Q3 2022 Pinterest Inc Earnings Call
Use of 445 million were above Q3, 2021, as we've largely lapped headwinds from the pandemic unwind and have driven improvements in user engagement.
Our U S and Canada miles grew sequentially for the first time since Q1, 2021% to $95 million.
Despite continued macroeconomic uncertainty we grew revenue by 10% on a constant currency basis to $685 million for Q3.
We delivered adjusted EBITDA of $77 million and adjusted EBITA margin of 11%.
Each of these points demonstrate that our team is operating with heightened focus and discipline finding ways to grow the business and drive efficiencies despite the difficult macroeconomic environment.
My remarks today will focus on three topics first.
How we're making pinterest more relevant and engaging.
How we're driving more inspiration to action, including greater shop ability and third how we continue to improve our monetization efforts to drive value to our advertising partners.
By making pinterest more relevant to our users we can increase and deepen their engagement with the platform. We're doing this in multiple ways, including improving the personalization on our core surfaces.
Leveraging our unique opportunities as a content platform and broadening our appeal to emerging demographics.
On personalization, we're creating much more relevant experiences for users by combining the unique first party signal on our platform with advancements in machine learning to recommend highly relevant content to users.
In Q3, this work with a meaningful driver of our return to seasonal sequential growth in global and U S and Canada mouse.
It also resulted in year on year improvement in engagement as measured by metrics, such as sessions impressions and saves.
In fact sessions in Q3 grew meaningfully faster the mouse, which indicates that we are deepening engagement with our users.
We believe growing sessions should drive multiple topline benefits, such as reducing user churn improving overall monetization and growing revenue per user.
We're also making pinterest more relevant to users by leveraging our unique human curated content and upgrading our overall content ecosystem.
In short we want to we want content that not only inspired users, but also helps them make do or buy things.
With this goal in mind, here's how we're thinking about human curation and rich media content, which are the two biggest types of content we have on the platform.
The human curation at scale that happens on Pinterest is a highly differentiated and valuable source of content generated by our users.
While machine learning helps us serve a personalized recommendation for a pair of women's tall boots.
Human curation at scale makes it possible for us to further suggest the best skirt and sweater options to complete the look which we can do because those boots or ones like them have been saved as part of outfits on other boards on pinterest.
This type of curation is very unique to pinterest and is fundamentally different user activity than what typically occurs on other platforms.
This creates a highly efficient way to get relevant content for users across our ecosystem.
User generated content is a key aspect of our content strategy and we expect it to remain a significant differentiator.
In addition, we are increasingly sourcing rich media content that is uploaded to our platform from a wide variety of sources, including publishers creators brands and users.
Q3 content uploaded to pinterest accounted for nearly half of our sales, which demonstrates that users are finding this type of content highly relevant and engaging.
One of the uploaded rich media formats, we're particularly excited about is video videos.
Video is often make it easier for users to get inspired and to make do or buy something this is especially true for Gen Z users.
We've been ramping our video efforts over the past couple of years.
Last year, we focused almost exclusively on attracting creators to upload videos on our platform.
However, we've since learned more about the types of videos that resonate with our users and found that we can also obtain high quality videos.
In other forms of rich media content from sources beyond creators.
This is both highly efficient and effective.
While creators are an important part of this equation a larger portion of our rich media corporate is coming from users brands and publishing partners like taste made refinery 29 chef club jelly smack in Blabbing.
Over the past year as we've evolved our video upload tools, we've grown our video supply by three X.
Additionally, in October we announced partnerships with Warner Music Group, Warner Chappell music, Merlin and BMG to expand the music experience on Pinterest through these deals users will be able to add popular song tracks through a new user experience, which we believe will enable users and creators to engage more deeply and creatively with the platform.
Finally, we're working to expand the relevance of our platform to emerging audiences, specifically Gen Z by building products and experiences that resonate with them.
Over the past three years growth from our global Gen Z demographic has outpaced growth from all other demos and Gen Z users continued to grow despite the pandemic unwind and Seo headwinds.
In Q3, Gen Z grew double digits year over year accelerating from Q2.
This trend supports our thesis that Gen Z get something on Pinterest that is distinct from what they get on other popular platforms, namely a place to discover with intent and purpose and to explore their creativity.
Nowhere was this more clear to us in Q3 than in the enthusiastic reception of shuttles are standalone collage, making app, which is available on an invite only basis to iOS users.
The vast majority of shuffled users are in the Gen Z demo and we've been watching with interest as they find novel ways to use shuffles, such as remixing. Each other shuffles to collaborate on ideas like creating the perfect Stranger things Halloween costume.
We continue to iterate and learn from this beta launch and plan to add new features and functionality to shuffle as we make it more widely available.
Next I will discuss our approach to driving more inspiration and intent to action.
At the highest level, we believe shopping on Pinterest drives and informs the core experience of the service rather than being distinct from or bolted onto that core experience.
This is supported by the fact that more than half of users. We've surveyed view <unk> as a place to shop.
Overtime, we expect to make every product that a user encounters on <unk>, even when that product maybe in <unk> or other user generated content.
This means pins on all our surfaces should be <unk>, not just the ones on a designated shop tab.
While we have computer vision capabilities machine learning human curation at scale and over 1 billion items in our product catalog. We also need to continue growing our product catalog to enable more of the shopping experiences.
