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Edited Transcript of PINS.N earnings conference call or presentation 6-Feb-20 10:30pm GMT

Q4 2019 Pinterest Inc Earnings Call

Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Pinterest Inc earnings conference call or presentation Thursday, February 6, 2020 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Benjamin Silbermann

Pinterest, Inc. - Chairman, Co-Founder, President & CEO

* Jane Penner

Pinterest, Inc. - Head of IR

* Todd R. Morgenfeld

Pinterest, Inc. - CFO

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Conference Call Participants

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* Brian Nicholas Fitzgerald

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Colin Alan Sebastian

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Douglas Till Anmuth

JP Morgan Chase & Co, Research Division - MD

* Eric James Sheridan

UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst

* Heath Patrick Terry

Goldman Sachs Group Inc., Research Division - MD

* Jason B Bazinet

Citigroup Inc, Research Division - MD and U.S. Cable & Satellite Analyst

* Justin Post

BofA Merrill Lynch, Research Division - MD

* Lloyd Wharton Walmsley

Deutsche Bank AG, Research Division - Research Analyst

* Mark Elliott Shmulik

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Mark Stephen F. Mahaney

RBC Capital Markets, Research Division - MD & Lead Internet Research Analyst

* Ross Adam Sandler

Barclays Bank PLC, Research Division - MD of Americas Equity Research & Senior Internet Analyst

* Stephen D. Ju

Crédit Suisse AG, Research Division - Director

* Thomas Ferris Forte

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Pinterest fourth quarter earnings conference call. (Operator Instructions) I would now like to hand the conference over to your speaker today, Jane Penner, Head of Investor Relations. Thank you. Please go ahead.

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Jane Penner, Pinterest, Inc. - Head of IR [2]

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Thank you, Cheryl. Good afternoon, everyone, and thank you for joining us. Welcome to Pinterest's earnings conference call for the fourth quarter and full year ended 2019. Joining me today on the call are Ben Silbermann, our President and CEO; and Todd Morgenfeld, our Chief Financial Officer.

Now I'll cover the safe harbor. Some of the statements that we make today regarding our business performance and operations and guidance for full year 2020 may be considered forward-looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our most recent Form 10-Q or 10-K filed with the SEC and available on the Investor Relations section of our website.

During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and letter to shareholders, which are distributed and available to the public through our Investor Relations website located at investor.pinterestinc.com.

And now I'll turn the call over to Ben.

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [3]

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Hello, everyone. Thanks for joining the call. After the market closed, we released our latest shareholder letter. We're going to share some highlights today, and since it's the start of the new year, we're also going to look forward and talk about our strategic priorities for 2020.

Let me just start by saying how proud I am with the progress we made in 2019. It truly was a milestone year for the company. In April, we went public, giving us new resources to invest back into our business. We continue to attract creative and talented employees who are working hard to innovate every day on behalf of our pinners, and we continue to improve the Pinterest experience for both our users and our advertisers. Much of that progress was reflected in a strong close to 2019.

In Q4, revenue grew 46% year-over-year that helped fuel annual revenue growth of 51%. We now have 335 million monthly active users, a 26% annual increase, and we had our first profitable year as a public company on a non-GAAP basis. So we're happy with how we closed 2019, and we want to keep this momentum going in 2020. How are we going to do that? Our mission is to bring everyone the inspiration to create a life they love, and our strategic plan this year is created in service of that mission.

I want to talk briefly about our 4 strategic priorities for 2020: first, ensuring that Pinterest is the home to inspiring content; second, scaling our ads business with a focus on attracting more midsized and international advertisers; third, helping people see the value of Pinterest for more and more use cases in their lives; and fourth, making Pinterest more shoppable so it's easier for people to take the inspiration they see and make it part of their reality.

Let's start with ensuring that Pinterest is the home to inspiring content. In total, pinners have saved roughly 240 billion pins to over 5 billion boards. Each one of those boards represents a person's projects, passions and plans. And so our first job is to show pinners inspiring ideas at the right time. This means recommending idea to the right person, and it's at the heart of our mission as a company.

Delivering on this promise of inspiring content and personalized recommendations is evergreen, and we're focusing on in 2020 in 3 distinct ways: first is relevance. We will continue to enhance the core machine learning algorithms that drive our search and recommendation engines. We made big strides on this in 2019. We'll continue to invest heavily this year.

Second, we want to create an environment that's positive and inspirational. We've seen on the Internet that positive environments don't just happen on their own, they have to be engineered that way. And that's why we plan to continue to invest in keeping unsafe content off of our platform like our efforts to remove anti-vax information as well as to drive better outcomes with new features, like the ones we launched last year, offering activities people can do if they're feeling stressed, anxious or depressed.

