Pinterest, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020. Financial statements are unaudited. Pinterest operates as a single segment and generates substantially all revenue by selling advertising on its website and mobile application.
Financial and operating performance
| Metric | Q3 2020 | Q3 2019 | Change |
|---|---|---|---|
| Revenue | $442.6 million | $279.7 million | +58% |
| Operating loss | $97.0 million | $133.7 million | Improved by $36.7 million |
| Net loss | $94.2 million | $124.7 million | Improved by $30.5 million |
| Adjusted EBITDA | $93.0 million | $3.9 million | Non-GAAP; includes addback of $89.5 million lease-termination payment |
| Monthly active users | 442 million | — | +37% year over year |
| Global ARPU | $1.03 | — | +15% year over year |
Margins and revenue drivers: Cost of revenue was 25% of revenue, versus 30% a year earlier; operating margin was approximately negative 22%, versus negative 48%, and net margin approximately negative 21%, versus negative 45%. Revenue growth reflected 37% MAU growth and 15% global ARPU growth. The company reported a 34% increase in ads served and an 18% increase in ad pricing. U.S. ARPU rose 31% to $3.85 and international ARPU rose 66% to $0.21.
Nine-month results: Revenue was $987.0 million, up 33% from $742.9 million. Net loss was $336.2 million, compared with $1.326 billion in the prior-year period. Adjusted EBITDA was $5.8 million, compared with negative $60.6 million. Prior-year expenses included substantially higher IPO-related share-based compensation; comparisons in operating expenses are affected by that timing.
Cash, liquidity and obligations
- At September 30, 2020, cash and cash equivalents were $652.7 million and marketable securities were $996.4 million, totaling $1.649 billion. Total current assets were $2.033 billion; total current liabilities were $189.6 million.
- There was no borrowing outstanding under the $500 million revolving credit facility. Pinterest reported compliance with its covenants and stated that cash, investments and available facility capacity should cover working capital and capital expenditure needs for at least the next 12 months.
- Operating lease liabilities totaled $150.2 million. The company had no off-balance-sheet arrangements. It reported $8.1 million of secured letters of credit, primarily related to office leases.
- Cash flow from operating activities was negative $71.9 million for the first nine months, versus negative $8.9 million a year earlier. Investing activities provided $51.3 million, mainly reflecting marketable-security sales and maturities; financing activities provided $6.3 million. The prior-year financing inflow included IPO proceeds.
Material changes, outlook and risks
- COVID-19: Management said advertiser demand recovered after a sharp acceleration in July and remained strong, while users acquired during the pandemic continued to show high engagement and retention. The company cautioned that the pandemic’s duration and effects on advertising, engagement, operations and results remained uncertain; elevated engagement and results might not persist.
- One-time lease item: Pinterest paid $89.5 million in August to terminate a planned San Francisco office lease. The termination eliminated approximately $440 million of future minimum lease payments. The payment increased Q3 general and administrative expense and was added back in Adjusted EBITDA.
- Spending and growth: Management planned to continue investing in strategic priorities while adjusting expenses prudently. It expected international user growth to outpace U.S. growth in the near term. The filing provides no specific revenue, earnings or margin guidance.
- Profitability and stock compensation: Pinterest remained loss-making, with an accumulated deficit of $2.543 billion. It had $764.3 million of unrecognized share-based compensation expected to be recognized over a weighted-average 3.1 years. Q3 Adjusted EBITDA excludes share-based compensation and the lease payment, among other items, and is not a GAAP measure.
- Principal risks: Dependence on advertising and advertiser budgets; uncertain COVID-19 effects; ability to retain and engage users and scale monetization, especially internationally; competition; privacy, data-use and advertising-measurement restrictions; content and regulatory exposure; reliance on Amazon Web Services; and market volatility. The company noted that reduced tracking capabilities in browsers and mobile platforms could impair ad targeting and measurement.
- Legal matters: Pinterest reported ordinary-course lawsuits, claims and proceedings and did not believe their resolution would have a material adverse effect, while noting litigation can still entail costs and management distraction.
Most important facts for investors to verify
- Whether user growth, engagement and advertising demand remain strong after pandemic-related effects subside.
- Whether revenue growth and ARPU gains continue, particularly internationally, and whether advertiser pricing and ad volume are sustainable.
- How much of Adjusted EBITDA reflects ongoing operations: Q3’s $93.0 million figure adds back the $89.5 million lease-termination payment and recurring share-based compensation.
- Whether operating cash flow improves and the stated liquidity coverage remains adequate as the company invests and continues to incur losses.
- Future share-based compensation expense, equity issuance and dilution, and the effect of the company’s dual-class voting structure.
- Geographic revenue figures use different allocation methods in the filing: customer billing address in the financial-statement note and estimated user location in management’s discussion.