To that end, we released our API for shopping to general availability in Q3 across all of our shopping enable countries, which include the U S and our largest markets in Europe , Latin America and APAC.
Our API for shopping makes it easier for merchants to upload their catalogs and metadata, while also sending real time data on SKU level pricing and inventory.
On the discover ability side, we're leveraging both machine learning and the first party signals, we get from the unique human curation on Pinterest.
If youre looking for a mid century modern couch, we should be able to show you tables rugs and lamps to complete that room based on how millions of users have saved an organized home decor content.
I think this is a superpower for us as we become the home for digital taste based shopping.
Finally, we have an opportunity to become an even more trusted partner to retailers by helping send more traffic attributable conversions and customers to their businesses we.
We can deliver high quality shopping experiences in partnership with retailers by creating frictionless handoffs with the merchant for things that people want to buy.
For example, we're piloting a hosted checkout program of Shopify that allows users to check out directly with the merchant while on Pinterest.
We're also testing mobile deep linking that takes users straight to the retailer's App and checkout page.
Our efforts on personalization relevance and shopping are also instrumental in creating more value for advertisers.
Pinterest is a unique place for advertisers because our users seek inspiration and discovery with intent and purpose.
This has a number of implications to.
To begin with we have on platform first party signals like searches saves and board curation that translate into highly valuable and monetize able customer insights for advertisers and resilient on platform and personalization and optimization.
In addition, we have full funnel AD solutions as users come to us throughout the stages of the purchase journey.
We've built our AD platform. So advertisers can meet users at every stage of their purchasing journey as they move from ideation were brand advertising is most effective to consideration where traffic campaign makes sense to taking action where conversion objectives are optimal.
Revenue from our ads align with these three objectives with approximately one third of our revenue coming from each.
Moreover, we're making ads more performance on pinterest through insights led selling better automation and improved tools measurement and formats.
Our results show that this is working approximately 90% of our active advertisers now use automated bidding and in Q3 are attributed conversions grew over 20% year on year driven by improvements we've made in adds optimization and conversion visibility.
Before I hand over to Todd I want to share my thoughts on how we operate the business.
2022 was a year of elevated investment for Pinterest as we leaned into a number of initiatives that we believe will drive durable long term growth.
Additionally, the team and I have gone through an extensive review of our portfolio of initiatives to be sure. We're focused on the highest yielding activities the.
The benefits of that additional investment and heightened focus are coming through and product impact, particularly in engagement and revenue.
We're also focused on driving efficiencies in the business as.
As we discussed on the last call, we intend to return to meaningful margin expansion next year and have already started those efforts.
Lastly, we have a strong balance sheet with roughly $2 7 billion in cash and cash equivalents.
Our business continues to generate strong free cash flow.
Our primary use of capital is to invest in the business to drive continued growth.
In addition, Todd and I continue to evaluate our broader capital allocation strategy, including a plan to manage dilution from stock based compensation.
Now I'll turn it over to Todd to discuss our financial results and guidance.
Thanks Bill.
Q3 financial performance demonstrated the effectiveness of our full funnel advertising platform a platform that mirrors the user journey from inspiration to action and that delivers compelling results for advertisers across multiple objectives, including awareness.
<unk> and conversions.
When you can address the entire consumer journey it presents a significant monetization opportunity.
<unk> been focused on this strategy for a while and its been working.
Over the last three years from Q3 of 2019 to Q3 of 2022, we've grown our global users at an 11% compound annual growth rate.
In the same timeframe, our revenue grew more than three times faster at a 35% CAGR.
This ability to grow revenue faster than users has been driven by ads innovation and while we're happy with our results to date, we think theres a lot more to come in this area.
We also believe that we have an opportunity to further grow our revenue per user by deepening engagement with existing users who visit pinterest more episodically than monthly active users.
Bill mentioned the momentum we're seeing in sessions growth and we're now leaning into this strategy.
Turning to our engagement trends in the third quarter.
During the quarter $445 million global monthly active users came to pinterest flat year over year, and up $12 million or 3% quarter over quarter.
We believe that the investments we've made in the user experience were the primary drivers to return to seasonal growth patterns from Q2 to Q3.
We also received a modest one time benefit from the iOS 16 update in September which contributed to our sequential growth in global monthly active users and U S and Canada monthly active users.
Looking at the U S and Canada.
Use or $95 million, increasing 3% sequentially with the addition of 3 million users.
This is the first time monthly active users have grown sequentially in this region since the first quarter of 2021.
Our global mobile App <unk> growth accelerated to 11% year over year in Q3.
In U S and Canada mobile application users grew 3% year over year showing positive growth for the first time this year.
So while our desktop and mobile web M. I use declined in Q3, our mobile App and they use continued to show greater resilience.
As a reminder, mobile application <unk> account for over 80% of our total impressions and revenue.
Looking ahead, we've move beyond the pandemic unwind and by the end of the year, we will have lapped the Google search algorithm update from November 2021 that had an impact on our ability to grow in the US we feel good about the health of the user base and we're much more focused now on deepening engagement and driving revenue per user.
Turning to our financial performance.
Third quarter global revenue of $685 million grew 10% year over year on a constant currency basis or 8% on a reported basis.
Total U S and Canada revenue was $575 million, an increase of 9% year over year.