Third, we want to innovate on creative formats. We know the Internet is evolving towards richer, more expressive types of content, and it is a priority for us, too. In 2019, we made progress in introducing pinners to more video. Organic video views increased 6x. We've also invested in AR, including a new feature called Try On that helps you virtually try a makeup before buying it. This is an area where we're just getting started, so stay tuned for more updates throughout the year.

Our second strategic priority in 2020 is scaling our ads business. We've always said that great ads improve the user experience on Pinterest. People come to plan big and small moments, and relevant ads can play an important part in making those moments happen. For example, Q4's football season, a lot of people create boards to play, game watch, tailgating parties, and it's actually helpful if you've seen that from a food company like Frank's RedHot Sauce with game day recipes for dips and wings. When ads are relevant and useful, it's a win-win. Pinners get inspired, and advertisers like Frank's see great results. In fact, the company saw a 3x increase in the percentage of people saving their ads this season.

The key here is making sure ads are relevant to our pinners' interests, projects and plans and when to do that at scale. To serve ads that are relevant to the incredibly diverse range of ideas being explored on Pinterest, we need to increase the number of ads in our system by bringing more advertisers and building tools to meet their needs. Last year, we focused on making Pinterest accessible to small advertisers by building a suite of mobile tools, basic analytics and reporting, and those are now available on all 28 of our ad markets. This year, we plan to focus on improving the experience from midsized international advertisers. That means building more robust desktop self-service tools for -- so sophisticated advertisers can succeed with less account sales support, more creative tools so they can create inspiring content and scalable measurement so they know the value they're getting from Pinterest.

It also means navigating the evolving regulatory landscape around issues like targeting and measurement so we can continue to deliver value even as the environment changes around us. We're still at the beginning of this road map, but the hard work is essential to fulfilling the promise of Pinterest: hundreds of millions of people planning, deciding and acting on commercial content, which means driving measurable conversions for our advertisers and, in turn, powers our business forward.

Our third priority is helping pinners get more value by expanding their use cases. People come to Pinterest to get inspired and plan their lives. A lot of these people are highly engaged and use Pinterest for multiple interests, projects and hobbies. For example, in the shareholder letter, you'll see the story of a pinner named Britt. She's a fashion stylist that uses Pinterest to show her clients different looks, but she's also created boards on everything from her studio space to furniture to food.

We see the people like her who use Pinterest for multiple use cases will stay more engaged over time. And we want to deliver this experience for those who come to Pinterest for one project like a baby shower or home innovation. We want to show them how useful it can be across their entire lives. In 2019, we began to build products and features that encourage Pinterest to use -- encourage pinners to use Pinterest for multiple things such as personalized search recommendations. This year, we'll continue to build new features that help people do more than just see other pins. We want them to easily see new reasons and use cases for Pinterest, and we're excited about that road forward.

Our fourth and final priority is making Pinterest more shoppable so people can easily take the inspiration they see and make it part of their lives. Last year, we dramatically increased our inventory of in-stock products by making catalog uploader self-serve and by driving its adoptions across our managed advertiser base. And we're going to do more than that this year. We're going to make it easier to discover shoppable products so pinners can move seamlessly from inspiring images to shopping services where they can buy what inspires them. We'll be launching our Verified Merchant Program so pinners know they're buying from merchants that meet our quality guidelines. Finally, we'll keep building out ad formats that help merchants put their products and services in front of customers. In 2019, we created our foundational shopping ad products, including the standard shopping ad and Shop the Look ads, and there's more to come in 2020.

So in closing, that's a look at our 4 priorities for the year. I'm excited about how far we've come and more excited about where we're going. Thank you for taking the time to listen. And now Todd and I will open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Colin Sebastian of Baird.

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Colin Alan Sebastian, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2]

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I have a couple of questions. First, on the shoppability of the platform. Specifically, how quickly are the shopping-related experiences helping to bridge the gap between usage and monetization, including how important are our newer initiatives like verified by Pinterest and AR Try On? And then obviously, international is still very early, but can you talk about what's working, in particular, in other geographies and maybe what's not working as well?

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [3]

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Thanks, Colin. So the question that I heard was how quickly are the shopping efforts accelerated monetization. The answer to that is we think that we're still in the early innings of shopping, and we're building a lot of the foundational components. So we're improving the amount of inventory that we have to programs like the Verified Merchant Program. We're building these shoppable surfaces, and we're improving the ML that matches inspiring images. But we don't expect that to create a discontinuous change in our revenue for next year.

