Q2 2023 Pinterest Inc Earnings Call
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Good afternoon, and thank you for attending the Penn Trust second quarter 2023 earnings Conference call. My name is Elisa and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the edge.
If you would like to ask a question. Please press star one.
I would now like to pass the conference over to your host Neil Doshi head of Investor Relations You May proceed.
Good afternoon, and thank you for joining US welcome to Pinterest earnings call for the second quarter ended June 30th 2023.
<unk> head of Investor Relations for Pinterest, joining me today on the call are bill ready Pinterest, CEO and Julia Donnelly, our CFO now will cover the safe Harbor some of the statements that we make today regarding our performance operations and outlook may be considered forward looking and such statements involve a number of risks and uncertainties that could cause.
Actual results to differ materially. In addition, our results trends and outlook for Q3 2023 and beyond are preliminary and are not an indication of future performance.
We're making these forward looking statements based on information available to us as of today and.
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 or 10-K filed with the SEC and available on our Investor Relations website.
During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, and presentation, which are distributed and available to the public through our Investor Relations website located at Investor Dot Pinterest, Inc. Dot Com lastly, all growth rates discussed in today's prepared remarks.
Should be considered year over year, unless otherwise specified.
And now I'll turn the call over to Bill.
Thanks, Neil and thank you all for joining our second quarter 2023 earnings call.
Q2 was a solid quarter marked by strong growth across our business.
We're seeing ongoing momentum, giving us continued confidence that our strategy is yielding results with more potential as we look ahead.
We ended the quarter with $465 million and they use up 8%.
Our total revenue was $708 million growing 6% or 7% on a constant currency basis.
We stay disciplined with our expenses and delivered adjusted EBITDA of $107 million and an adjusted EBITDA margin of 15%.
Before we dive into the key highlights from Q2 I'd like to share more about what we've accomplished over the last year since I joined and why I'm excited for the opportunities ahead.
During this time, we've become laser focused on our strategy of building upon our core Differentiators and visual discovery to help our users go from inspiration to action.
With that focus on our strategic priorities, we've successfully returned to strong user and engagement growth, while delivering consistent year on year revenue growth and returning to margin expansion. Despite the downturn in the advertising environment.
On the engagement side, we've utilized next generation AI technologies to surface more relevant and personalized content and improve ad relevance.
Driven more intent to action and focus our content strategy to bring actionable content from a range of sources, including users creators publishers and retailers.
As a result monthly active users have grown more than $30 million over the last 12 months.
Our users are also coming back more frequently and are engaging more deeply.
Engagement metrics, such as sessions impressions and saves grew substantially faster than our users across all of our regions over the same period.
It's worth noting that we have seen these engagement gains over the past year during a period, where we have also grown our AD load on the platform proving that relevant ads, including lower funnel AD formats can be good content for users and a unique setting like ours with high commercial intent.
We continue to see significant benefits and momentum from whole page optimization and ongoing improvements to our ads quality targeting and relevancy.
We increased our focus on making pinterest more solvable by integrating shopping into the core experiences of our platform.
We're now seeing strong growth and engagement with shopping related content on our core surfaces and for the past four quarters shopping ads revenue has grown multiples of our total revenue growth.
I believe we are just scratching the surface when it comes to monetizing lower funnel behavior on Pinterest.
Importantly.
We also accelerated innovation on behalf of our advertisers tripling the number of AD product formats released so far this year versus last.
And introducing more important measurement solutions.
Prove our value to advertisers, we are seeing revenue from advertisers, who take advantage of these measurement tools grow significantly faster a positive sign for the future as we increase adoption of these tools among our customer base.
We also opened our platform to third party demand partners, starting with Amazon ads platform.
To summarize I am very proud of what we've accomplished over the last year and we're just getting started.
We look forward to sharing more details and a comprehensive update on our strategy during our Investor day, taking place in San Francisco on September 19th.
With that backdrop I'll now move on to the progress we've made in the second quarter advancing our strategic priorities in driving the business forward.
First I'd like to discuss how we are deepening engagement with our existing users and growing new users in Q2, driven by our AI efforts and relevance and personalization as well as a clear focus on satisfaction of user intent.
In Q2, our global <unk> grew 8%, while our mobile app, they may use which account for over 80% of our revenue and impressions grew 16%.
In addition, our you can mobile App <unk> grew 9% accelerating from Q1.
Our users we're also visiting us more frequently.
A basket of metrics that we use to measure engagement such as sessions impressions and saves grew significantly faster than <unk> in Q2, and all regions consistent with the trends we have observed the last four quarters.
To help bring this to life I'd like to share a few examples of how we are driving engagement on our platform starting with how we are implementing AI to better serve our users.
Yeah.
Nearly a year ago, we began moving to nexgen AI capabilities, enabling us to use recommend or models that were 100 times larger than before.
We combined our first party proprietary data with our AI based computer vision and <unk> technologies to improve the perceived relevance for recommendations on related pens driving perceived relevance up by nearly 10 points from a year ago to 94%.
This means that when users are searching for something on Pinterest. We're returning results that they find relevant and helpful and we're doing this with a very high degree of accuracy.
More recently as we've continued to focus on what our users really want from US we've incorporated into our AI models more signals from our platform.
As an example in the first half of this year, we unlocked further engagement gains by incorporating propensity to share into our AI recommend your models.
By recommending content that users are more likely to share we improved retention of our core users and we grew revisits from dormant users as they are more likely to engage with recommended content from people they know.
In Q2, another source of engagement gains came from the launch of our new guided browsing experience designed to help episodic users rediscover existing use cases and find their next project or passion on Pinterest.