This is an acceleration from last quarter, 7% growth rate.
The U S and Canada <unk> of $6 13.
Grew 15% year over year.
Better than expected strength came from large U S retail advertisers, who have been more resilient and often seek lower funnel objectives and shopping goals.
CPG Advertiser revenue grew modestly year over year for the first time all year as we lapped the initial supply chain issues that these businesses face this time last year.
Our shopping ads revenue, which comes from promoted catalogs grew 50% year over year accelerating from the quarter prior.
We're beginning to see traction in some of our emerging verticals like automotive financial services and travel these segments grew significantly faster than our overall revenue.
And in general we continue to evolve more from a previously experimental platform into an always on and trusted advertising partner.
Total revenue from Europe was $86 million growing 8% on a constant currency basis, but declined 4% on a reported basis due to significant foreign exchange headwinds.
Our European advertisers remain concerned about the current recession impacting that region as inflation in energy costs are affecting consumer demand.
Total revenue from our rest of World region was $24 million growing 41% on a constant currency basis, and 36% on a reported basis.
During the quarter, we launched advertisements in Argentina, Chile, and Colombia, as we added to our presence in the Latam market.
However, weak consumer spending created challenges for our more price sensitive global mid market and SMB advertisers.
As I mentioned earlier, we've been focused on building a durable performance advertising business that allows advertisers to meet users across the entire funnel.
This has never been more important than today. When CMO is are focused on marketing spend that drives measurable returns and.
In addition, our positive platform, our users commercial intent and our ability to deliver insights led selling drive unique value for advertisers thats just difficult to find elsewhere.
In Q3, we expanded the pinterest trends tool from beta to general availability to help advertisers around the world get deeper insights into user planning behavior to inform the early campaign planning stage.
Aligning with trends on Pinterest helps advertisers develop relevant campaigns that resonate with their audience based on real time interests leading.
Leading to increase performance.
In October we announced that we've expanded the Petrus trends tool from the U S U K and Canada to 30 additional countries.
For example, Ashley furniture, Canada tapped into growing home trends on Pinterest, using our pinterest trends tool to align their products with emerging home decor styles.
Knowing that terms like boho chic modern farmhouse, where top home decor trends on Pinterest. They designed their campaign visuals to highlight how their products can bring these trends to life and.
In doing so Ashley furniture drove a 71% increase in click through rates and a 12% increase in returns on AD spend than their conversion campaigns.
We continue to innovate and tools and formats to improve automation.
Our new API for conversions helps explain pinterest contribution to attributable conversions to advertisers.
We're seeing encouraging adoption of the tool by our advertisers with its most frequent use case being lower funnel actions such as checkouts.
Beta results have shown impressive performance with a 30% 36% increase in attributed conversion volume when using both conversion API and tags compared to using tags only.
Turning to our expense profile cost of revenue increased both year over year and sequentially.
We're investing in models to make product experiences more personalized and relevant for our users while also delivering improved ROI for our advertisers.
We're beginning to see impact from these investments in our current results and believe that they will continue to drive further improvements in engagement and revenue over time.
non-GAAP operating expenses were $434 million in the third quarter.
Up 38% year over year, and up 4% quarter over quarter. This was lower than our prior guidance in part due to a decision to shift a portion of our brand marketing spend.
From the third to the fourth quarter.
Adjusted EBITDA was $77 million in the third quarter with an adjusted EBITDA margin of 11%.
We ended the quarter with about $2 $67 billion in cash cash equivalents in marketable securities.
Turning to our preliminary outlook for the fourth quarter.
We expect revenue to grow in the mid single digits percentage range year over year.
That includes approximately three percentage points of headwind from foreign exchange slightly greater when compared to the third quarter.
Many of our advertisers are navigating a challenging environment with higher inflation and weakening consumer demand. This creates a volatile demand environment globally.
This uncertainty we believe there could be a wider range of outcomes this quarter, including some downside risk, especially as our Q4 revenue tends to be backend weighted.
On expenses, we expect non-GAAP operating expenses to grow in the low double digits percentage range sequentially as we shifted a portion of our brand marketing campaign into Q4.
For the full year, we expect non-GAAP opex to grow around 35% year over year at the low end of the range, we communicated at the start of the year.
We firmly believe the investments we made this year will enable us to continue innovating to enhance both the user experience and our advertising platform.
As we exit 2022, we're focused on maximizing the return from these investments.
We are still committed to meaningful margin expansion in 2023.
Now I'll turn it back over to Bill before we open it up to Q&A.
Thanks, Todd I want to say a few words about how I approach. These earnings updates because it's a bit different from how we've done things in the past.
I considered communications with and feedback from investors a key priority.
<unk> quarterly earnings call. It is one of the best channels to inform investors and analysts about the most important topics in the business.
And I expect to increase the overall dialog with our investors and analysts.
I look forward to sharing more with you when we set our investor day in 2023.
Finally, I want to thank our teams at Pinterest, our advertising partners and all the people that come to pinterest to find inspiration and with that we can open it up for questions.
We will now begin the Q&A session.
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We will pause here briefly to allow questions to generate in Q.
The first question is from the line of Eric Sheridan with Goldman Sachs. Please proceed.