What I will say is that we're serving retailers in a lot of different ways, and shopping advertisements help complete the suite of offerings that we've already been giving them. So we've always allowed them to reach their audience. We've allowed them to build awareness through things like our video campaigns. And now we're extending that with things like shopping ads so people can really reach people throughout the full funnel from inspiration with thinking of new things all the way to purchase.

And a great example of that this year was Floor & Decor. They started, before we had things like shopping ads, really building an audience and driving people to their website, but shopping ads now let them target people who are later in the funnel, and so you kind of see that full funnel picture really opening up.

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Todd R. Morgenfeld, Pinterest, Inc. - CFO [4]

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On the international question, I would say that we were delighted with the performance of our investments in international markets over the course of the year, in particular, in Q4, where our revenue from those markets went from 6% to 13% of the total. So scaling nicely. And I would point to the newer markets like Canada, Germany and France as being examples of where we've seen significant scaling and a lot of opportunity.

There are 2 things that I would say that we could continue to focus on over the course of the year: one is moving from test budgets into always-on budgets. We continue in the moment to be new and nascent in those markets, and that means that a lot of people are testing rather than moving to always-on budgets, and that's an area for us to continue to focus on through the year. The second thing I would say is a general comment about where we're investing, which is making it easier for advertisers to be successful on Pinterest. And that includes both U.S. markets as well as international, where things like automated targeting, bidding and budget utilization, more sophisticated measurement and analytics and creative optimization will make it easier for those mid-market advertisers internationally to find success on the platform. In particular, in international markets, those tools will be useful with respect to agencies where the concentration of revenue is a little bit higher.

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Operator [5]

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Your next question is from Stephen Ju of Crédit Suisse.

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Stephen D. Ju, Crédit Suisse AG, Research Division - Director [6]

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So Ben, I think on the content section of the letter, you're talking about consumption of video content rising out what is probably a faster clip versus the overall. So can you talk about how your compute and, I guess, the contextualization needs change and become more intense and how your, I guess, current ad units, especially for shopping, may need to change as we move away from, I guess, consumers consuming -- looking at more static images and more to video?

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [7]

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Yes. So thanks for the question, Stephen. I heard 2 parts. One is how is increasing consumption of video and other new formats kind of impacting our cost structure. And second is really how we're thinking about video in terms of ads. So on the first question, I think that video obviously is more expensive to serve than images. I don't know that it necessarily changes compute in a big way. But that said, look, we have to go where the market's going, and what we see from our users is they love video. If you think about use cases like a tutorial for makeup, how to do a recipe, an exercise routine, those are just best expressed in video. And so we really want to invest heavily there because we think that's where the future is going.

Your second question is how it applies to ads and to counterbalance the expense of serving more video, we've seen great uptake from our various ad products. We've launched a lot of improvements for our advertisers. We've made it faster to upload. We've improved the experience on consumer side, making it faster to stream. We've offered them new analytics and new buying options, things like cost per view. And we've seen a lot of advertisers take great advantage. And one of the ones that I thought was really inspiring was from our neighbor Airbnb. They really wanted to drive awareness of tourism in France outside of the major cities, and they partnered with our team to create a campaign called First Night On Us, a video campaign, and they just saw great results, a double-digit increase in awareness in that market. So we think that it is more costly, but we have to give users the most inspiring experiences. And on the flip side of it, video represents still a very bright and fast-growing opportunity on our advertising side.

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Operator [8]

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Your next question is from Eric Sheridan of UBS.

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Eric James Sheridan, UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst [9]

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I hope these weren't asked. Two on the advertising side. One, in the letter, you talked about automation and measurement being a big priority for 2020. Just want to talk about how far you are through the investments you need to make to amplify those as elements of the business going forward and delivering for advertisers, and/or how much you've started to see a return on those investments that were made in prior periods? And then one just clarification. You talked about the number of active advertisers doubling year-on-year. Was there any specific industry sectors or verticals between small advertisers and large advertisers that were big drivers of that doubling since it was such a big deviation from growth rates in prior years from the shareholder commentary?

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [10]

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Sure. So Eric, the first part of your question kind of got to how far we are along in that road map. And the answer is despite the fact I'm very proud of all the progress we've made, there's still a really long way to go. You got to remember that advertisers are used to sophisticated solutions built by companies that have been in this market for more than a decade. And we see opportunities really all over the place.

On the measurement side, we want to really make sure that there are self-serve measurement tools. So you don't need an account manager. You can pull that data in real time. On the tool side, you pointed out automation, but that covers a whole range of things. Automated bidding is a huge opportunity for us as well as automation on creative optimization.