This experience as they set of horizontal images across the home feeds grid, where we can show more content based on the user's intent.
The valuable signals, we get from this new browsing module helps optimize the user experience for previous or new use cases and deliver more relevant shopping experiences.
We've seen a meaningful lift in re visitations as a result.
As we continue to focus on improving the inspiration to action journey for users across our platform were seeing users explore more interest outside of our core home food fashion and beauty verticals with strong growth in the number of <unk> engaging with emerging verticals, such as men's fashion autos health and travel in the first half of this year.
Lastly, we continue to see strong growth with Gen Z users on Pinterest to in Q2, where our largest contributor to overall engagement growth and the fastest growing cohort growing double digits and accounting for a larger portion of our overall mix and.
In particular, we found that our Gen Z users consistently engaged more deeply on the platform than our older cohorts as measured by their saves and close of activity on the platform.
Next I'd like to discuss how we are improving monetization by making pinterest more valuable for advertisers as a full funnel platform.
These AD offerings allow us to reach a broader set of advertisers to diversify and grow our revenue base and also help us deliver improved results for our advertisers based on their performance criteria.
First let's start with how we are innovating at the lower end of the funnel, where we're helping retailers gained customers not just transactions and.
In July we brought our mobile deep linking product or MTL to general availability opening up this highly performance offering to more advertisers.
India is a great fit for retailers, who want to drive users to purchase an item on their mobile App and has been a significant driver of our shopping ads revenue growth over the past nine months.
By taking what we've learned through M. D. L. We are planning to expand our lower funnel offerings to include more seamless one click site handoffs and the back half of this year.
This gives retailers, who don't have a standalone app or preferred to do a one click handoff directly to their site the flexibility to choose what works best for their objectives.
Travel catalogs are another format, we debuted in the quarter, allowing advertisers to reach users who are in the midst of planning organizing and taking action on their travel dreams.
It's built on our product catalog technology and automatically turns each listing into a dynamic product pin with relevant booking information such as hotel name pricing images and descriptions.
As an example, <unk> one of the world's leading tourism groups based in Germany added travel catalogs to their full funnel strategy to drive more users to their available hotel listings in Q2 their campaign yielded strong results with a six times higher outbound click through rate and an 80% lower outbound cost per click.
Then they were seeing in previous conversion campaigns.
Furthermore, we made good headway with helping advertisers measure the efficacy of their campaigns on pinterest.
Since introducing our conversion API in Q4, we have steadily grown the percentage of revenue from advertisers, who adopted our conversion API solution.
In addition to innovating on the lower funnel. We will also continue to innovate on upper funnel AD formats to build on our strength in that segment of the market.
And meet advertiser demand.
In June we made our premier spotlight AD format, which is our upper funnel takeover video AD unit on a search surface available for all advertisers.
We're seeing early adoption from a large number of brand advertisers such as Max formerly known as HBO, Max and Comcast Xfinity.
Similar to last quarter in Q2, we continued to drive a more than 30% increase in our global AD impressions or monetize will supply due to engagement gains and dynamically flexing AD load when a user is expressing intent through whole page optimization.
We are also leveraging nexgen AI on our AD products and we're seeing a profound impact in our adds capabilities in.
In Q2, we expanded our use of GPU, serving from core engagement AI models to our AD delivery models, which enabled us to use models that are 100 times larger than before and ads as well as organic.
The cumulative impact was a 5% reduction in cost per action and over 10% lift in click through rates.
I am very proud of our team's execution on the monetization side, but we're still early in our AD platform evolution.
I believe third party partnerships can be additive by expanding the depth of advertisers, bringing more relevant ads and improving our auction density.
We announced our first third party partnership with Amazon ads in April . This partnership has strong synergies as <unk> has significant commercial intent and consumer desire to go from inspiration to action, while Amazon ads can bring more solvable content with a great consumer buying experience.
As I said on our last call a partnership of this scale will be a multi quarter implementation with the most meaningful revenue impacts likely being in early 2024.
However, we have recently begun testing live traffic with Amazon ads, we are very pleased with the pace of implementation in Q2 and the early results of our testing in Q3, so far.
Looking at our overall progress on shopping we're quite excited at the momentum. We are generating we are building a powerful flywheel that is driving increased engagement, among our users and delivering greater value to our advertisers.
We're utilizing nextgen AI models with our first party signal to recommend brands and products that are aligned with user preferences and this is resonating with users.
In Q1, we continued to grow the overall distribution of shuttle pins. Our products you can take action on the home feed and in Q2, we've expanded this to all of our core surfaces users are actively engaging with this content with click through rates and saves a shuffle pens growing over 50% accelerating from the 35.
We saw in Q1.
In Q2, we also launched a new automated shop, the look module for home decor and fashion pins that utilizes AI to recommend similar shuffle products tied to our merchant catalogs.
And our early tests shop, the look is unlocking greater value for merchants as this high intent traffic drove a 9% increase in conversions.
And these innovations continue to manifest in robust shopping ads revenue, which continue to grow at a pace meaningfully faster than our overall revenue rate.
Now I'd like to discuss our focus on operational rigor.
As we've said in the past, we're instilling a culture, where we are more focused on what drives results for users and advertisers and being more rigorous with our expenses ultimately, making us a more durable company.
We've been able to accelerate our pace of innovation, while also being disciplined on expense management, resulting in positive outcomes for our users advertisers and shareholders.
In Q1, we took steps to reduce our expenses and drive greater efficiencies in our business, including right sizing our workforce to align talent to our strategic priorities and restructuring our real estate portfolio and.
In Q2, we identified further cost efficiencies leading to operating expenses that were lower than we guided to.