Thanks, so much for taking the questions and I hope everyone's role on the team maybe coming back to a point you. Both made in the prepared remarks as we turn the page on 22, and what you highlighted is an investment year, how should we be thinking about what those key investment priorities, whether it's product or platform.
Or as we go from 20 to 223, and if we're trying to think about what the potential impact of those priorities or whether it be revenue growth building in 'twenty, three and beyond or the potential for margin expansion potential in 'twenty, three and beyond how would you frame the output from those investment priorities.
Alright, Thank you Eric for the question.
So a couple of things I'd say.
First of all.
We've really been focused on bringing clarity focus and operating discipline to the business.
And on each of those I would say on the clarity side, where visual discovery platform with three really unique attributes first that were a positive place on the internet.
Second that our users come here with high intent so while we're at discovery platform users have intent.
Which is quite different from other platforms and third the <unk>.
Human curation that happened on our platform is quite unique.
And so.
With that clarity, we're really focused on things that can drive differentiation based on those unique attributes of our platform and making sure that we're operating well in time.
Tying these initiatives across our different functions and making sure that we're focused on the highest yielding activities.
We go into 'twenty three.
We're glad that we've stabilized the user base and returned to seasonal growth on users and we think we've got a great ARPA story as we continue to move forward with the business, we're driving more relevance with users.
And we're doing that really by leaning into these unique attributes of the platform.
Both in terms of.
How we take inspiration to action with things like shopping making more of the content that users find on pinterest actionable and bringing more relevant content to users, particularly content that is coming from efficient sources like user generated content on our platform as well as what we can do with publishers and of course creators also and then five.
Finally innovation on AD Tech where.
We've been making really good progress on what we're doing on the AD Tech side, but we think theres a lot more that we can do there. So again I think youre seeing some of that is reflected in the results. This quarter, but we think theres a lot of upside yet to go on on each of those points.
I'll pause there anything Todd do you want to add to that.
No I don't I don't have much to add I would say that it would start to bill's point on starting to see the results you saw it in the financial results with strength from many of our core customer base and large retail and even some falling in the CPG market for us.
But it's also worth noting that in addition to this.
Stability in the user base and even the sequential growth that we saw.
Bill had referenced some sessions growth meaningfully above our user growth, we saw an improvement in saves impressions or creates in the U S and other good signals that we're now in a position to drive that <unk> story that Bill described.
Thanks, so much.
Thanks, Eric.
Thank you.
The next question is from the line of Colin Sebastian with Baird. You May proceed.
Great. Thanks, very much I have a couple first off Todd I was hoping you could expand a bit on the puts and takes with respect to the Q4 guide just given the moving parts you discussed on the macro front end and the various platform initiatives and then Bill I was hoping you could then may.
We expand on the lower funnel shopping integrations, including checkout and some of the beta tests. If if your view of our strategy here has evolved since since you first joined Pinterest and if these are already moving the needle or if they have a longer cycle time.
Perhaps in the next year before they contribute meaningfully to growth. Thank you.
Colin Thanks for the question I'll start with your first one on puts and takes around Q4 guidance and then as you mentioned bill can speak to some of the lower lower funnel work that we're doing.
Currently the headline is that October is trending very roughly speaking at the low end of our Q4 guidance.
But that guidance range that we described in the opening remarks, we've been executing very well in this environment overall and relative to others in the industry, which has been very encouraging.
As you know, though Q4 revenue was backend weighted to November and December given holiday seasonal moments and given this and the overall AD market volatility there could be a wider range of outcomes, including some downside risk to our guidance.
When we gave our Q3 guidance of mid single digits growth. During our Q2 earnings call. In July we indicated that July was trending slightly above that guide.
And at this point October today is trending at the low end of the Q4 guidance range and our guide assumes a modest pickup in demand for November and December from today.
Also worth noting that our guide includes about.
Three percentage points of headwind.
To revenue growth rate in the fourth quarter.
From foreign exchange headwinds, which is slightly greater when compared to the third quarter.
Yes, and on your questions on lower funnel and shopping Collyn.
We think there's a lot more we can do to drive intent to action across the platform.
One of the things that we think makes us very different than other discovery platforms that we have discovery with intent and purpose.
And so there's a lot more than we can do to drive that intent to action shopping as a particular area of focus for us on that.
On the strategy there what we're really doing is looking to go meet the user where they are on the platform, we see that more than half of users on pinterest are here to shop, they are telling us that directly.
And we've had experiments with things like shopping tabs.
Have been sort of.
<unk>.
A part of the experience, but not necessary been quarterly experience moving forward, we're making shopping more core to the experiences what users are looking for from Pinterest already so we're quite confident in that meeting a real user need.
Dan.
You can see progress on the shopping front already for example, our Q3 revenue from shopping ads grew 50% year on year.
So that's a good indication of the progress there and the things you can look to see more from us.
As I mentioned in my comments starting.
Starting to make every product you encounter on Pinterest shop, more regardless of whether that whether that product appeared in athene or user generated content and then taking the discovery that's happening on pinterest and making sure that for all of that great discovery of products that users are finding on pinterest and they have a clear.
Way to take action on that which is not always been the case historically, so going forward, we want to make sure. There is much more action ability on that and action ability can be.
A hosted checkout like what we're doing with shopify.
Where the.
