investments that in this current environment, we will revisit going into next year. When we think they can be effective again.
But things like travel events marketing spend over the last few months has just been excel.
Expenses, we havent had to deal with in this environment and we're we're looking for ways to continue to invest going into next year that.
We'll be.
On items that we have deferred through this current period in marketing in particular was one of those so yes, the margins could be higher but on an annualized basis will still be below our long term targets.
Understood very helpful. Thank you.
Your next question comes from the line of Justin Post from Bank of America. Your line is open.
Great a couple of questions.
First can you help us understand if the category shrinks has been broad based or has been really concentrated in things like home.
Or cooking or something like that could you just kind of thinking about sustainability and then second.
Given the outlook for 60% in Q4, but it sounded like you're somewhat conservative in the back half.
Is it fair to say you put some deceleration in your outlook as the quarter progressed. Thank you.
I can take the first part of the question Justin.
We did see kind of engagement across a number of our core verticals.
Home beauty style.
Predictably.
Some use cases that.
We're.
Less popular thing happened in the past things like people planning for big outdoor events, although interestingly, we've started to see some uptick in that.
People might be looking forward to the future so.
As I mentioned, a couple of times before.
We're monitoring closely on the sustainability of that engagement and how particularly that cohort of users who joins during the current period I am engagements, but the service, but we don't see massive category shifts from that cohort in particular.
Your next question comes from the line of Rob Sanderson from Morgan Stanley. Your line is open.
Yes, thanks for taking the question congratulations on the momentum.
Hi. This is for you you spoke about several factors that limit your visibility into Q4 back end loaded quarter.
Sure about the permanence of the benefit from brand safety et cetera can you help us reconcile that with your guidance for about 60% revenue growth.
Growing faster than that through October and forecasting some slow down or how are you thinking about those are those unknowns in the fourth quarter and then also.
Any thought on the impact of having a few more shopping days during the peak part of the season. This year I don't think that was anything that slowed you down last year, having fewer days, but but was that how are you looking at that that dynamic this year versus a year ago. Thank you.
Thanks, and I know, we skipped over the second part of Justin's question, but I think that was very similar to the one you you just asked about the backend loaded nature of the quarter and momentum that we're seeing.
And the reality is were and I think I can answer both of those and we can talk about shopping days.
In general we're we're seeing a lot of the same drivers in Q4 that we saw in Q3 as.
As I mentioned before the ads are working our investments in technology and product are working around conversions and automation.
We are seeing kind of the return of retail and continued strength in CPG advertisers.
We're seeing a lot of appetite for the insights that were delivering which is sustained through Q3 and into Q4.
Brand safety narrative is continued to be we can you talked about on the last earnings call. We didn't really know if that was going to be a july phenomenon, only or if that was going to persist and if that persisted would it persists past the Illinois.
Election.
Thats persisted.
Sales to be something that's important to advertisers, but we'll we'll see post election, how it plays out.
And then the international strength that we've been seeing.
It has been a source of upside as one we've talked about for a long time that into investing in but it's played out nicely. So.
I'd say, we're seeing a lot of the same drivers that we saw through Q3 play out into Q4, and hopefully will despite this weird environment that we're in and hopefully we'll see it play out that those those risks around how cold it impacts seasonal elements.
Shopping behavior changes how people celebrate those moments how advertisers respond to them.
Whether advertising around the election that maybe.
Yeah.
You're quite a quite a new cycle here in the next few weeks how that plays out the other buildings uncertainties for US right now on the shopping days point, we talked about that last year being a headwind and it didnt really play out that way.
So I'm hesitant to call it in the other direction this year as upside.
Okay.
And so we'll see how it plays out I do think we've seen.
Shopping behavior started a little earlier this year and I would expect that given that that maybe it doesn't matter how many how many days are the official shopping period between.
Black Friday, and the end of the year.
Your next question comes from the line.
Rich Greenfield from.
Mike said Parker your line is open.
Hi, Thanks, very much in the letter you talked about the robust growth of video content on the platform, but why.
I want to kind of think about as you offer you talked about I think how younger users kind of expect are table Stakes is having more video content, how does that play into video advertising and sort of the cpms that you can get for video ads and sort of what have you done in terms of early work around video ads as you introduce more and more video content into the platform and then.
Sort of stories I know you rolled out recently.
It was mentioned sort of in passing in the letter anything more you can add in terms of sort of the early learnings or uses and just what are people doing what did that excites you or how you're evolving the product.