Later in the prepared remarks, Julia will share our latest outlook on expenses and margin expansion for the year.
Finally, I'd like to talk about our progress in making pinterest more positive place on the Internet.
Our commitment to fostering a more positive environment resonate with advertisers, we believe our relative brand safety remains a driver for advertisers to invest more and spend on pinterest.
Our efforts in positivity also resonate with users for example, we're building inclusive AI technology like skin tone diversification that helps users personalize their experience and see themselves on Pinterest and Q2, we improved the skin tone diversification of our core feeds which led to engagement wins.
We want others to join us on our mission to make the Internet and more positive place in June we created the inspired internet pledge in collaboration with the digital wellness lab at Boston Children's Hospital, the pledges they call to action for tech companies in the broader digital ecosystem to unite with the common goal of making the internet a safer and healthier place for everyone, especially young people.
Paul.
Before turning the call over I wanted to say a few words about our new CFO , Julia Donnelly and why I'm. So excited to partner with her going forward.
We ran an extensive search for a CFO and I know Julia is the right leader and partner to help our team grow and scale Pinterest.
Prior to joining Julia was VP of finance and accounting at wafer where she was responsible for the entire global finance and accounting organizations as well as Investor Relations and corporate development.
She is a strategic disciplined and highly regarded executive with an impressive background, leading all aspects of finance within an innovative high growth public company.
Her leadership and deep experience across E Commerce media and technology will be invaluable as we position ourselves for the next chapter of Pinterest I'll now turn the call over to Julia to provide an update on our Q2 financial performance.
Thank you Bill and good afternoon, everyone I'm thrilled to join the Pinterest team as you can imagine it's been a busy and exciting few weeks since I joined in late June .
First I'd like to discuss a few of the reasons why it came to Pinterest and why I'm, even more excited about the opportunity ahead.
Before joining I, followed pinterest extensively as a beloved brand with an inspiring and positive consumer app and a strong financial model.
From my previous role I've also watch pinterest become an incredibly performance and innovative advertising platform.
Coming from what I would consider a best in class E. Commerce Advertiser I've had firsthand experience and how pinterest is uniquely able to help marketers find users who are in the midst of an inspiration journey, where theyre looking to buy but not quite sure what they want and then ultimately take action to bring that to life.
Over the last few weeks sitting inside the company I can attest to the excitement and energy from our teams on everything we are building for our users and advertisers.
Honored to take on the CFO role and joined the management team at Pinterest to continue building on this momentum.
Leveraging my background in E Commerce, I look forward to helping us navigate through this exciting next chapter of growth capturing the significant revenue potential ahead to strong operating execution and sound investments.
Looking ahead I am excited to develop a productive dialogue with the shareholder and analyst community as well as sharing more about progress to date and future potential ahead at our Investor day in September .
Now turning to our results in the second quarter.
In my remarks today, I will discuss our Q2 financial performance and provide our preliminary outlook for Q3.
All financial metrics, except for revenue will be discussed in non-GAAP terms, unless otherwise specified and all comparisons will be discussed on a year over year basis, unless otherwise noted.
As Bill mentioned, our investments in AI and new user experiences drove strong engagement on our platform in Q2.
<unk> and $465 million global monthly active users an increase of over 30 million users over the last 12 months.
We grew monthly active users, 8% on a year over year basis globally, the highest growth we've seen during the last two years.
In the U S and Canada monthly active users were $95 million up 3% and Europe monthly active users or $124 million up 6% and in our rest of world markets monthly active users were $246 million up 10%.
Underlying our monthly active user metric, we had even faster growth in engagement as measured by sessions impressions in state, which is a testament to the work we're doing around deepening engagement with our users.
And I'm excited about the progress, we're making with Gen Z users, which was our fastest growing segment and an important and influential demographic for marketers and many of our core verticals.
Turning to our financial performance global revenue for the second quarter came in at $708 million growing 6% or 7% on a constant currency basis.
U S and Canada revenue was $565 million, an increase of 4%.
Europe revenue was $114 million growing 12% on both a reported and constant currency basis.
Revenue from rest of world with $29 million growing 32% or 35% on a constant currency basis.
We're pleased to see global year over year revenue growth continued to strengthen this quarter versus Q1 dollars 23 in Q4 22.
A testament that while the AD market remains somewhat choppy advertisers continue to turn to pinterest because of our highly attractive user demographics relative brand safe environment and a strong return on AD spend we can deliver.
During the quarter at the top of the funnel, we saw strength in awareness objectives as many brand advertisers, particularly CPG advertisers, we're able to meet their goal given our engagement gains and attractive pricing.
Contributing to this growth were a video ads and our new Premier spotlight takeover AD unit.
At the bottom of the funnel this quarter strength came from larger more sophisticated advertisers, who leaned into our shopping ads format, driven by adoption of mobile deep linking and our conversion API.
However, we also experienced headwinds from those who have yet to adopt our measurement tools and pockets of distressed retail advertisers.
Finally across all parts of the funnel, we continue to gain good traction with advertisers in emerging verticals, such as travel autos and financial services, helping us further diversify our advertiser base outside of our traditional areas of strength.
In terms of overall auction dynamics in the second quarter AD supply grew more than 30% driven by engagement gains and opening up supply to full page optimization and the price of ads declined 20% due primarily to a softer pricing environment across all geographies.
Moving down the P&L cost of revenue was $164 million up 1% year over year and down 2% quarter over quarter versus Q1.
This is the third quarter in a row of sequential declines in our cost of revenue line item as our teams implemented a number of efficiency projects across storage and compute infrastructure. It has been exciting to see how we can realize these efficiencies and our cost of revenue, even while we drive significant engagement gains in AD stack innovation and leverage AI.