The user still checking out directly with the merchant, but theyre doing it in context on a platform or it can be a high quality handoff to the retail or the merchant like with a mobile deep link.
The use of our seamless connection with where to buy and as we do that we think that not only can address a lot of leaked engagement on our platform because historically since the action ability was less users would find things on pinterest and oftentimes have to go someplace else define where to buy them as we give the user more action ability, we think that not only plugs leaked.
<unk> from the platform brings engagement.
Deepens engagement on our platform.
It's also a very highly monetize <unk> event, as well and you're already seeing that progress in our shopping ads and we expect more of that to continue.
Great. Thank you next question operator.
Sure.
Of course.
Sure.
The next question comes from the line of Mark Mahaney with Evercore ISI you May proceed.
Hey can I try two questions. Please first these music partnerships that you talked about.
Possibly lead to.
Newer revenue streams are there different ways to monetize if you bring in music and then secondly, bill I want to ask you just about AI and AI.
On machine learning investments and there seems to be a dramatic step up in investments kind of across the industry just in that.
How do you see is there something dramatically different that you think can be done at pinterest with greater.
Investment in artificial intelligence and machine learning.
That's it.
Thanks for the questions Mark.
First on the music partnerships, we look at that really as a way to make our content more attractive for users.
You've seen us, making good progress on that particularly in finding efficient ways to source new content.
If you look at where we had been it was almost entirely focused on creators.
Now we know the creators as a part of that strategy, but there's a broader strategy on content and is looking all the sources of content, including from publishers and partners and this is an example of a partner so I view this more in our broader content strategy and how we're getting more refined on the kinds of content that resonate with our users which tend to.
Content that helps users satisfy intent and has a purpose.
And the fact that we're broadening our sources of content for that which generally should lead to better monetization opportunities overall overtime.
On your machine learning question, it's a fantastic question.
And one of the things that.
I've found quite compelling about Pinterest and is part of why I joined.
Is it machine learning or the utility that.
Many have access to <unk>.
Machine learning, though is only as good as the signal that is acting upon.
And the human curation that happens on Pinterest I think is.
Fundamentally different than the user engagement that happens on other platforms. Most of the other platforms in the discovery arena tend to be lean back consumption platforms and I think this is why you see as.
Platforms like Apple have implemented privacy changes and diminish the ability to use signals like third party cookies.
Seeing that have different impacts on different platforms.
That form like Pinterest that has user intent on the platform.
Youre seeing that stand out youre seeing that.
Be more resilient and being able to show.
Relevant things to users, but the human curation on our platform.
That users come to Pinterest.
And.
Tell us what types of outfits go together, what time, what types of home decor go together, what kind of decorations go together well that is really rich signal that our machine learning can act upon that is fundamentally different than the signal that you would get on a lean back consumption platform, where youre signals primarily views versus here we have.
The user leaned forward engaging curated creating making these associations directly on our platform and we think that's a very powerful signal that is feeding our machine learning and where we think we can continue to make really great advances in relevance.
And really outpace.
What we think is happening in a lot of the rest of the visual discovery Arena.
Where there is a lack of intent or tends to be a lack of intent.
And so it's a place where youre seeing youre seeing that in our user engagement results already in some of the improvements there, but we think thats something where we have a lot of future potential to continue.
Thank you Bill.
Thanks Mark.
Thank you.
The next question is from the line of Ross Sandler with Barclays. You May proceed.
Hey, guys nice job on the quarter.
A question on international So if we look at the international AD revenue opportunity.
There are some countries where consumers engage with shopping apps different than they do in the U S. Theres like live commerce other things going on.
Hence the monetization opportunity could be more robust in one country versus the other and if we look at somebody.
Some of your more mature peers like maybe Facebook, there's a pretty.
Normal spread between the <unk> and the U S in places like Europe , and RW and.
GAAP here with Pinterest.
Obviously, reflecting that your U S business is far more mature than these international countries. So.
Question is like is there anything structural that we should think about that would make your international story different and then how quickly do you expect.
These new countries that you're lighting up to ramp up.
Direct sales self serve.
Can you just explain like a Japan or some of these newer countries how quickly they're ramping up thanks a lot.
Alright, thanks for the question.
I'll start there and then give it to Todd to fill in some more on it.
Internationally, we definitely think theres opportunity there.
You see good growth from us and some of the markets and Todd will talk more about that.
What I would say generally on shopping is.
The thing that we believe makes us very different than other platforms much of which I've talked about.
Around the intent on our platform the human curation of our platform that gives us much richer signal than you would find them a lot of other visual discovery platforms, I think puts us in a really great position to solve.
The.
<unk>.
Full funnel for shopping where full funnel platform and I think you see that resonating with advertisers on our platform and we've historically been stronger in upper and mid and we're doing more in lower funnel.
I think we're uniquely positioned across markets to address that full funnel and a lot of ways. The first 20 plus years of E. Commerce, we're solving for buying and not as much for the shopping part of the equation, which was sort of walking a bizarre going into the mall and not knowing what you wanted to buy but having a general sense and then discovering that hasnt been fully saw.
In the digital World and I think what you see from us around our ability to create great visual exploration with really great recommendations and really rich first party signal lets us go solve that full funnel experience in the digital world.
Way that just has not been fully solved.
As of yet I think that's our primary differentiator and it cuts across markets and there may be things that are specific to different markets that we may tune two in one market or the next but I think that differentiation.