Rich can you ensure that second part of the question on the fee and then the second part of the question.
Sorry on stories as you kind of hold out the story pens like what are you seeing.
You sort of mentioned it in the release of the new format, but can you go into a lot of detail wondering if there's anything in terms of early learnings or what people are doing with it.
Encouraging or what you need to change et cetera.
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Yes, I mean, I can I can start so.
Yes, we think that video is an ideal format.
For getting inspiration and I think that what we heard is a lot of merchants are really excited about having a richer platform to tell their stories.
So.
Organic side, we continue to see really strong growth in just video views.
And then we're also seeing.
A really strong growth in the number of videos uploaded interest we had seven experts and videos uploaded on year on year.
How does that apply to advertisers.
We've made some investments to really improve the video advertising experience for advertisers.
For example in the last quarter, we introduced Carousel format. You can now have a video cover on that on that carousel and we see that video is making up a larger portion of our revenue over time, just again, because it's a it's a great format and it applies not only to brand, but there's also some different performance.
Based objectives to can be set with video.
A great example of this was haagen dazs personal favorite of mine, because I like ice cream and they wanted to introduce people to kind of new product lines and they ran a video AD campaign as well as standard ads I mean, just start really great results, 3% lift in sales.
And two X. return on AD spend as measured by Nielsen Catalina.
So.
The second part of your question was really about stories and you correctly point out. This is really early but we're excited about it that we begin to be able to innovate on the video format. So some some stories and I've been excited about.
We see people teaching folks how to how to Cook recipes that we launched a campaign called chefs at home, where we had a lot of restaurant tours and chefs cooking right.
Sps at their house and teaching people how to do it.
We've seen people create videos for fitness story pence, showing people how to do exercise routines, we see things like DIY.
There were a lot of videos and how to make your own mask and we're starting to also bring on more talent thats more familiar with him how to produce great video content said, we hired.
One of our first hires in the company that came from the media publishing I as a team cursed. We've also added some expertise on to our board.
Last quarter, we mentioned the addition of Ontario, Wishon, who worked with Oprah more recently, our new Rockies Salon, who came from Disney but also as the president of style. So.
Overall, we think we're really early there which has opportunity to use video to deliver inspiration is a big one.
Eager to learn what people find most inspiring and most useful on the platform.
Thanks, a lot for taking the question I appreciate it.
Sure.
Your final question comes from the line of Heath Terry from Goldman Sachs. Your line is open.
Great. Thanks, you've mentioned a couple of times, including in the letter the return on AD spend that your advertisers are seeing I was wondering if you could dig into that just a little bit deeper for us I'm sure you've got other anecdotes or.
Hi, the quantitative or qualitative that you might be willing to share just on what you're seeing in that the return on AD spend that that advertisers are recognizing especially as it's trended over time through the pandemic as you've got more advertisers on the platform and presumably driving up driving up prices to a degree but.
But also as you are.
They did on the technology side to improve targeting and measurement in ways that.
It's likely improving that that return on AD spend as well so any insight into the trends that you're that you're seeing there would be helpful.
Yeah, I can start and.
I might add more color I mean in general we've seen advertisers see great returns across a variety of different objectives.
Given some examples of that.
Brand objectives for loss to seeing great.
Great results from people pursuing traffic or conversion objectives.
As you pointed out some of that has been driven by improvements in our ability to measure our transactions and we've talked over.
Over the last three quarters about investments, we're making to make sure that people can really understand the unique value of its interest things I'm through first party measurement through better conversion tools.
What's especially important for us is that people come to pay interest and they often don't specifically know what they're looking for.
So they might have a longer conversion window before they actually make a purchase and so we've really focused on helping people and tell that story from the lower inspiration to the ultimate purchase.
Now those are really benefit us and then the other big benefit has come on as we talked about before from automation I'm, making it less on the advertiser themselves to actually customize I'm all the different parameters. They set their objectives and then we figure out the best way to utilize that budget.
And Weve seen just great returns on both those fronts.
Anything to add there.
No I thought that was that was great. Thank you.
Great. Thank you.
Thank you I will now turn the call back over to Jane Penner.
Thanks, so much everyone im actually going to turn the call back over to Ben So he can correct it out.
So.
Well, thanks, everyone for joining the call and for your interest and questions. We look forward to keeping the dialog going and please and trade less today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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