Finally, we do have a lot of progress still to make in formats, and it's something I touched on with video. But we're very early on in all those areas, and so we do see more opportunities to come.

Your second question was where the growth in the number of advertisers came from. And last year, we made an important investment to make a lot of our advertising tools accessible to folks on the phone for the first time. So we saw a lot of growth in very small and medium-sized businesses. Now those businesses today don't make up a large proportion of our revenue, but we think they're important for 2 reasons: first, because long term, a lot of those businesses will grow up; and second, because relevance is sort of our North Star, and a lot of those small businesses increased the number of ads and therefore drive relevance.

This year, we're shifting a little bit, and we're starting to focus on what we call mid-sized advertisers. So these are folks that are very sophisticated. They're super quantitative in the way they advertise, but they may not be at the scale to be able to have a dedicated account manager. And the investment in a lot of the automation in the desktop ads manager is really to support them.

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Operator [11]

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Our next question is from Justin Post of Bank of America.

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Justin Post, BofA Merrill Lynch, Research Division - MD [12]

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Great. Since shopping is a priority, I was wondering if you could help us a little bit about the business model. Is that a take rate model? Or is it still bidding for placement? And then secondly, how do we think -- and I know you can't quantify exactly, but how do you think about the yields when people come in for a shopping experience versus current? Just the uptick there.

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [13]

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Justin, I'll try to answer both questions. The first one was about the business model. We are not doing a take rate. The monetization comes when businesses who start to see organic traction choose to use our shopping ads. And that's proven to be something that's really, really high quality. Internally, one thing we're excited about is that as we grow the amount of inventory in the system, we can show people more and more relevant products on the organic side and on the paid side. And that's why things like catalog uploader and the Verified Merchant Program are really important. And in Q4 alone, we were happy to see a 70% increase in the number of catalogs. All of that's in service of this idea that the more trustworthy products you have in the index, the more relevance you can drive.

Your second question, and I apologize I don't fully understand it, kind of had to do with the yield of folks that come in with commercial intent versus those who don't. And what I would say to that, Justin, is it's something that we can't quantify right now but we know something from our research, which is a lot of folks for many years have come to Pinterest with commercial intent. They'll be redecorating their home. They'll be thinking about outfits. So they become frustrated when they can't find exact products that they're seeing.

We also know that when people then go into those shopping surfaces that are all products, you see good click-through rates and good conversions. And so I can't give you kind of the math on what the difference is. We think that it's good on 2 fronts: like, one, it's a satisfying user experience because they come in and they can go from inspiration and then turn that into reality; and second, we think it's a good business opportunity for us and for the advertisers because you get people that have genuine commercial intent, but they didn't come in with a specific idea of an exact product they were looking for. And that's something really unique to our platform. Unlike a search engine where people are often searching for a specific brand name or a really long query, these are people that start with something like living room ideas or fall fashion or vacation plans and then are guided to a product, that generates net new demand for advertisers. But we think in the long term, that value proposition is very differentiated in the market.

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Operator [14]

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Your next question is from Ross Sandler of Barclays.

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Ross Adam Sandler, Barclays Bank PLC, Research Division - MD of Americas Equity Research & Senior Internet Analyst [15]

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Maybe just 2 questions on the retail advertising category. And so you said conversion optimization ads, I would guess this is for all categories, was up 150%. And then you also said shopping ads are up huge from first half to second half. So I guess how big is the retail segment of your business at this stage? And then with oCPM, are there any learnings that you're seeing from e-commerce companies, retailers using those types of ads that you think you could bring into other transactional advertising categories outside of retail?

And Todd, as we look at your 2020 guide, calls for 33% growth at that 1.52 level. So with this higher mix of retail, how do we think about modeling the seasonality of the business in 2020?

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [16]

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Ross, I'll take the first part of the question, and Todd can talk about modeling seasonality. We don't break out our revenue by industry sector, but we have seen that retail has been a historically strong sector for us overall. And on conversion optimization as well as shopping ads, we've learned a lot. One of the things that we've learned is the importance of properly implemented measurement so that advertisers and retailers specifically can see those conversions.

Starting in Q2 last year, we started to invest in first-party tag so we could see those conversions. What we've learned is that while integrations with things like Google Tag Manager and Square commerce are good, we also need to invest in helping to make sure that those businesses have implemented things correctly and that they've set the right conversion windows. And I think that's possibly like the most interesting opportunity, but it's also a challenge for the business.

A lot of our advertisers are used to a last-click model, even though they know that their average buying cycles are a lot longer than just 1 day. So we've been working on multiple fronts to help them quantify how many conversions they're missing out by having short windows. I mean we're baking that into both our sales motions and into our products themselves.