Throughout our business.
Overall, our non-GAAP operating expense was $440 million up 5% year over year and up 7% sequentially versus Q1.
This was below our guidance as we were able to drive more cost efficiencies, particularly in our R&D and G&A functions. While also shifting some of our marketing spend from Q1 into Q2.
Adjusted EBITDA had a very strong quarter coming in at $107 million or 15% margin up 130 basis points year over year, driven by increased revenue efficiency in our cost of revenue and operating expense discipline.
This quarter, we successfully completed our $500 million stock repurchase program well ahead of the 12 month plan to complete the program as we saw openings to be opportunistic with our purchases during the quarter.
We continue to be mindful of managing dilution capital allocation will be a topic of our at our upcoming Investor day, and we look forward to sharing more details at that time.
Finally, we ended the quarter with approximately $2 $3 billion in cash cash equivalents in marketable securities.
Now I'd like to provide preliminary financial guidance for the third quarter.
The overall digital AD market appears to be stabilizing the recovery remains uneven with pockets of strength and weakness.
We expect Q3 revenue to grow in the high single digits range year over year.
Based on what we're seeing right now we expect to land towards the middle of that range, which would represent a moderate acceleration from the growth rate we saw in Q2.
This includes a small impact from foreign exchange, which is reflected in our guide.
Turning to expenses, we expect Q3, non-GAAP operating expenses to grow in the low single digits range year over year.
Please note that our operating expense guidance does not include cost of revenue.
As we have noted previously we are committed to expanding adjusted EBITDA margins in full year 2023 on the order of a couple hundred basis points year over year in any state of the world.
Just on the revenue acceleration and the expense outlook provided above we believe the adjusted EBITDA, we expect to deliver in Q3 puts us on the path to double at prior commitment, resulting in roughly 400 basis points of year over year adjusted EBITDA margin expansion for full year 2023.
We feel good about the progress we've made on users engagement and monetization while also maintaining cost discipline to ensure we are investing in areas with clear line of sight to strong returns to capture the sizable revenue potential. We see ahead with that I'll now turn the call over to Bill for a few final words.
Thanks Julia.
I'm proud of our team's execution to deliver strong results in Q2.
I'm confident that we're making the appropriate investments to provide great experiences for our users and more value for advertisers 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 the call up for questions.
We will now open the line for questions.
The first question comes from the line of Eric Sheridan with Goldman Sachs.
Your line is now open.
Thank you so much for taking the questions maybe two if I could bill first for you you talked a lot about product and platform iteration and that there was also a lot of talk about the current advertising environment can you talk a little bit about when you think about the elements of revenue Reacceleration that are building in your business. How much are elements that are within your control.
Full based on things, you're building and sort of executing on inside the business versus elements of volatility.
Down to the broader AD environment or macro environment that are somewhat out of your control.
And then the second one Julia first congrats on the new role look forward to working with you going forward wanted to come back to your comments during your prepared remarks.
Little bit deeper than what you see as some of the big opportunities or agenda items that you want to tackle in this role as the CFO pinterest. Thanks, so much.
Yes.
Thanks for the questions Eric.
So to your first question.
On what we can control and what is sort of in the broader environment the broader environment.
Seeing some stabilization and some signs of recovery, but there's still a lot of puts and takes a lot of choppiness out there.
Direct example of that is if you look at pricing impact, which which would be sort of a direct evidence of sort of softness in the AD market, that's down 20% year on year for us that's pretty consistent with what you see across other large platforms some of which have had.
Year on year declines last year and year on year declines again this year that were double digit plus our 15 percentage point plus so you have this pretty strong pricing headwind, which is just the element of softness in the broader market and so while there is some signs of stabilization in pockets of recovery there is still choppiness and as evidenced by both us and other major platforms.
With that it's pretty material headwind on pricing.
But if you look at to your question of what we can control there we feel fantastic about the progress that we're making.
Things in our control.
Most noteworthy.
The return to user growth, we just put up our largest user growth.
Quarter end, two plus years deepening engagement on the platform.
We've talked about how given the high commerciality of what users do on our platform that we can take AD load much higher than what it has been that ads and a commercial context can be really relevant content and so we can take AD load higher even while driving deeper engagement and you see that evidenced in our original that's a really unique thing.
In the AD world to be able to do that particularly in social media, where ads tend to sort of take the user away from what they are trying to do because there are more of a and an entertainment mode. Here because we have the user in a lean forward and tent mode. We are demonstrating through a whole page optimization work in our dynamic AD load that we've been able to take AD load up 30% drive 30%.
Lift and impressions part of that driven by growth in user engagement, but a big part of that driven by increasing AD load while engagement is up meaning we're proving out those ads as relevant content. So I think that coupled with.
The advertiser side of this where as theyre getting more adoption of our measurement tools. They continuously as they adopt our latest measurement tools spin more and tend to be much faster growers.
And those on the rest of our platform I've shared this in some prior remarks.
Later and later in the quarter.
This past quarter that those that have adopted our measurement tools tend to grow on the order of 30% year on year.
Not yet adopted.
Mid single digit decline and so as we're driving that adoption curve that that headwind will increasingly flip around a tailwind for us and so those are the things that are in our control that again, if you step back from it gives us lots of confidence in where we're going and I think it is why if you step all the way back and you look at us versus the broader AD market. We're one of the only major ad platforms.
It has grown consistently every quarter through the downturn and the AD market and why we're seeing acceleration quarter on quarter and while that acceleration is moderate when you look at the $20 plus headwind on pricing and the fact that we are.
