Pinterest, Inc. (PINS) Presents at Morgan Stanley Technology, Media and Telecom Broker Conference Call - (Transcript)

Pinterest, Inc. (NYSE:PINS) Morgan Stanley Technology, Media and Telecom Conference March 2, 2021 11:45 AM ET

Company Participants

Todd Morgenfeld - CFO

Conference Call Participants

Brian Nowak - Morgan Stanley

Brian Nowak

Good afternoon, good morning, good evening, everyone, wherever you're Zoomed in from. We're thrilled today for day 2 of our Morgan Stanley 2021 TMT conference to have Pinterest with us and to have Todd Morgenfeld, the CFO with us. So Todd, thank you so much for joining us today.

Todd Morgenfeld

No, thanks for having me.

Brian Nowak

Before we get started, the disclosures, of course. Please note that all important disclosures, including personal holdings disclosures, appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures. Some of the statements that Pinterest will make today may be considered forward-looking. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Any forward-looking statements that Todd or Pinterest make are based on assumptions as of today, and Pinterest undertakes no obligation to update them.

Please refer to Pinterest's Form 10-K for a discussion of the risk factors that may affect actual results.

Todd has served as the CFO of Pinterest since November of 2016. Prior to joining Pinterest, you have a lot of experience in the industry working at Twitter, previously at Hewlett Packard, and of course, from Stanford and the U.S. Military Academy. So there's a lot of things going on in the industry and a lot of things going on with Pinterest.

So I'd love to kind of dive right in, Todd.

Todd Morgenfeld

Sure thing.

Question-and-Answer Session

Q - Brian Nowak

So to the point on how busy you've been and everything going on at Pinterest, you've spoken about 4 main priorities for 2021 around inspiring content, deepening the Pinner experience, helping advertisers succeed and then, of course, shopping.

I feel like we talk a lot about social shopping. So I want to drill into each of those. And sort of starting with the goal of helping advertisers succeed. Maybe help us understand how would you evaluate the areas where you've made the most progress on helping advertisers succeed? And where do you still see the most area for improvement or low-hanging fruit from that perspective?

Todd Morgenfeld

Yes. Well, look, thanks again for having me today. 2020 was a remarkable year, and I know we're all really excited about our 4 priorities leading into 2021. But just to recap our most recent quarter. In Q4, we grew 76% year-over-year to $706 million, really driven by strong holiday advertiser demand and positive returns from our investments in ad products and international expansion that we've talked about a lot over the last year.

We also grew our global monthly active users 37% to 459 million in Q4. Your question was specifically about advertiser success. And coincidentally, tomorrow, we'll be hosting our first ever advertiser summit, which we're calling Pinterest Presents, where we'll share our vision for a more inspired Internet, offer a deeper look at our newest ad product updates, solutions and research on our growing audience. So as a nice follow-up to this meeting today, if you want -- for more details, I'd encourage you to join that event as well. I think it will be really, really good content.

But generally speaking about the progress we've made last year and this year on advertising success, I'd share a couple of things.

First, in 2020, we introduced a number of tools designed to support and diversify our advertiser base, making it a lot easier for mid-market and what we call managed small and medium businesses to spend and scale on the platform. We executed really well, especially with automated bidding features, which have helped midsized and conversion focused advertisers scale and drive results.

Second, as we move into 2021, we want to invest more in features that help deliver a better experience for our users, we call Pinners. And results for advertisers, especially on, as you mentioned, high-intent surfaces like shopping. And those investments are really spread around 3 things: One is tools, making Pinterest a lot easier to use, deploy budgets at scale and achieve results.

The second is measurement, which has been topical of late, investing in more first-party insights and helping advertisers understand and receive a more comprehensive view of their performance on the platform. And then formats, which we've talked about. We've seen a ton of growth in video. Video views were up over 100% year-over-year in Q4. And we're introducing new types of content to the platform like Story Pins and shopping services. So we're really happy with the progress we've made, and we know we've got a compelling road map going into next year.