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Todd R. Morgenfeld, Pinterest, Inc. - CFO [17]

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So with respect, Ross, to the guide for the year, what I would say is that we had a very strong Q4 this year, and it was strong in 3 areas that may not be directly extensible into Q1, Q2 and Q3, even though I have a lot of confidence that toward the end of next year, it will show up again around Black Friday and Cyber Monday time period.

So the first source of strength in Q4 was around conversion optimization. As you noted, it grew 150%. That's driven by a 2.5x improvement in attributable conversions that we saw this Q4 versus a year ago and frankly, investments in the product that we made that paid off, like new conversion events like add to cart that we launched earlier in the year that paid off in Q4 and a lot of the work that we've been talking about on these calls around tag integration and efforts to make sure those tags were working as expected in Q4. Those helped to drive that performance.

A year ago, we had 3x as many conversions in Q4 as we did in Q1, and so that speaks to some of the seasonality that you may expect to see in Q1, where I would frankly expect a little bit more -- slightly more seasonality or slight increase in the amount of a step-down, Q4 to Q1 sequentially.

I would say the second source of strength would have the same impact. We saw a lot of strength in slated campaigns around seasonal moments from CPG advertisers in the fourth quarter. These are advertisers like Albertsons, who came up with static and video festive theme, food and drink idea pins around events like Halloween, Thanksgiving and the end-of-year holidays, and that drove a lot of store lift. But those types of campaigns, again, are heavy. They're flighted, and they're Q4 events. So I think we'll have strength in CPG, but it's skewed towards Q4.

And then finally, the international market, as I talked about earlier, tends to be still in test phase and not necessarily always on budget. So I'm super encouraged by what we saw in Q4, but it speaks to a little bit more seasonality going into Q1. The only other thing I would say is Easter last year was entirely -- almost entirely a Q2 event. And this year, it's basically split between Q1 and Q2.

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Operator [18]

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Your next question is from Mark Mahaney of RBC.

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Mark Stephen F. Mahaney, RBC Capital Markets, Research Division - MD & Lead Internet Research Analyst [19]

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Two questions, please. Ben, you talked about 1 of the 4 priorities for this year being expanding use cases for users. And I guess one way for us to try to track that is the extent to which people -- users are going beyond kind of the 3 -- the core 3 or 4 verticals into other verticals. Are there any data points you could share with us about people using Pinterest across a broader range of categories than they were in the past? And then the second question I want to ask, Todd, is -- and I know it's an output but this gap between U.S. and international ARPU always strikes people as an interesting gap-up opportunity because it's so much greater than it is in other markets. Again, I know it's an output, but are you seeing things that suggest to you that there is a path over time, I know, for that gap to narrow? And I guess what I really mean is that for international ARPU to really start, are you even maintaining somewhat close to the current growth levels that would do it? But just anything you could talk about in terms of that gap narrowing over time.

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [20]

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Thanks, Mark. So on the first part of the question around use cases, I think one thing that's hard to appreciate is that there's a really long tail of use cases on Pinterest. Honestly, anything that's visual and taste-based, we have boards on. And so you see things from custom surfboards to tattoos, and that long tail is ever expanding. When we talk about growing the number of use cases, we're doing it on 2 fronts. We're going to start by really trying to cross-sell the core use cases. You've seen some examples of that with things like search suggestions, diversifying the home feed, but we're also going to experiment with things like seasonal content and more of an editorial point of view.

Second, in that long tail, we're going to develop the recommendation technology to take you from use case to an adjacent use case. And so that's ongoing work. It's heavily based in sort of our ML modeling, but we think that's a really exciting thing as well. Right now, we don't have any data to share about a breakout use case that's really bucked the trend. But should we see that, we'll be excited to share with the community.

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Todd R. Morgenfeld, Pinterest, Inc. - CFO [21]

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And then, Mark, on the ARPU gap, I think there's a tremendous opportunity for us to continue to monetize internationally. And overall, we've seen great success in monetizing in English-speaking countries outside of the U.S., and the investments we've made in Western Europe are paying off nicely. I think the playbook is working.

Your question about the ARPU, and you'd characterize it as an output, it's a blessing and a curse that our user numbers are still growing at the rate they are today because it's obviously great for us that Pinterest is now up to well north of 300 million monthly active users, but the growth rates in international markets where we're not yet monetizing means that we're weighing down our ARPU even at the same time we're having very solid performance in the international markets where we are monetizing.