And tying that full funnel together I.
I believe is quite unique in e-commerce generally and cuts across markets at the same time, we are managing to grow in international markets, We launched shopping last year and the EU. So it's relatively new but we're seeing it grow well and maybe I'll hand off to Todd there to talk about the various first across the markets. There Hey, Ross Thanks for the question.
When you take a step back and you think about the user experience and the use cases that people come to pinterest for the mindset of our users.
That same commercial intent and planning mindset that folks spring Super interesting in the U S.
Very similar in our non U S markets too so similar use cases generally similar demographics.
Which is a good starting point that we were just later to begin monetizing outside of the U S. Starting more in Western Europe , and then moving.
Latin America, and then just launching in Japan, a few months ago. So very early in general, but especially early in Latam and APAC.
There are aspects of these markets Thats a little unique. So for example, you may recall when.
When we were talking about scaling in EMEA.
Europe .
We noted at the time that one of the differences in the market is more agency concentration or more agency agencies.
Selling and so we talked about launching business access as a tool to <unk>.
Help us navigate the agency relationships. There. So there are aspects of the product experience that needs to be tweaked for these markets, but when you start with.
Why do people come to Pinterest, what do they use it for what is their mindset. The full funnel experience that bill described going from idea or intent to action and marrying that against advertiser objectives, it's very similar.
A question of.
The depth of the AD market and the prices folks are willing to pay for those those slots does.
Does that helpful.
Yes.
Got it.
Great. Thanks.
Thank you.
The next question is from the line of Brian Nowak with Morgan Stanley . Please proceed.
Yes.
Great. Thanks for taking my questions I have two I appreciate the color about session growth, it's pretty interesting I'd be curious to hear about what you can share on search behavior, whether it's search queries or number of people who are searching anything bill I know with your search background and sort of help us understand the behavior you see in searching perhaps.
Another monetization driver and then the second one maybe it's a little technical but I'm just curious to hear the Shopify partnership has been around for quite some time now can you just give us some examples of blocking and tackling tackling in the back end, where youre going to be able to accelerate the merchants and the skus per merchant.
That really come onto the platform and are integrated into the experience at a faster pace.
Thanks, Brian .
Great questions.
So on the session growth, yes, we're feeling good about the progress there.
Indicating we're deepening engagement with our users.
We think highlights the opportunity for us to continue to drive <unk> growth.
Which we think of is even more important than mal growth going forward given the opportunity to do more to bring those users from episodic usage to more frequent usage.
And you have to put in your question.
We searched as a part of what you've just come to the platform for and if you look at the upper middle and lower funnel and I'll touch on this in the comments our.
Our revenue is split roughly a third a third a third across those stages of the funnel I'd say that lower funnel is the place where the product is even more nascent so even though we see considerable search volume on the platform today.
The fact that we do have such high intent and so many people that are here to shop, we do think that lower funnel as a place that we can strengthen more and more shopping is a key part of that.
And so to your second question around accelerating efforts to bring those merchants on.
So we've had good integrations with.
With Shopify I talked about the shopping API that we put out that really makes it much easier.
For merchants to go publisher catalog to US we're at 1 billion items in the catalogue now we think theres billions more that we can add to that and so having an API that retailers can use not only publisher catalogs to us, but also give real time updates on.
Inventory and pricing, we think will really help that but then the other part of that is really important.
And I mentioned this earlier.
Is shifting from shopping being a separate tab or a separate activity or thing that a user has to seek out on the platform versus meeting the user where they are and making the products that they encounter naturally on the platform.
Naturally <unk> and so as we do more and more of that we think that will.
Really create a lot more opportunity to drive that lower funnel activity and searches are part of that but really it's the visual discovery journey and the fact that we know we have units here with intent.
And making that intent much more easily actionable, we think is the broader opportunity for us.
And again.
Progress on it from us already with the shopping is growing 80% year on year, but we're still relatively early days there and so we're excited there.
Got to go.
Great. Thanks Bill.
Thanks, Brian .
Yes.
Thank you.
The next question is from the line of Rich Greenfield, but light shed partners. Please proceed.
Hi, Thanks for taking the questions I got two one I just wanted to follow up Bill you sort of.
Inferred are implied in talking about October being sort of at the bottom end of the range.
Just given sort of the macro headwinds that we've heard from.
Whether it be meta or snap or Comcast. This morning are just a few minutes ago. Amazon printing, everyone is sort of talking about it sort of a very rough challenging macro I guess I'm curious why not just be more conservative in the Q4 guide given where October was trending.
Is there something specific that you're looking to that gives you confidence in sort of a pick up in November and December or is it sort of do to sort of the shopping nature of Pinterest and why you think you sort of accelerate or improve in the back two months of the quarter and then just you laid out a lot of I think.
Really good plausible drivers of interest over the course of the next few years.
Now that you've had a few months. Thank you Keith and if you had kind of pointed out one thing whether you mentioned it or not on the call. So far but what's the one thing that you are most excited about creating value with interest over the next 12 months. Thanks for taking the question.
Alright, thanks rich.
I'll start with.
A couple of thoughts on your question on the macro and then give it to Todd to fill in there.