One of the only consistent growers through the downturn I think that speaks to the really positive progress on the platform and then final point I would just say a year ago. One of the big questions was wood shopping work on the platform, we had user resource to spend more than half youre here to shop, but woods shopping work on our platform. There I think our results just could not be more encouraging.
We talked about 50% plus year on year improvement in engage with software content as we rush hospital content onto our main surfaces.
And thats accelerating quarter on quarter from 35% last quarter. So that is an indicator of the commerciality of our platform and what we can do for advertisers I think again, just gives us tremendous optimism and while we can't predict when the sort of pricing headwinds in the broader AD market alleviate or turn back into a tailwind we've been able to deliver really solid growth even with a 20.
Plus headwind and I'll give to Julia for your second question.
Yeah. Thanks, Eric for the question appreciate it so first let me start with just a couple of observations. It's been obviously an exciting few weeks here for me at Pinterest and from my prior seat I had heard a lot about pinterest and the exciting pace of innovation that was taking place now that I'm on the inside it's great to see that many other advertisers are really wreck.
Organizing the same you know when I first got here. The teams have just gotten back from can you were talking about the buzz and momentum from agencies and advertisers about all of the AD products were building as we mentioned earlier, we've actually tripled the number of AD formats released so far this year versus last year, and we're really accelerating the pace of AD stack innovation meaningfully as we described earlier.
So that's starting to really get recognized by the broader advertiser community, which is great to see the.
The second observation I would have is just how impressed I've been early in here just a level of engineering and product talent that we have inside the company here, particularly in our AI functions. We have really world class AI teams that have pinterest has been a talent magnet on that front. So impressed to see and learn how embedded AI actually is in virtually every.
Backs up our platform today.
And so you think about sort of agenda items and where we go from here, obviously I am very excited about the direction that this team already has taken the company and Thats a big part of why I chose to join and help build on that momentum I'd say, we've made some real progress over the last year, but my where he looks forward to partnering with the team is continuing to make sure we're driving.
Investments in areas Thats really clear line of sight to returns, where we're investing in that growth to capture the revenue opportunity, but also doing so profitably and looking to drive that operating leverage overtime.
Okay.
Thank you. The next question comes from the line of Ross Sandler with Barclays. Your line is now open.
Hey, guys.
So we're starting to see these are really nice SKU level adds from Amazon showing up in the App.
And then you just mentioned that you guys have been able to increase AD load pretty nicely even before turning it on I guess can you just talk about like how you think about AD load the ceiling to AD load. If there is one and then how these new Amazon ads.
Compare from a pricing perspective.
Two the directly sold Pinterest.
Second question is just on the new categories of travel financial services Auto just.
How are you guys are viewing I know, it's early but how are you viewing whose non endemic categories in terms of.
Potential opportunity next next couple of years, Thanks, a lot.
Thanks Ross.
So.
On your point on the Amazon partnership.
As I've said before.
We really believe that the commerciality on our platform can allow us to take AD load much higher.
We don't break out AD loads, specifically, but we've talked about the 30% plus growth in <unk>.
Monetize will supply which is.
Meaningfully faster than our engagement growth overall, that's really been driven by bringing more relevant shopping will content onto the platform for users. So Amazon as a partner we're quite encouraged they can bring more of that shovel content plus a great buying experience.
For users.
So while it is a multi quarter implementation and again reminder, that the biggest.
Element of that revenue, we expect to start hitting in early 'twenty four we're really pleased with the pace of implementation and in those early results by expanding a bit on those early results were so happy about.
The biggest things we're happy about it we're seeing.
Improvement in relevancy, even beyond what were already very optimistic expectations on our side and so as we see that is contributing to more relevant shopping content that further bolsters. Our view that we can take AD load much higher in a few.
Compared to other analogs that.
I have seen in past life.
And you all can see as you sort of counter ad load or AD slots on other.
Others are sort of shopping experiences.
AD load provided we have the right relevancy AD load can be a multiple of what it is.
Day for our users, particularly when you're just running commercial context and more than half the user here to shop. So I think that says there is still a lot more.
A lot more runway ahead, a quite a high ceiling.
For where we can go with AD load on the <unk>.
We've already been growing at 30% plus year on year in terms of overall monetize it will supply while also increasing engagement is proving out that theory of the case that we can grow AD load, while also making it relevant engagement driving content for our users. So we feel really good about all of that and then to your second question.
And on on new categories.
And how we're seeing those sort of previously non endemic categories.
Across Pentrust, we've talked about the uniqueness of <unk> being that it's a great full funnel platform, where people could go from inspiration to action, but we knew that action ability was historically a weaker part of the platform as we've been bringing in more more satisfaction of intent more ability to go from intent to action where.
Seeing that that is resonating across categories across verticals and so a few that we mentioned like travel auto.
Men's fashion, we're seeing that as we're doing more to create satisfaction of intent that is applying well across other categories travel is probably the most noteworthy I mentioned in my prepared remarks.
Travel.
It's quite a large AD market overall people have always dreamed about travel on pinterest, but again like shopping the action ability was lower as we've taken our working shopping applied a lot of that base technology to travel and opened up a travel catalog as we now have made more of that those those travel ads.
Clickable and engage will buy the user with things like pricing information availability.
Seeing that that intent to action effort is driving really good results with users and with advertisers. So I think that's quite encouraging that while we still have tremendous runway to go and shopping there are other meaningful categories and verticals on pinterest.
So we're quite excited about that finally, I would just say on the organic side of that I mentioned some of what we're doing around helping to nudge users into other use.
Use cases I think this is one of the things we've seen historically is that pinterest could at times be more episodic for some users and we've been leveraging some of our AI capabilities and some of our product experiences to now nudge users towards other relevant.
