PINS • 10-Q • Q3 2022 • Positive

Pinterest Shows Resilience Amid Ad Market Turbulence with Strategic Product Evolution

October 27, 2022 • 1 min read

TL;DR

Pinterest demonstrated resilience in Q3 2022 with revenue growing 8% YoY to $685M despite macro headwinds in the digital advertising market. The platform's strategic shift toward shopping and creator-focused features is gaining traction, with shopping ads revenue growing over 50% YoY. Global MAUs stabilized at 445M, reversing previous declines, while ARPU increased 11% YoY to $1.56. The company's focus on commerce and video content positions it well for sustainable growth as digital advertising

Financial Performance Overview: Revenue growth of 8% YoY to $685M outperformed broader digital ad market, though showing deceleration from previous quarters. Gross margin expanded 100bps to 75% through infrastructure optimization. Operating margin improved to -2% from -7% YoY through disciplined cost management and headcount controls. U.S. revenue grew 9% YoY while international showed 6% growth, with Europe facing particular macro challenges. The revenue mix continues shifting toward shopping and video ad formats, providing higher monetization potential.
Strategic Initiatives and Operational Changes: Pinterest is executing a major strategic pivot toward becoming a shopping destination, launching new merchant tools and API integrations. The platform expanded its video creation tools with Idea Pins and Pinterest TV, driving 90% YoY growth in video supply. Management restructured the sales organization to focus on shopping and performance advertising verticals. These initiatives are showing early success with shopping ads revenue growing >50% YoY, though full platform transformation will take several quarters.
Market Position and Competitive Dynamics: Pinterest is carving out a unique position at the intersection of discovery, inspiration, and commerce. User engagement metrics improved with time spent growing double digits YoY, particularly in video content. While facing competition from TikTok and Instagram in short-form video, Pinterest's intent-driven nature and shopping focus provide differentiation. The platform's high-intent commercial audience continues attracting retail advertisers, with active advertisers growing 14% YoY.
Operational Efficiency and Profitability: Operating leverage improved through strategic cost management and infrastructure optimization. Headcount grew only 2% YoY while revenue grew 8%, demonstrating scaling efficiency. R&D investments focused on shopping and creator tools while reducing non-core projects. Infrastructure costs per user decreased 15% YoY through cloud optimization. The path to sustained profitability is becoming clearer though macro headwinds remain a near-term challenge.
Growth Catalysts and Material Risks: Key growth drivers include shopping integration expansion, video content acceleration, and international monetization improvement. Macro advertising weakness remains the primary near-term risk, particularly in Europe. Privacy changes continue impacting measurement capabilities, though Pinterest's first-party data advantage helps mitigate impact. Management expects Q4 revenue growth similar to Q3, with opportunities for acceleration in 2023 as shopping initiatives scale.

Revenue

$685M ( YoY, QoQ) with U.S. $531M ( YoY) and International $154M ( YoY)

↑ +8%

Gross Margin

(+100bps YoY) driven by infrastructure optimization

↑ 75%

Free Cash Flow

$316M ( YoY) with conversion rate

↓ -12%

Operating Margin

-2% (+500bps YoY) through cost discipline

Growth Indicators

Active advertisers YoY

↑ +14%

Arr Or Bookings ↑Shopping ads revenue >50% YoY growth

Retention Metrics ↑Time spent +double digits YoY, video engagement +90% YoY

Key Risks

Macro advertising weakness, particularly in Europe
Privacy changes impacting measurement capabilities
Intense competition for user time and ad budgets
Technical execution risks in commerce transformation

Key Opportunities

Shopping integration expansion ($500B+ TAM)
Video content monetization acceleration
International ARPU expansion (80% gap to U.S.)
Creator ecosystem development and monetization

Bottom Line

Pinterest's Q3 results demonstrate resilience and strategic progress despite macro headwinds. The platform's evolution toward commerce and video content is gaining traction, though full transformation will require sustained execution. Key metrics around user engagement and shopping adoption show promising trends, while cost discipline provides runway for strategic investments. The company's unique position at the intersection of inspiration and commerce could drive sustainable differentiation as digital advertising evolves. Watch for acceleration in shopping adoption rates and international monetization as key indicators of strategic success in coming quarters.