Brian Nowak

That's great. Good teaser for tomorrow.

Todd Morgenfeld

Yes. Tomorrow will be great.

Brian Nowak

Be sure to check in for tomorrow. I mean, let me pin it to the users a little bit. It seems like the core Pinterest use case is still to help Pinners get inspiration in their lives. And it still seems like that's really the core value proposition.

Now that's the case, but a lot has changed. You brought a lot of new people on the platform over the course of the last year to your point. So I wanted to ask you about how has that core value proposition of helping people find inspiration, how has that changed? And maybe how does your place in the overall social media ecosystem -- how has that evolved over the last year as well?

Todd Morgenfeld

Yes. Look, I mean, you're right. The mission of Pinterest is to bring everyone the inspiration to create a life they love, and that mission hasn't changed. But the evolution around it is that we've got a lot more opportunities to act on that inspiration and turn ideas for that inspiration into reality.

So to do that, we've expanded content diversity. We've improved the relevance of our recommendations. We provided search guides, and we've added a lot of shopping features and surfaces to help people find what they're looking for and ultimately transact.

We've also invested in more inspiring content through new formats. And we talked in the last question a little bit about Story Pins, but that was a big launch at the end of last year. So to summarize, the experience, our vision for Pinterest is to be a place where someone can easily discover how to build a piece of furniture with fewer clicks, fresher content and short-form video as inspiration or instead of just seeing an image of a food dish, you get all the instructions, visual directions and ingredients right there at your fingertips.

So we've always been about providing people the inspiration to create a life they love, and we're trying to take that whole user journey from inspiration to action and make it more seamless across more and more use cases.

Brian Nowak

Got it. That's more opportunities. And I guess, 2020 was a difficult year, full of a lot of transition, a lot of moving pieces. I'd love a little look under the hood at sort of how your internal perspective and how your priorities of what you really wanted to focus on, both for your users, for the advertiser ecosystem and just for the platform, how did that change throughout 2020, just to make sure that you're best positioned for '21 and '22 in the recovery?

Todd Morgenfeld

Yes. Look, thanks for the question. I guess the simplest way to say this is 2020 was not the year that we expected. But in many ways, it reinforced the importance and showcased the value of the 4 strategic pillars that we launched in the early part of last year and have refined for this year.

At the highest level, it's really underpinned the importance of supporting an outlet for people to find new ideas and things for themselves, which is very different than social media. And when you complement that with shopability, this platform is becoming a recipe to unlock online commerce and that's been a big change. The environment also reinforced the importance of performance-based advertising, ROI accountable advertising, a growing advertiser base and diversity of ad content and tools that help prove efficiency and results.

So those are the two big trends. And really proud of how our teams here responded and adjusted their go-to-market strategies in the face of COVID-19. Our sales teams operated with more flexibility to address advertiser needs and demand. And we really built much better tactics and tools for delivering insights to help advertisers understand and address consumer intent trends.

We believe that, that insights-based selling will persist and there's been a real tailwind now for the past couple of quarters. Just to remind folks, one of the things that's different about Pinterest versus social media is that our users come with commercial intent. They come with a planning mindset where they're looking for new ideas to bring into their life, not to follow other people or to communicate or read the news. And this is a year -- 2020 was a year where that was really in high demand.

Brian Nowak

Yes. No, it's a good dovetail to sort of my next question on users. You mentioned the users that come with commercial intent. Last year, you added over 100 million new users to the platform. So maybe just for everyone Zoomed in, give us a little bit of perspective on the geography of where those people came, the demographics of who those people are and how they're acting on the platform versus prior cohorts?

Todd Morgenfeld

Yes. It's a question that's come up a lot because we saw really strong growth in our users last year, both in the U.S. and internationally. In the U.S., just to recap, we added 10 million U.S. monthly active users in 2020, which is double the amount that we added the prior year, which is an interesting stat. And then once again, users under the age of 25, which is -- often surprises folks, that cohort grew faster than the users over the age of 25. So that's a positive sign for the future.