If you look at this quarter I think you look at us relative to our peer set and I think it's pretty clear that in a tough macro we found ways to differentiate and outpace a decelerating ad market.
And yes, as we go into Q4 and Youre seeing production from others.
A lot of expectations around that that will continue to decelerate at the same time, we think there's a lot that we're doing that is cutting through.
But todd talked about the wider range around the outcomes. It is an inherently back weighted quarter with holiday shopping and holiday shopping is something.
People spend a lot of time on Pinterest for holiday activities, not just shopping but things like.
How they think about their decor, how do they think about planning for events, how do they think about.
Recipes and all these kinds of things that really drive a lot of engagement during Q4, but as Todd mentioned, it's a back weighted evacuated quarter and so thats why there is a wider range.
Around that.
I'll pause, there and let tod add into that before I come to your the second part of your question, Yes rich.
For sure wanted to make sure I wanted to make sure folks understood that were.
Only aware of the environment, we're operating in and what's happening in the industry.
And I was hoping to call that out with a wider range of outcomes are back end weighted nature of the quarter in general in Q4 for us and call out some of that risk.
And the the wider range.
They unfold, but this is our best call on where we're headed for the quarter and I think what you can.
Take away from that is we have a large concentration of larger retailer advertisers larger retail advertisers and large CPG advertisers that if you roll the clock back a couple of years. When we were in the earlier days of the pandemic those where the advertisers that were disproportionately slowed and we looked relatively.
<unk>.
Weak compared to the industry, because we didn't have crypto gaming ops app download to the extent that others did in this environment, we're seeing relative strengths with those larger retailers and with the falling in the CPG market. We saw more resilience there in the third quarter and we're expecting some more resilience there in the fourth quarter.
The last thing I would say is that we.
We had called out.
Made mention of it in words in my script around.
Graduating from experimental to kind of always on budgets and.
We had talked about last quarter, how our joint business partnership deal volume had grown in the first half of the year of 25% year over year that those are non contractual but indications of large advertisers spend commitments, we saw that number grow to 35% year over year year to date in <unk>.
A J BP deal volume joint business partnership deal volume in the third quarter. So.
That gives us some indication that we are an important platform for advertisers that really need to reach consumers during a period when they're shopping and I'm hopeful that it plays out the way we described.
And on your second question Rich you asked me for one thing that would cut through the most.
Me too, but they're related.
So the first I've talked about a bunch, which is driving more of the intent to action. We know these are strong intent here, but we haven't always made it as easy as it could be for them to take action on that so we think as we make more of the things people are discovering on pinterest and directly actionable.
We think there is a lot of lift and engaged and that comes from that but the second thing thats related to it.
Is it our AD platform is younger than many of the other platforms out there and so youre seeing us make advancements in maturing the platform.
As we drive greater maturity of our AD platform.
There is a lot of upside in delivering more insight more measurably to our advertising partners.
And again I think you see some of that reflected in our results.
With conversion year on year, being up 20% us, giving more and.
More tools to advertisers.
Insights around these things as we make that more and more mature.
We think theres a lot of upside opportunity on that as well and obviously these two things relate to one another because that intent to action really rounds out the lower funnel part of our story, making us a truly unique full funnel platform that it can get.
Can't engage with user across every stage of their purchasing journey.
So those are the two very related things I would say.
I think have the most opportunity to really cut through and drive continuous improvement for us as we go into next year.
That's really helpful can I just ask a follow up on that the acceleration in the back half of the quarter or the back two months of the quarter.
Is the Google sort of lapping which happens in November how does that factor into that as well for bill or for Todd.
Well, it's a little bit indirect rated the Google lapping.
An algorithm change that effectively.
Slowed the traffic we were getting from search to the platform so users coming to the platform through search activity.
Which in general tended to be more web based users I called out the success, we've had in growing our mobile application.
Our base, which has been the most resilient part of our user engagement story, that's where we make almost.
All of our not all a significant majority over 80% of our revenue and our impressions come from those mobile app users. So I would I would disaggregate the Google search impact to revenue because we've been able to continue our financial performance. Despite some search algorithm changes.
We did see as I called out resilience and stabilization and even a return to our normal seasonal growth patterns with users in the third quarter and I would expect that to continue.
But we are lapping that SCO change at the end of last year I guess.
If you were to really pick out at you would say that we would hopefully see some increase in monetize able supply as a result of some of these changes but that would be at the margin.
Thank you.
Operator next question.
Absolutely.
The next question comes from the line of Louis Ramsey with UBS. Please proceed.
Great. Thanks, guys first Bill just wanted to thank you for your interest in engaging with investors now not necessarily the norm in this space. So nice breath of fresh air so thanks for that.
First question just wanted to go back to the comment on seeing more always on budget traditionally.
Think of that as more direct response, and a function of ROI improvements and when that happens budget tends to scale up not not just kind of always on but leaning into ROI. So is that is that what we're seeing are we thinking about it right, it's mostly Dr and really and position you.
Kind of same client budget scale.
And then the second one would just be about the third party video content that you talked about at the beginning of the call can you just help us understand.
The margin implications of that and kind of what those deals look likes are those are those typical rev shares are they fixed cost licensing deals.
The partners sell ads in like share revenue with you and like how do we think about all the impact of those deals on the P&L. Thanks.
Yes, maybe I'll take the second one first and I can give it to Todd on your first question.
