PINS • 10-Q • Q3 2021 • Positive

Pinterest's Q3 Shows Monetization Gains Despite MAU Decline and iOS Headwinds

November 04, 2021 • 1 min read

TL;DR

Pinterest delivered strong revenue growth of 43% YoY to $633M despite a 10% decline in global MAUs to 444M. Monetization improvements drove ARPU up 37% YoY to $1.41, with international ARPU growing 81%. The company successfully navigated iOS privacy changes through first-party data and shopping integrations. Management's strategic pivot toward shopping and creator tools positions Pinterest for sustainable long-term growth, though near-term user metrics remain under pressure.

Financial Performance Overview: Revenue grew 43% YoY to $633M, beating estimates despite MAU headwinds. US ARPU increased 44% to $5.55 while international ARPU grew 81% to $0.38. Gross margin expanded 320bps to 75% on improved efficiency. Operating margin reached 10% as the company demonstrated operating leverage. The divergence between user and revenue metrics suggests Pinterest's monetization strategy is working, though sustainability depends on stabilizing the user base.
Strategic Initiatives and Operational Changes: Pinterest accelerated its commerce transformation with expanded product tagging, merchant tools, and API integrations. The company launched Pinterest TV for live shopping and improved creator monetization features. Strategic partnerships with Shopify and WooCommerce expanded merchant reach. These initiatives aim to capture a larger share of $1T+ social commerce opportunity, though full implementation will take 12-18 months.
Market Position and Competitive Dynamics: Pinterest maintained strong engagement among core demographics despite competition from TikTok and Instagram. Shopping intent remains 2.3x higher than social media peers. The company expanded video content offerings to counter competitive threats. User retention improved in international markets, though US MAU declines of 8% YoY indicate competitive pressure in core market.
Operational Efficiency and Profitability: Operating leverage improved as revenue growth outpaced expense growth. R&D spend increased 31% YoY but declined as percentage of revenue. Sales efficiency metrics showed improvement with S&M expenses growing slower than revenue at 39% YoY. The company demonstrated path to sustained profitability with adjusted EBITDA margin of 32%, though investments in shopping infrastructure may pressure margins near-term.
Growth Catalysts and Material Risks: Key growth drivers include shopping automation tools, creator monetization, and international ARPU expansion. iOS privacy changes remain a headwind but first-party data strategy shows promise. Primary risks include sustained MAU declines, rising creator acquisition costs, and commerce execution challenges. Management expects Q4 revenue growth of 'mid-teens' YoY, reflecting cautious outlook amid macro uncertainty.

Revenue

$633M ( YoY, QoQ) with US at $498M, International at $135M

↑ +43%

Rd Spend

$133M ( YoY) representing of revenue

↑ +31%

Net Income

$94M (vs $94M loss year ago) representing margin

↑ 15%

Gross Margin

(+320bps YoY) driven by infrastructure efficiency

↑ 75%

Free Cash Flow

$630M ( YoY) with conversion rate

↑ +86%

Operating Margin

(+1200bps YoY) showing operating leverage

↑ 10%

Growth Indicators

active advertisers YoY

↑ +33%

Arr Or Bookings shopping revenue +7x YoY

Retention Metrics ↓US MAUs -8% YoY, Int'l MAUs -10% YoY

Key Risks

MAU declines (-10% YoY) threaten long-term growth trajectory
iOS privacy changes impact ad targeting capabilities
Rising creator acquisition costs in competitive market
Commerce execution risks in merchant adoption

Key Opportunities

International ARPU at 7% of US levels suggests significant expansion potential
Shopping automation tools can drive merchant adoption and conversion
Creator monetization features open new revenue streams
Video content expansion addresses competitive threats

Bottom Line

Pinterest's Q3 results demonstrate successful execution on monetization strategy despite engagement challenges. The company's pivot to shopping and creator tools positions it well for long-term growth, though near-term user metrics bear watching. Strong international ARPU growth suggests significant monetization runway remains. Management's disciplined approach to expenses while investing in strategic initiatives provides path to sustained profitability. Key success factors will be stabilizing US user base while maintaining momentum in commerce initiatives.