Internationally, all of our major tracked regions grew faster than the U.S. We've often talked about the maturity of each market kind of governing the growth prospects. The U.S. has been our most mature market and has been the slowest growing. But Internationally, all of our major regions tracked faster growth than the U.S. And we saw really strong monthly active user growth in our least mature markets like Asia Pacific and Latin America.

The growth in LatAm and Asia Pacific is really exciting because we're thinking -- as we've talked about now for a while, we're thinking about future business opportunities in those regions. And we've seen nice growth in some of those regions with more to come.

COVID, obviously, played a role in the trend. But given the fluid situation, it's really hard to provide a lot of color on user growth in 2021. And the way I think about it, there are some factors that impact user growth this quarter and probably throughout 2021, it's -- the stickiness of that COVID cohort is still kind of unknown. These users have only been around for a couple of quarters, and so we're a few quarters, so we're monitoring all that very carefully.

And the COVID trends can change. With shutdowns and reopenings, that has an impact on monthly active users and by extension our typical seasonal patterns have really not held through COVID. And if vaccines allow people to return to pre-COVID behaviors, that could adversely affect our user and engagement growth. What we've seen generally is that as restrictions become more stringent, we've seen an uptick in users and engagement. And as restrictions have loosened, we've seen it move in the other direction.

But longer term, our ability to grow users in the U.S. or even internationally is really about making Pinterest more useful and inspiring. We've continued to make the platform to that end, a lot more shoppable, which we believe can be valuable to a broad range of people across new verticals, many verticals. And more recently, we've been introducing new formats and new ways of engaging with content through things like Story Pins. We're certainly early in the cultivation of that new ecosystem, but we're excited about what those new formats can do to enhance the user experience, making content even more useful and inspiring. It's a continuation of the trend as you can -- you think about Pinterest historically was static web images. We introduced video and now the Story Pin in format is an even more engaging way to help people find new ideas and then take action on them in the real life.

Brian Nowak

Hopefully, with the way the platform is giving so many more new use cases and new verticals, as the world does reopen and people start to travel, I know in my pin boards I'm starting to see now pictures of Mallorca and places like which I can be very inspired or like wedding

Todd Morgenfeld

I'm sure. Yes. We saw that a bit over the course of last year, there was like an immediate lockdown into how do I exercise in my living room and redecorate my home office initially, and then it became about maybe decorating your outdoor patio and then finally, things like destination and travel planning. So I'm hopeful that we'll be out of this period before too long.

Brian Nowak

Great. Because the use case could extend.

Todd Morgenfeld

Exactly.

Brian Nowak

So on the advertising side. In my mind, the kind of the work that we've done, one of the real key milestones, the unlocks in 2020, really seems like the rollout of automated bidding for all the performance objectives that you successfully rolled out.

So I guess I wanted to sort of ask you about number one, how has automated bidding changed your discussion with advertisers? And what impact has it had on both new advertiser growth as well as your capability to scale spend for advertiser faster?

Todd Morgenfeld

Yes. I mean the simplest way to answer this is just advertisers want a simple experience that gets them results. And our automated bidding reduces the amount of effort required to manage those campaigns and help advertisers achieve their desired results. I mean we talked in the last question about the COVID environment and how important performance-based advertising and ROI accountable advertising has been. This is a tool to help enable that. We've seen great success with auto-bid. And so our advertisers, in fact, nearly half of our revenue went through auto-bid in Q4, covering traffic objectives, conversion objectives and shopping campaigns. And auto-bid has also helped advertisers and their campaigns respond more dynamically in real time to changing market dynamics during the high-demand Q4 holiday season.

So the product continues to support small- and medium-sized businesses and helping them sustain high levels of growth in the fourth quarter. But we still got a lot of runway on that path to automating campaign management overall. And I've said this before, it's aspirational, but our longer-term vision is for an advertiser to show up with their budget, their goals and their content, and we want to be able to enable the rest on the platform.