Categories for them and we're finding that is working really well. So we think there is a lot more runway to go there.
Okay.
Great next question.
The next question comes from the line of Lloyd Walmsley with UBS. Your line is now open.
Okay. Thanks, a couple for me on the partner monetization side, if I can first just it sounds like Amazon partnerships for vesting progressing faster than you guys expected.
What are the big outstanding blocks, you need to get through to scale that and as you think about potentially adding other partners like are those things that would need to get redone from scratch or is this more foundational platform efforts and then the second one.
Partnership you guys announced with less how meaningful could that contribution and ultimately grow too.
And in markets, where you have.
Their salesforce, helping you and other third parties, how will you kind of toggle between.
Those sorts of go to markets.
Or less.
Great. Thanks for the question look.
So on the partnership with Amazon and sort of your.
Broader comments on on bringing on third party demand as we said, yes. We are very pleased with the pace of implementation and even more importantly pleased with.
The significant.
Improvement in relevancy, and what that says about the long term potential of that partnership.
And so a couple of things I would note you asked about the pace. There, yes, if we are pacing ahead of expectations.
At the same time.
As we get relevancy really right.
That places a much higher ceiling on the long term potential of partnerships. So in the near term, we're making sure that even though we're really pleased with the pace and the progress and the results that we want to make sure. We do that in a methodical way getting the relevancy really right for the user because as we do that that gives us a much higher long term ceiling. So we're not going to sort of sacrifice the.
Our long term to sort of go faster than is necessary in the short term, but we are seeing really positive progress there and I would say our long term view of that partnership.
<unk> continues to expand even though we want to be careful not to get ahead of ourselves in terms of revenue contribution for this year.
Do think that when you step back and say our big opportunity here is about making our platform shopper will prevail.
Pretty relevant content to users.
What we're seeing there extraordinarily encouraging.
Sealing only continues to lift as you look at the long term there.
And the pacing again is better than where we had expected you'd asked about other partners. We've mentioned this previously we do expect to have multiple partners to.
To help us bring in.
Engaging relevant content.
AD demand for our users.
We're focusing on making sure we get this first one really right.
But we are building in a way that will help to sort of grease, the skids for others and so we do think.
As we land this one really well and that's tracking well and we start to look towards other potential partners.
We're building this in a way that is repeatable and will help us continue to accelerate as we think about where we go forward, but again, we're going to make sure. We get this really right, particularly getting that user relevancy regularly we get that right.
Then the ability to go take that AD load up much higher while still deeply engage with users is really the longer term potential here and again all signals there are encouraging even beyond our prior expectations.
You asked about.
What we're doing with our lesson and how meaningful that could be.
So for that as we think about international.
We do think that our international monetization.
As a as a big opportunity for us this past year, we had to really focus on making sure that we made some meaningful updates to our user experience in our add capabilities in our largest markets, which are highly competitive and so we feel good about the progress. We've made on that we did start to make some focused investments in international particularly with <unk>.
Agencies and partners that can help us drive more distribution and meeting our advertisers where they are and so as we have leaned into.
Agency deals and partners that can help us distribute internationally, we have seen that those have performed quite well without speaking to any one specific partner we have seen that those have been growing at a much faster rate of revenue.
And what we would see otherwise so we think there's a lot more yield in that and as we look into 'twenty. Four we think international that has probably been undermined has across the board we have been even more under monetize internationally and so I think we have some really encouraging proof points to say theres a lot more we can lean into it.
National monetization as we go into 'twenty, four, particularly with partners like <unk> and others that can help us accelerate that distribution.
Yeah.
Operator next question.
The next question comes from the line of Mark Mahaney with Evercore. Your line is now open.
Yes.
Okay. Thanks, I wanted to ask about two.
Two things the LLM.
Models.
<unk> seen in terms of cost per action reduce cost per action and lift in <unk>.
I would assume these are still kind of early stage results for you.
Could you talk maybe about what kind of long term impact you could see or is that kind of in the unknown knowns how.
How much better do you think the application of large language models debentures.
It's more of an improvement could you see on both the user and the Advertiser side and then one specific question about this data point you provided I don't know a month ago about how 10% of your advertisers were adopted your measurement tools that are growing 30% year over year in terms of their AD spend with you where are those two numbers now and like what sort of what's a reasonable expectation from what for win 10 person.
<unk> gets to 50%. Thank you very much.
Thanks, Mark I appreciate the questions.
So on LLM models.
Two things are simultaneously true one is we are seeing tremendous benefit and we are pretty far along with what we're doing there. The second thing is true though is it as you look at the long run I think there is a lot more runway to go in terms of what we can do with that core technology, particularly when you consider.
The fact of that technology is going to continue.
Continue advancing so to be more specific.
On.
The larger models and Nexgen AI capability has moved from Cpus and Gpus things like I mentioned in my prepared remarks, we really started into that nearly a year ago. These things were available prior to.
A lot of the big uptick in sort of the new cycle around earlier. This year. These things were available.
And we're close with them in past lives knew the potential there.
And it's something that we really started to lean into.
Nearly a year ago, we started first on the organic side and so as you look over the past several quarters.
And the fact that you're able to take our recommend or modeled up to be 100 times larger than what they were I mentioned on the call that 10 percentage point improvement in perceived relevancy by the user in the world of search advertising discovery 10 percentage point improvements and relevancy like completely unheard of like the magnitude of that.
That cannot be overstated.
So I think that says okay, we're seeing really tremendous impact from that.