We need to do a couple of things, 3 things that I would say that would help to narrow that gap over time: one is continue to execute in the markets that we have started to execute, particularly in Western Europe, where we have a lot of runway. The second thing we will need to do over time is monetize in other sectors, other geographic regions like Latin America and high-value markets in Asia Pac. And the third will be to monetize in rest of world countries where we have a lot of users and that continues to grow successfully. So those are kind of the 3 waves. And I think until that happens, the ARPU, as an output, will continue to lag the financial performance, which is what I'm most focused on, the contribution to revenue growth.

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Operator [22]

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Your next question comes from Jason Bazinet of Citi.

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Jason B Bazinet, Citigroup Inc, Research Division - MD and U.S. Cable & Satellite Analyst [23]

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Can I just go back to Mark's question on this international ARPU gap? What's so interesting to me is other social media companies that were sort of small and sort of embryonic in their development didn't exhibit this sort of gap, even when they were generating sort of a similar level of revenue that you guys are. So I just wonder, is there something beyond those 3 things that you just outlined that says there's something endemic to other markets where they really don't understand the value of the platform just yet, and it requires more education or maybe it's more intuitive on a more traditional social media platform?

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Todd R. Morgenfeld, Pinterest, Inc. - CFO [24]

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No. I understand the question. I would say taking a giant step back, I mean, we just started in the last year to take international monetization seriously, and we focused our efforts on Western Europe, in English-speaking countries outside of the U.S. So there are examples of other companies that are operating at roughly our scale and have been in our market segment that have been monetizing more aggressively on top of U.S. growth, whereas we were proving the playbook worked in the U.S. for a few years and then began to monetize internationally.

And that, coupled with our very high user growth now, which there aren't a lot of examples of companies that are growing at this rate, at this scale, their user base and the more recent efforts that we've made toward monetizing, that means we're a little bit, from a sequencing standpoint, not on top of but rather sequential with our U.S. business. And so I think that's probably where a lot of this is coming from. We're seeing a lot of -- people use Pinterest for the same reasons in international markets that they use Pinterest in the U.S. The use cases, the forms of engagement, it's very similar. And so from a monetization perspective, the only real difference that I see is the pricing opportunity, which reflects the depth of ad spend in those markets. That's nothing new for us relative to others. I would chalk it up to just the timing of our efforts to international monetization relative to scaling the U.S. business as the reason for what you're seeing.

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Operator [25]

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Your next question comes from Mark Shmulik of Bernstein.

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Mark Elliott Shmulik, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [26]

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I think we talked a little bit on this call, and I've heard a bit about how do we create more attribution on top-of-funnel but also focusing on some of the kind of direct response bottom-of-funnel initiatives as well. How do you think about kind of prioritizing across those 2 because I know they are complementary initiatives? And then a follow-on question to that is, as we think about international growth, a similar question around, you've got, I guess, the 28 markets that you're operating in right now. How do you think about scaling within those markets versus expansion to some of the other markets that are not yet monetizable?

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [27]

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Mark, I think if I understand your question, you kind of talked about how do you prioritize top-of-funnel versus bottom-of-funnel in terms of measurement. I would say this year and actually for the last few quarters, we've been really focused on making sure there's attribution at the bottom of the funnel. I think you have to meet customers where they are, and where people have been trained to be for years now is at the bottom of the funnel last-click conversion. And we believe and what we're seeing with our advertisers that when you give people that visibility and then show them what they're missing out when you extend that window, you can then connect the top-of-funnel and the bottom-of-funnel story.

There are a lot of great examples that we have from our advertiser base of people who have seen a lot of success with that. We just met with the team at Coles. They're a great example of really being able to stitch that whole story together from top-of-funnel awareness and inspiration all the way down through things like shopping ads to purchases. But we do think that focusing on making sure the measurement's in place so we have that terminal understanding of whether the transaction happened or not is fundamentally important. And it's also important for us to invest heavily there, given the traditional ways of doing this in the past, like cookies, are probably going to go away in the future.

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Todd R. Morgenfeld, Pinterest, Inc. - CFO [28]

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On the international side, what I would say, as we noted in the letter, we introduced 21 new markets over the course of this year. So we're operating now in 28 markets across the world. And the #1 goal for us right now is to make those markets successful. We think we've got a great opportunity in English-speaking countries outside of the U.S., even though that's our most mature international segment. We've got a lot of room to continue to grow there. And our investments in Western Europe are really at the very early stages. So #1 goal internationally is prove that it works outside of the U.S. and scale those investments nicely through the course of the year.

The second thing I would say, by the end -- there's 2 more things. I mean I want to make sure people are -- because the question, I'm sure, will come up. What's next? And by the end of this year, we would expect to begin monetizing in Latin America, but it would be immaterial to our 2020 results for sure. And then I would imagine that others would follow in the year or 2 after.

