Pinterest, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Pinterest operates a visual discovery platform and generates substantially all revenue from advertising on its website and mobile app. The unaudited results precede the company’s April 2019 IPO.
Key financial and operating metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $201.9 million | $131.4 million |
| Gross profit and gross margin | $128.2 million; 63.5% | $79.7 million; 60.7% |
| Operating loss and margin | $44.8 million; (22.2%) | $55.0 million; (41.9%) |
| Net loss | $41.4 million | $52.7 million |
| Net loss per share, basic and diluted | $0.33 | $0.42 |
| Adjusted EBITDA, non-GAAP | $(38.4) million | $(45.4) million |
| Net cash provided by operating activities | $33.1 million | $13.5 million |
- Revenue increased 54% year over year. Management attributed growth to higher average user counts and ARPU, more advertisers and greater advertiser demand; ad pricing impact was not significant.
- Monthly active users were 291 million, up 22%. Global ARPU was $0.73, up 26%; U.S. ARPU was $2.25, up 41%, and international ARPU was $0.08, up 59%.
- Revenue by customer billing address was $181.8 million U.S. and $20.1 million international. Management’s user-geography measure instead reported $187.0 million U.S. and $14.9 million international; the filing explains these use different allocation methods.
- Cash, cash equivalents and marketable securities totaled $642.2 million at quarter-end. Current assets were $846.9 million and current liabilities $123.5 million. The company reported no borrowings under its $500 million revolving credit facility and said it was in covenant compliance.
- Operating cash flow improved year over year, primarily due to increased accounts-receivable collections. Investing cash flow was $(3.8) million and financing cash flow $(3.2) million.
Material changes versus the prior comparable period
- Revenue grew 54%, while net loss narrowed by $11.3 million and Adjusted EBITDA loss narrowed by $6.9 million.
- Costs and expenses rose 32% to $246.7 million, slower than revenue growth. Cost of revenue increased 43%; R&D 21%; sales and marketing 37%; and general and administrative 28%. Expense ratios to revenue improved across these categories.
- Average headcount increases drove higher R&D, sales and marketing, and general and administrative costs. Higher hosting costs, associated with user growth, drove the increase in cost of revenue.
- Share-based compensation recognized in Q1 was $0.7 million versus $4.8 million a year earlier. RSU expense had not been recorded because the IPO-related performance condition was unmet at March 31.
Outlook, notable events and risks
- IPO: The company completed its IPO on April 23, 2019, selling 75 million Class A shares at $19 per share for $1.368 billion net proceeds before estimated offering costs. It sold a further 11.25 million shares on April 29 for $205.2 million additional net proceeds. These proceeds are not included in the March 31 financial statements. Approximately $303.3 million was used for RSU-related tax withholding and remittance obligations.
- Expected compensation expense: Management said post-IPO expenses, particularly in Q2 2019, would include substantial RSU compensation expense. The filing estimates $974.9 million of cumulative expense would have been recognized had the IPO occurred by March 31, with $924.5 million of remaining unrecognized expense expected over a weighted-average 3.7 years.
- Liquidity and spending: Management believes cash, marketable securities and available credit will cover working capital and capital expenditures for at least the next 12 months, while noting additional capital could be needed. No formal quantified revenue or earnings guidance is provided.
- Growth outlook: Management expects international MAU growth to outpace U.S. growth in the near term and reported advertising in 13 countries, versus six a year earlier. International monetization remains substantially lower than U.S. monetization.
- Commitment: A lease signed in March for approximately 490,000 square feet of future San Francisco office space could create about $420 million of noncancelable minimum payments if specified contingencies are met; expected commencement is 2022.
- Principal risks: Dependence on advertising and advertiser measurement tools; ability to grow and engage users and scale international monetization; competition; privacy and data regulation; search-engine traffic dependence; reliance on Amazon Web Services; content and intellectual-property claims; and continuing losses. The company had an accumulated deficit of $886.8 million and stated it had not achieved profitability.
- Governance and dilution: The post-IPO dual-class structure gives Class B shares 20 votes each versus one vote for Class A, concentrating voting control. Outstanding options, RSUs, future equity awards and potential share sales may also dilute investors or affect trading.
Important facts for investors to verify
- How much post-IPO RSU expense is recognized, and its effect on GAAP operating results and cash flows.
- Whether user growth and ARPU gains persist, especially internationally, and whether advertiser demand converts into durable revenue growth.
- Cash and liquidity after IPO proceeds, RSU tax payments, offering costs and subsequent spending.
- Whether the office-lease contingencies are satisfied and the resulting lease commitment and obligations.
- The quality and comparability of MAU and ARPU metrics, which are internally estimated and subject to methodological limitations.
- Effects of the dual-class voting structure, equity compensation and potential share sales on Class A shareholders.