And a couple of success stories that are early that I can point to, number one, Motorola leveraged Pinterest to reach millennials and Gen Z to drive awareness and consideration for the new razr phone. And they like the -- our ability to reach both trend setting kind of fashionistas and tech early adopters on the platform. To maximize their investment, they used auto-bid in Q4 and found Pinterest to be an efficient driver of qualified site traffic compared to competitive social platforms.

Another example is a company called Made.com, which is a furniture disruptor based in London. They've been a partner of ours for years at this point. But they recently adopted auto-bid as well for their search campaigns on Pinterest and we're able to get 4x as many clicks with an 80% decrease in cost per click across 3 major markets, the U.K., France and Germany. And what that means is that we get much more efficient monetization of our existing ad slot supply. So it's been a win for our advertisers and good for our business.

Brian Nowak

Yes. No, that makes sense. The -- it's a win for both sides. You mentioned earlier sort of measurement being one of the areas you're focused on for sort of next investments on the advertising side. Where are you now in sort of those measurement investments and sort of really proving out the efficacy of the ads across different types of creative? And how big of a deal could that be over the course of '21 and in '22 for more advertisers to come on?

Todd Morgenfeld

Yes. It's a big topic. So measurement continues to be a big focus area for us, and we've been improving on our conversion visibility in several ways. First thing is we drove a lot of adoption of our first-party Pinterest tag through several tag manager integrations. This has been an ongoing thing now for a while, but it's continued to show nice traction and momentum.

More recently, we've been focused on building first-party products for non-cookie conversion capture, including things like what we call conversion upload and direct API for retailers. That tool enables advertisers to send offline, web or in-app transactions to us through a variety of upload methods. And then we've been working similarly on enhanced matching capabilities to make it -- us better at identifying and matching conversions using machine learning.

We've also been working to create a much more comprehensive and holistic set of measurement insights. And this is important for us because we believe this will help with longer attribution windows. Or if you look at -- or the value of our platform, if you think about it being very heavily consumer, early consumer or commercial intent, longer attribution windows all the way through last click are ways that these tools can help advertisers measure their performance.

In the fourth quarter, we expanded our conversion insights. It's a tool that provides visibility into GMV on the platform through both paid and organic content to all advertisers. And we provided conversion analysis, which is a suite of reports that help advertisers manage that longer -- or assess the value of that longer attribution window, depending on what they want to give us credit for.

And importantly, we're continuing to invest in more first-party insights, just given the landscape. We've introduced our own brand lift study, making it easier for advertisers of all sizes to measure the impact of awareness campaigns. So it's a topic -- we've got a lot of work to do and a great road map, and we're coming from behind on it.

Brian Nowak

On the -- the -- there's a lot of balls in the air there. And I want to get to attribution in a second, of course, deal with our favorite 4 letters we all talk about, IDFA. But I did want to come back to Story Pins for a second. I think this is -- it's a unique offering relative to some of the other platforms. So maybe talk to us about, one, the efforts to really bring on more creators and more content into Story Pins. And what have you seen in the early days for sponsored Story Pins? And how we think about that being differentiated versus other story units across the ecosystem?

Todd Morgenfeld

Yes. It's a good question. It's one that's coming up a lot because it's often been about what's different about Story Pins on Pinterest versus other platforms. Stories on Pinterest are different than what you'd see on other platforms, where they're designed for entertainment or for watching what other people are doing. On Pinterest, though, the story pins are designed for productivity. We talked earlier about taking people from inspiration to action. So our Story Pins are designed for productivity and are focused on what you want to do rather than what other people are doing. As I talked about earlier, the first priority is to give people the most inspiring content and to help other people find that inspiration. So less about entertainment and more about upper funnel inspiration that will eventually feed action or purchases. So taking that inspiration and turning it into action.

And story pins are a short-form multipage content, basically a canvas to deliver that inspiration. And what makes them different than other story formats that you may have seen on other platforms is really a question about what makes Pinterest as a platform different than social media and search.