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Operator [29]

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Your next question is from Lloyd Walmsley of Deutsche Bank.

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Lloyd Wharton Walmsley, Deutsche Bank AG, Research Division - Research Analyst [30]

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I want to go back to kind of the shoppability. You said you don't expect monetization here to create a discontinuous path for revenue this year. So just wondering what is the path ahead for scaling this as a product and ultimately monetizing this behavior? And is there any reason you can't ultimately flip some elements of the site like the More To Shop module maybe in certain verticals, ultimately, to a paid inclusion model similar to what Google did with Google Shopping 5 or so years ago? And second related, any update on collaborating with Shopify and kind of getting more smaller businesses into the catalog program with them or otherwise?

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [31]

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Yes. So the first question was really around how we're thinking about and why aren't we projecting discontinuous growth. I mean we're already seeing a meaningful contribution from shopping ads. As I mentioned before, retail has been a traditionally strong segment. And all the things that you say are true. I think that as we get more folks into the Verified Merchant Program and we get more density of really high-quality inventory, we can begin to make shopping surfaces more paid inclusion over time.

But that's a long journey. And the reason it's so important is that historically, a lot of folks on Pinterest have not been used to getting access to these really high-quality products, and we want to make sure that we build the trust that we have relevant high-quality products before we allow bid price to be the primary determinant of what product you see. We think that's a little bit of a slower strategy. But long term, we think it's better because we can nurture the commercial intent that's already there, and we think it can grow over time as people come to see that reliably, you can go from inspiration all the way to completion.

On the Shopify front, the test is going well. We don't have any updates to share. But as you mentioned, the test does allow merchants to upload catalogs and implement the Pinterest tag manager and set up advertising campaigns. So it's all in the same theme of building out that inventory, building that measurement on the merchant side and the theme of matching, inspiring images with really relevant products from high-quality merchants at price points that make sense on the consumer side.

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Operator [32]

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Your next question is from Tom Forte of D.A. Davidson.

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Thomas Ferris Forte, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [33]

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So first off, wanted to talk about Pinterest Lite. To what extent is that driving international MAUs and engagement? And then second, as there's more regulatory bills passing as it pertains to privacy, how should we think about that? And in particular, the CCPA and what that means for Pinterest?

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [34]

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Yes. So on Pinterest Lite, we launched that in 5 countries, and the goal was to really improve home page loading time and make performance better. We're seeing strong growth in those countries, and Pinterest Lite was one contributor to that. But even prior to the release of the product, we were seeing really strong growth rates in those markets, so I don't think it's the determinant. The real goal of it was we want to make the service available to folks regardless of the device that they're on or the quality of their data collection or their ability in the short term to pay for data.

The second question was really about CCPA and how it will impact our business. And the answer is that we think of it internally as a headwind, but it's a little bit early to quantify the magnitude of the impact. CCPA obviously can impact whether a business is willing to share data that helps companies understand and drive effectiveness of advertising on their platform. We think that it can disproportionately impact smaller companies like Pinterest because bigger tech companies have access to more sources of data and just have more resources so they may be able to better understand their user base.

At this point, we're not seeing adverse effects. And we're obviously committed to developing privacy safe frameworks. It's just a little bit too early to know exactly how it's going to play out. And so in the meantime, what we're doing is investing in a lot of the first-party measurement that already powers the majority of our targeting but also thinking about other ways to get that conversion visibility as mentioned before.

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Operator [35]

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Your next question comes from Doug Anmuth of JPMorgan.

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Douglas Till Anmuth, JP Morgan Chase & Co, Research Division - MD [36]

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I just wanted to ask about the budgeting and kind of purchase process for large marketers. To what degree are you able to get out further in front of them kind of as you're in the beginning of the year here relative to last year? Just curious how you think about committed spend in the year ahead and the progress you've made since last year.

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Todd R. Morgenfeld, Pinterest, Inc. - CFO [37]

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Thanks, Doug. We've talked in the past a little bit about our success in signing what we call joint business partnerships, which is even though it's not contractually guaranteed spend, it's an intention to spend a certain amount, if not more, over the course of a period of time. And our -- we've had a lot more success over the last couple of years in signing those up, starting with the kinds of advertisers we began to build our business around, the large retail and CPG types. So the first wave of those kinds of deals started a couple of years ago. But as we began to diversify our verticals, we've seen similar deals get struck across things like automotive, financial services, electronics, et cetera. So there's been more visibility and more spend covered by those joint business partnerships over time.

We've gotten a lot of -- feel very good about the relationships we've built there, and it's been something that works across a number of verticals and is important to building a foundation for our business. I don't have it quantified in terms of the amount of spend, but it's been growing over the last couple of years.