And we're well on our way on that on the organic side on the AD side, we just started bringing it over to the AD side now with models 100 times larger so we got it right on the organic side first now we are bringing into the AD side and same thing on the outside when you look at those things like.
A 5% reduction in CPA than a 10% lift in click through rates again in the world of advertising those are unheard of kind of numbers and so we're early on there but.
The impacts for profound so we're quite excited about how much more runway is left with those things, but we are deep enough in it to know that we feel like we are absolutely.
Drafting on.
That acceleration of innovation is happening in AI generally it's been a core strength of Pinterest for a long time computer vision as one of the places that has been sort of at the forefront of it.
Sort of advancements in AI and computer vision has been a strength for pinterest.
We've got a really talented team there so we feel really well positioned on continuing leverage from from AI. We're further along on organic but with a lot of run way to go on the AD side, where earlier, there, but already seeing profound impacts so again tons of runway on both.
I think on your second question.
Around the 10% of advertisers.
Had adopted measurement tools growing 30%.
The range of 30%.
We gave that update pretty deep into the quarter last quarter.
So we're not updating those specific numbers.
At this moment, we're going to have our Investor day, coming up who will talk more about some of the progress there. The one thing I will say is that.
We've seen really nice continued adoption the biggest thing I've been watching for is as we continue along that adoption curve do we continue to see the linkage between advertisers adopting the measurement tools and then seeing that they were getting much better performance than what they had realized from pinterest and increasing spend.
And that linkage not only has that remained present as we've continued along that adoption curve that linkage is becoming stronger.
And maybe to give a little bit of a qualitative example of that.
When we were at Cannes.
That long ago.
Greg gathering of.
Many of the worlds leading advertisers.
We had tremendous buzz there.
On a number of fronts just around the overall acceleration in our platform our users.
And the acceleration of our AD platform, but at this point of advertisers adopting and seeing that they are getting much more performance to what they had realized and there were much more performance.
Oriented solutions available for them than what had been available for things like mobile deep link and things like that that are driving great lower funnel performance.
Really good buzz around that and there's nothing better than having a large sophisticated advertiser out there, saying Oh, yes, we adopted that from Pinterest and saw really great results.
And I think I've mentioned that in my prior commentary that as we look at those and they have adopted so far or.
The early adopters actually tended to be the larger more sophisticated advertisers the hardest ones to please so if.
<unk> said before if you can make them happy you can make anybody happy and that's what we've been seeing is that as successive cohorts are adopting that linkage is not only still present, but getting stronger in terms of them seeing more performance and they realize and therefore, increasing their spend with us.
Okay.
Okay.
Thank you.
The next question comes from the line of Rich Greenfield with light shed partners. Your line is now open.
Okay.
Hi, Bill you were talking about sort of the.
AI and targeting and I guess, there's just.
This growing fear among investors.
Everyone not named meta Google Apple will be sort of.
We will struggle to compete in AI as we look out over the next few years given the importance of AI. Both as you were talking about some content recommendations and AD targeting and I noticed history, you spoke to Pinterest in terms of computer vision, but we'd love to get a sense of how you think about how you compete with.
What is I guess, the juggernaut in CAC, especially given your background at Google and then I've just got a quick follow up on demographics.
Alright.
As a follow up quickly just so we know we know what it is and we don't lose it from you.
The follow up is just.
You've talked about the demographic groups that you talked about Gen Z growing so quickly.
Look at all of the different demos that use pinterest, especially as you think about shopping the actual taking action on content and buying content do you see any major deviations or changes in terms of what behavior looks at by demographic as you look by cohort anything to kind of call out in terms of what youre seeing on shop.
Activity specifically.
Okay, great. Thank you rich.
So on your first question on AI I think this question of do the benefits only accrue to the largest I think we're already providing a pretty strong counterpoint to that and actually if you step back I think if you look at like cloud computing.
While yes cloud computing had a lot of benefits to the largest providers of cloud computing. It also created a lot of ability for a broad swath of people to engage and I think youre seeing that with AI that.
Yes, you have some of the largest players that are providing a lot of great capabilities, there, but theyre also externalizing those through cloud compute. It's also the case that the open source community is advancing really rapidly and youre seeing some of these open source models are actually comparing quite favorably to some of the things that you would have seen come from the very <unk>.
Largest players.
And if I step back for a moment I would actually take the view that I think in this sort of first round of Nexgen AI I think you've seen a lot of value accrue to the model creators.
As you play that forward I actually think there's going to be a lot of value that starts to accrue to the places that have really unique signal and really unique user interactions. The AI is only as good as the signal upon which is acting.
And when you look at it through that lens, we have really unique signal at Pinterest, we've talked about this that.
Unlike.
The rest of social media, we have very high commercial intent.
But if you go further into that it's not just we have commercial intent and.
It's not just we know what people.
Click on or by <unk>.
These commercial journeys are long lived.
And users on Pinterest Interestingly are curating for the future. So we don't just know what people have done in the past we know what they are planning to do in the future. When you think of the power of that signal and what that can do in terms of the power of recommendations that we can make to users.
The advertising capabilities that we can open up with that I think we just have a lot of uniqueness.
In our signal from the fact that it's not just that people are shopping here. They are curating here. They are not just saying, okay. Here's the pair of shoes I'm interested in the handbag that I'm interested in.
The address that are interested and they're saying, here's how I think about putting a great outfit together and this handbag and the issues go with distress and.
That's being repeated across one hundreds of millions of users on our platform that is a completely unique experience that doesn't exist.
Anywhere else.
Certainly not in the western World and that really unique signal as we're pairing that with those models I think that's letting us do really unique things with the way that we can make recommendations. So when I talk about that relevancy really interesting thing to think about for us it's not even just a search relevancy of saying, okay. You've searched for this thing do we give you the right thing we're.