The answer is a couple of things. Number one, the content, the experience and the mindset or the intent of our Pinners. We're a personal, media-rich utility, which is the way we often describe ourselves. And rather than a form of pure entertainment or a time spent, kind of fear of missing out platform.

So with Story Pins, we're intentionally cultivating content and experiences that focus on inspiration and lifestyle decisions. It's not about entertainment, it's not about eyeballs. They're designed to inspire and help our users discover, plan, consider and ultimately take action on something in their real life.

In addition, unlike other platforms, the content lives forever, which is another core differentiator. It's not ephemeral. We believe that out of a richer user experience will come more user growth and more monetization opportunities. We're still really early on this journey and in the potential for Story Pins, and I would be very careful to say, we're excited about launching it, but we're really early in the evolution and the traction here.

But we're exploring a range of ways to get paid for that, the monetization opportunities that will help our creators get rewarded for their inspiring content and then help us build a business against it.

We have 1, just as an example, because this comes up a fair amount, how are you making money on this. We had our first sponsored Story Pin with Diageo in Q4, where we paired 5 of their brands with 5 creators to sponsor Story Pins on Pinterest and a lifestyle and food creator, Peter Som, paired up with the brand Tanqueray, to create 3 simple gin drinks, so Pinners can learn how to make cocktails at home. And Patrick Janelle, a media and lifestyle personality paired up with the brand, Crown Royal to inspire bar gifting. And so those are things that are use cases that are unique to Pinterest. They're not ephemeral -- that content lives forever, and it helps people go find new ideas and then ultimately buy something and take action on it in their real life. So that's what makes us a little different.

Brian Nowak

It's a natural extension of the inspiration aspect of the platform. So IDFA remains a hot button topic. We had a lot of questions about it, really since last summer. We've done a lot of work sifting through your lower app install exposure, the percentage of the business that's branded and sort of that -- the 2 ways to potentially offset IDFA risk. I guess three questions for you.

One, your reaction to that logic around branded exposure and a lower app install mix? Two, how are you thinking about IDFA potentially impacting the business this year? And then three, what date is this thing coming out?

Todd Morgenfeld

Yes. Well, I mean look, this is definitely something that the whole industry is thinking about. You've seen it a lot. It's been covered in a variety of places. So we're no different than many others in the industry on it. I would note that what we have, it's a little different is -- we have on-platform engagement. People are searching, using text and visual queries, they're clicking and saving and doing born creations that they're naming themselves. So it's not shallow engagement. It's actually rich engagement on platform with our content. What that means is that we get a lot more complicated or complex signals than the likes and follows that are typical of on-platform engagement on social media and news apps. We're not in danger of losing that on-platform signal as a result of IDFA.

So in the case of search, for example, our users are actually sharing directly with us what they want to see. And so that, from a targeting perspective, is useful.

But that said, any loss of engagement signal is a headwind to our business because it makes it harder for us to serve relevant content into -- and more importantly, see the conversion activity that's happening downstream.

So to be transparent, the extent of IDFA is still unknown. And the things that we're looking at are what is the user opt-in rate going to be? And where are the potential benefits from conversion visibility improvements that we're making. We talked earlier about the road map on measurement as an example, and some of the things that we are catching up to what the incumbents in the industry have built on conversion visibility, which is a benefit to us -- but it's all happening in the midst of all these headwinds. So we're making investments in conversion visibility as a priority this year. We're also investing in other first and third-party measurement tools that will help us adapt to the landscape as it evolves. For example, beyond just the Pinterest tag, we're working on first-party off-platform measurement tools.

In Q4, we introduced advanced matching capabilities, which will help us identify more conversions without relying on signals like IDFA, and we're getting better at identifying or matching conversions using machine learning, which is something others in the industry have done, and we're obviously less mature than some of the incumbents. And so those things that we're doing around machine learning-based conversion visibility are areas that we're excited about and are opportunities in the road map.