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Operator [38]

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Your next question comes from Heath Terry of Goldman Sachs.

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Heath Patrick Terry, Goldman Sachs Group Inc., Research Division - MD [39]

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Great. Ben, you've mentioned a few times now, the impact that first-party measurement is having. Can you help quantify for us just the degree that first-party measurement is being used? And particularly as well, hopefully along the same lines, to what degree your advertisers are using some of the programmatic targeting tools that you're developing, so targeting that goes beyond just the vertical or the content interest layer that's made available to them.

And then would also be interested similarly on the ad tools side, self-serve, what you're seeing in terms of its ability to grow the number of advertisers that you have. I know you talked about that a bit in the prepared remarks, but I'm curious if there's any more detail that you can go into there.

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [40]

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Okay. Heath, I'll start with the third part first on ad tools. Look, we see a huge opportunity there. We've known for a while that people want a more powerful ad manager. They want to be able to pull data directly internationally. They want to have APIs so they can integrate into agencies. And on the road map, we're just getting to it now. So we see a really tremendous opportunity.

And I think what's really interesting to me is that although these are folks that don't necessarily have a dedicated account manager, that doesn't necessarily mean that they're low spenders. A lot of these are digital native brands that are highly quantitative. And if you can give them the right tools at the right conversion prices, they'll spend all day, and so we see great growth in those sectors.

You also asked about sort of quantifying first-party measurement. And I don't have exact data to share with you on that front, but I'll say it's a fundamental strategic priority. And we know 2 things: first, that when folks implement our first-party measurement, they tend to spend more, and they spend more because they have clear visibility into the impact of their ad spend; and second, that as we educate advertisers about lengthening the attribution window so they can see the connection between early touches and purchases, they spend more as well. And that's been substantiated in studies. We had a recent study from Neustar, that said, "Hey, when you take a multi-touch attribution approach, Pinterest is delivering better return on ad spend than a lot of its search and social counterparts."

On targeting, again, we're still in early days. I think I mentioned in the last quarter that we just rolled out things like region targeting globally. There's also interest targeting, and that's coupled with a lot more buying objectives. And that combination has been really attractive to a lot of different advertisers. So across the board, I think it's in the theme that I mentioned in a prior question, we feel like we're still early in that road map on all those fronts. And this year, in particular, we continue to focus on measurement. We're making new and substantial investment in automation. And then finally, we'll continue to expand creative formats so advertisers just have more creative tools at their disposal to meet the marketing objectives.

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Operator [41]

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Your last question comes from Brian Fitzgerald of Wells Fargo.

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Brian Nicholas Fitzgerald, Wells Fargo Securities, LLC, Research Division - Senior Analyst [42]

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Maybe I wanted to ask this targeting one, and I know we've hit upon it a bunch but maybe a slightly different tact. Some other ad platforms thus far this quarter pointed to targeting headwinds as signals are getting diminished, and you mentioned third-party cookies are going away. And so there's diminished attribution. Some have not, as I've talked through the quarter. But I wanted to ask whether you're seeing -- what you're seeing in the industry as a whole, and if there is -- if more paid targeting on the open Internet is causing advertisers to lean more into you guys and your stack.

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [43]

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Yes. I mean the question is just like how is the evolving landscape affecting the business. And as mentioned before, the answer is that it's causing us to invest a lot more in first-party. I think that a big advantage that Pinterest has is that the majority of our targeting signal is from on-site behavior, right? And that comes from the fact that people come to Pinterest with intent, right? They're not there to talk with their friends or read the news. They're coming there literally to get inspiration for life projects, have a big commercial component. So that's a tailwind.

On the flip side of it, when you talk about conversions, that signal on what things convert is a really important input into targeting over the long term, especially as we go further into a more conversion-based advertising. And so to the extent that it's difficult to get that signal back, and I think there's a good case that it will be more difficult in the future, it may impair our ability to grow those products as fast. We're investing heavily in those first-party measurement tools. We're being very transparent with our users. But that's sort of the tailwind and headwind story. So I think it's a little bit of a mix, and we'll have to see how it plays out in the future.

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Operator [44]

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We have completed the allotted time for questions. I will now turn the call over to Ben Silbermann for closing remarks.

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Benjamin Silbermann, Pinterest, Inc. - Chairman, Co-Founder, President & CEO [45]

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Well, thanks again to everyone on the call for taking the time to join us. We appreciate your questions, and we look forward to continuing the conversation down the road. Have a great day.

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Operator [46]

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This concludes today's conference call. You may now disconnect.