On the video side.
Say each of those deals are.
I would not expect to have a material impact on margin and things like that the macro point to take away is that we have.
<unk> refined our content strategy, we're finding efficient ways to go get.
High quality content that resonates with our users so while the.
While the team has been experimenting with short form video for.
A couple of years now.
There's a lot of good learnings there around the type of video content that resonates with users on Pinterest, which is oftentimes different than the video content that may resonate for those users.
I think for users on other platforms because users have more intent and purpose here, it's less about entertainment and it's more about intent and purpose, which means there are.
Often different kinds of videos that are resident and so finding partnerships to source those.
Is.
Quite efficient as compared to creator ecosystem.
Again creators are an important part of that strategy, but whereas they were most of the strategy previously they're now a part of that strategy and I look at these third party partnerships as.
Broadening out the content strategy broadening our sources in a way that is more efficient than what you would have seen in a content creator only content strategy. So while these deals specifically don't have some sort of negative impact on margin I think on a longer term strategy.
You're seeing us focus on efficient ways to source content. Both of these third party deals and then finally call out.
The creation and curation that happened on our platform is really important content as well.
I've talked several times about the value of the human curation on a platform that curation is content creation and it's a lot of the content that our users are seeking as theyre trying to put together an outfit or put together a room or put together a holiday party the pins to come onto our platform. The board is that people cured.
On our platform are giving us a lot of that content that we really need to service. So that's really efficient content sourcing as well and I'll turn it over to Todd for the other part of your question.
Lloyd.
Thanks for the question.
What I wanted to make sure you understood that they'll spend a lot of time in his opening remarks opening remarks talking about this full funnel platform that we've built and we have our users that go from intent to action, our advertisers want to be there with awareness.
Consideration or traffic or conversion campaigns and shopping campaigns at the lower part of the funnel when I talked about our success in driving those joint business partnerships again, they are not contractual deals they are indications of interest to spend there.
Not necessarily designed against a specific objective what we're seeing is that we're getting we're having success even with advertisers that are typically more awareness oriented. So I think traditional CPG advertisers exploring ways of moving down funnel.
With our retail advertisers signing these commitments, we're seeing them move up funnel and so were to bill's comments about us being a full funnel platform and.
These joint business partnerships, we're seeing an interest in advertising against awareness.
<unk> and conversion objectives, and that's been really encouraging to me and then lastly, we have seen that that total deal volume.
Under those commitments grow now year to date, 35% year over year, which is 10 points faster than what we were last quarter. So pretty good I think a vote of confidence with large sophisticated advertisers in the platform.
Operator, we will take our last question. Okay. That's helpful. Thanks.
Thank you Andrew.
Of course.
The last question is from the line of Doug <unk> with JP Morgan. Please proceed.
Thanks for taking the questions just two quick ones.
Bill you mentioned, just innovation and AD Tech going forward could you just talk for a minute about building out self serve and how far along you are here and then also.
Shuffle is driving a lot of the Gen Z growth in <unk>, how do you leverage that into the core platform to drive repeated use and engagement.
Thanks, Doug.
On the AD innovation side as I mentioned like we're early on in our AD relatively early on in our AD platform compared to others and I think.
Some of the things we've talked about in terms of better conversion visibility better trends visibility.
<unk>.
The adoption of automation by our advertising partners. These are all things, where we think theres a lot of continued yield.
Self serve is an opportunity for us.
We're probably even more nascent in our self serve capabilities. So longer term I would say there is a large opportunity for us I'd say in the near term a.
A lot of those <unk>.
Advertisers that would be more inclined towards self serve have been some of the hardest impacted and so Fortunately that's a smaller part of our business. It's one that we still very much believe in over the long term.
But our focus is on building out the maturity of the AD platform more broadly right now and then self serve we will continue to invest there, but we view it as a.
Smaller in the near term, but it's still quite important in the long term.
And then on the shuttle side, Yes, shuffles has seen really phenomenal reception and I think it really speaks to.
Interesting use cases.
People expect on Pinterest users just in a different mode on Pinterest and they are on other platforms.
About the users and our lean forward mode on purchase versus a lean back mode on other platforms and it's very hard to change this sort of headspace to users and when they are when they are in an app on our platform. So the fact, we had the union that lean forward mode. I think shuffle is just one example of the way that we can.
Extended use cases with our users that are uniquely pinterest take advantage of the lean forward mode that you just have with us.
And then to your question on <unk> I want to be clear and I think I touched on it in my comments.
Our Gen Z traction is not just about shuffles, we're finding really great. Gen Z traction in the core platform already so I cited some of those stats around.
The growth there in my prepared remarks.
Shuffles, we think only adds to that and to your question.
We are looking at ways that we can draw more connectivity between shuffles and the.
<unk>. So it is already the case that when you are in shuffles, you can connect your pinterest boards and these kinds of things. So those connections between these two already and we think there is more and more of these natural connections that can happen between the two so that each is enhancing the other.
Great. Thanks, operator.
Yeah.
Alright. Thank you again to all of you for joining the call and for your questions.
And as I mentioned earlier, we really look forward to keeping the dialogue going with all of you. We appreciate your feedback.
Enjoy the rest of your day.
Yes.
That concludes today's conference call. Thank you you may now disconnect your line.
Okay.