Brian Nowak

It would seem like shopping, sort of having more merchants, more inventory on the platform through the Shopify partnership could also help from an attribution perspective. So maybe talk to us about what you sort of learned to date through the Shopify partnership and integrating into shopping? And what are the biggest hurdles you have to overcome to really scale that inventory and merchant count faster on shopping?

Todd Morgenfeld

Yes. I mean this is a great question. In 2020, we laid the groundwork for shopping on Pinterest, and we're really happy with some of the progress we've made. It comes in a couple of different flavors. We've improved the discoverability of products, meaning we've got more inventory of reliable product pins on the service now and through enhanced visual search to allow Pinners to find products within the images that inspire them. So both inventory and discoverability have improved.

We've also added more shopping surfaces to Pinterest. We've increased the number of active catalogs. It grew -- catalogs grew 60% sequentially from Q3 to Q4 last year, and we expanded the scope of shopping engagement by allowing our Pinners to pivot from shop mode to -- into shop mode from any search queries, so that got better. And we added new formats like dynamic collections and auto-bids for shopping objectives. What that led to is a 6x increase in the number of shopping advertisers year-over-year in the fourth quarter and an increase in product searches on the site that grew 20x in the last year.

One example, just to make it real, would be Wayfair. They've scaled their shopping campaigns with us over the last year, primarily because of measurement and our ability to drive incremental sales for them. So this year, we're planning to build on that momentum. There's more room for us to increase the amount of shoppable content and heighten -- have our businesses reach pinners more easily, and we want to expand that geographically across more verticals.

So I think there's a lot we can continue to do to make that shopping experience more fulfilling and help people evaluate products and go from discovery, the moment demand is incepted, all the way to action.

Brian Nowak

Got it. It's something we're going to have to watch. We're almost against the clock here. We haven't even gotten to international. There's so much going on. I have to at least ask you 1 about international because this is just -- it's such a monetization opportunity. Monetize is still such a lower level than the United States. I guess maybe I'm going to squeeze a couple in here.

One, talk to us about sort of the sales headcount investments and the, I think, branded -- the agency tools you expect to sort of roll out, sort of further capitalize on international? And then you mentioned earlier APAC and LatAm to sort of think about just from a historical perspective, how should we think about how long it takes you to really ramp the monetization in markets once you get bodies in place and sort of start to go to market?

Todd Morgenfeld

Yes. I mean we -- it takes some time, obviously, we've been investing now for a while in Western Europe. But we've been pleased with the progress and the traction we're seeing in international markets, and we're starting to see those returns on the investments we've made in sales coverage. As you noted, we've seen significant growth. International revenue grew 145% year-over-year in the fourth quarter and is becoming a bigger piece of our revenue base now at 17% of total revenue in Q4 versus just 13% a year ago.

But as you noted, with about 3/4 of our MAUs outside of the U.S., we've got a lot more opportunity ahead of us. So the revenue we're getting today is mostly Western Europe and English-speaking countries outside of the U.S. from international markets, but we've -- and we've been getting a lot of good return from markets like Germany. We've got opportunities to continue to expand that. We're investing right now in building monetization in Latin America for example, and the market size and the user scale there has been really impressive. But it does take some time to scale in any new country, and we wouldn't expect LatAm, as an example, to be a meaningful contributor to revenue in 2021. It tends to take a little longer to build those relationships, have advertisers test and then ultimately scale their spend with us.

Brian Nowak

Got it. All right. Well, we're up against the clock. Todd, thank you so much for your time. We will all be tuned into the ad event tomorrow. Can't wait to see all the new tools.

Todd Morgenfeld

Yes. I think that will be -- I'm really excited about that. I think it will be -- it will help round out the picture. I'm only -- so I think I -- It's going to do much more justice to what we're doing than what I did today. So I'm excited.

Brian Nowak

All right. Great. Well, we can't wait to see it. Thank you, as always, for the time. Thank you, everyone, for Zooming in, and we will talk to you all soon. Thanks.

Todd Morgenfeld

Thanks again.