We're doing that on things like related items, and so to get to things like 94% plus relevancy. When we're doing broader sort of discovery for the user that is exceptionally difficult. But is an example of us taking the models that are becoming more generally available for all and then upon.
Tying them to real unique signaled in really unique user interactions on our platform.
I feel that we are quite well positioned in the longer term sort of.
Sort of moved towards Nexgen AI.
And the dynamics there I think are quite favorable for us and again I think nobody way than it did demonstrate that in your results and we've been doing that I think your second question on demographic groups.
<unk>.
We've noted this multiple times that Gen Z.
Is our fastest growing.
Demographic and our largest contributor to overall engagement, which means it's not just a high growth rate on a small denominator. It's our largest contributor to overall engagement growth. That's a really interesting thing I have worked on a lot of different consumer products and a lot of different platforms.
Generally as you get a more mature platform a more mature product each successive cohort is a little less engaged a little weaker to be able to say that we have gen Z a more recent cohort this actually engaging even more deeply than our prior cohorts I think is quite exceptional and I think gets to the <unk>.
<unk>, what we're solving with this ability to go from dreaming to doing and to use Pinterest is a way to play in your future.
Whether thats in travel or in shopping.
That's really resonating and a lot of our nextgen experiences that we're bringing.
Are resonating there as well things like what we've done with shovels and the ability to go.
Even more uniquely curate these things that's working quite well sharpie.
Shopping you asked about that specifically I think we're finding that to be broadly resonant.
And so not only is the shopping behavior broadly resident across demographics.
I mentioned that that shopping behavior or sort of if you step back and say doing more inspiration to action, we're seeing that work across other verticals and categories, that's quite encouraging for us as well like the travel examples we've spoken about.
Thank you operator, we will take our last question.
Absolutely. The last question comes from the line of Doug Anmuth with Jpmorgan. Your line is now open.
Thanks for taking the questions Bill I know you touched on.
Kathy I guess I just wanted to understand what's what's keeping advertisers from adopting here and what are you doing proactively to move them along the adoption curve.
And then secondly.
Secondly, any comments on the Mou decline in Europe , and <unk> I don't know if that was part of the birthday collection dynamic that you've talked about and just curious if you have any thoughts on overall <unk> and <unk>.
Outlook. Thanks.
Great. Thanks, Doug I'll take your first one and then give Julia the second one so our conversion API is important humana or conversion API. We've only recently put that out there its been out in market less than a year. So we're early on with that so to say whats keeping folks from adopting it.
We're really pleased with the progress that we've been making on that its a recent product for us and we've seen really significant uptake of that product. So we feel really good about overall.
But of course, we want to be faster given the magnitude of its impact so consequential for us and the advertiser I think the spirit of your question about Hey, how do we move along that adoption curve faster.
<unk> are mindful of that so a few things that we're thinking about the first is with that.
That being a recently introduced product, we've really been getting our own go to market really tight in terms of how our sales team is engaging.
The more we have proof points I talked about having large sophisticated advertisers that are are speaking about how impactful has been for them.
That those reference points are really compelling that's really helping us drive better and better go to market with our first party efforts there, but the other thing that we're doing is working to meet the advertiser, where they are because there is a broad based adoption curve on these things, but it's not just us with it.
Larger platforms, we're putting these things out there as well.
So <unk>.
Advertisers are moving through an adoption curve on this so we're we're making sure that we're working with.
Third Party partners, we've mentioned some of them like live ramping telium or Google Tag manager.
And then certainly our recent partnership with Amazon's AD platform. These are all examples of integrating to the platforms, where those advertisers are already integrated so.
That sort of multipronged approach of saying, we're going to get better and better with our own go to market, which is working really well and in advancing quite nicely as well as meeting the advertiser where they are.
So those things are sort of a two pronged approach of how we are accelerating that and again the most encouraging thing as it consistently as those advertisers adopt these measurement solutions. They are seeing better performance than they expected from us and increasing their spend with us. So we think that.
As right now the balance of those advertisers, giving us a new product being tilted towards not yet having that tool while that creates some headwind for us we've talked about that cohort being a mid single digit decliner, but of the <unk>.
One's that have adopted that those tend.
<unk> tended to be growers on the order of 30%.
That headwind flips around a tailwind as we get more of that that balance of adoption and we are seeing strong pull through on that.
And then just on your second question about monthly active user.
Trends, specifically in Europe , and globally and outlook for Q3, and I would say and as Bill noted, we feel really great about the monthly active user growth that we've seen globally. So we're at a two year high both globally and in the U S and in rest of World and near a two year high in Europe as well if you look at year over year comps on <unk>. So I think we're feeling.
Really good there there is some seasonality in the business on monthly active users as we called out on our prior earnings call. This is Q2, it's a 30 day look back and during the month of June and so you do typically see a little bit more seasonal weakness in Q2, and then that reverts back in Q3. So it's important to really focus on year over year metrics looks.
Here.
On that basis, we're continuing to feel quite strong.
Day collection was something we noted on the prior call that ended up being a non factor and not material. So overall feeling very good about all the trends that we're seeing on MAA is the return on our marketing spend and all of the user and growth engagements that were investing in and I would expect that we don't guide on MAA units for Q3, specifically, but.
And generally feel very good about being able to maintain those year over year increases going forward.
Alright, Thanks again to all of you for joining the call and for your questions. We look forward to keeping the dialogue going and hope you all enjoy the rest of your day. Thank you.
Okay.
That concludes today's call. Thank you for your participation you may now disconnect your lines.