Pinterest, Inc. — Q1 2023 Form 10-Q
Business context and period: For the three months ended March 31, 2023. Pinterest operates a visual discovery platform and generates substantially all revenue from advertising.
Financial and operating performance
| Metric | Q1 2023 | Prior comparable period |
|---|---|---|
| Revenue | $602.6 million | $574.9 million; up 5% |
| Operating loss | $243.7 million | $3.7 million |
| Net loss | $208.6 million; $0.31 per share | $5.3 million; $0.01 per share |
| Adjusted EBITDA (non-GAAP) | $27.0 million | $76.8 million |
| Operating margin / net margin | (39%) / (34%) | (1%) / (1%) |
| Operating cash flow | $183.5 million | $213.4 million |
| Cash, cash equivalents and marketable securities | $2,729.7 million | $2,698.2 million at December 31, 2022 |
Costs and expenses totaled $846.3 million, or 139% of revenue, versus $578.6 million, or 101%, a year earlier. Cost of revenue was 28% of revenue (25% prior year), implying an approximate gross margin of 72% (75% prior year). Share-based compensation was $143.1 million, up from $73.2 million. The filing reports no borrowings under the $400 million revolving credit facility and says Pinterest was in compliance with its covenants. Balance-sheet liabilities include operating lease obligations; total liabilities were $506.7 million at March 31, 2023.
Net cash used in financing was $158.6 million, including $69.5 million of cash stock repurchases and $91.5 million of share withholding for employee taxes. Investing activities provided $14.2 million, primarily reflecting marketable-security transactions. Cash, cash equivalents and restricted cash ended the quarter at $1,657.8 million; this measure excludes marketable securities.
Changes versus the prior period
- Monthly active users (MAUs) reached 463 million, up 7% year over year. Global ARPU was $1.32, down 1%; U.S. and Canada ARPU rose 3% to $5.11, Europe rose 2% to $0.74, and Rest of World rose 27% to $0.10.
- Management attributed revenue growth to higher demand for awareness advertising and user growth, partly offset by lower ARPU. Ads served rose 33%, while ad prices fell 21% year over year.
- Operating and net losses widened materially. The quarter included $121.3 million of restructuring charges, including $112.9 million of non-cash office-space impairment and abandonment charges and $8.4 million of severance and other personnel costs. Adjusted EBITDA also declined 65% year over year.
- Research and development expense rose 36%, sales and marketing 16%, and general and administrative expense 230%. Management cited higher share-based compensation and personnel costs; general and administrative expense also included the restructuring charges.
Outlook, risks and unusual items
The filing provides no numerical revenue, earnings or other quarterly guidance. Management said existing cash, cash equivalents, marketable securities and available revolving-credit capacity should cover working capital and capital expenditure needs for at least the next 12 months, while noting additional capital may be needed beyond that period. It identified macroeconomic uncertainty, inflation, foreign-exchange movements, supply-chain issues and competition as factors that may affect advertising demand, users, engagement and results.
In March 2023, Pinterest began a restructuring that included a workforce reduction of approximately 4% and plans to sublease or abandon certain office space. The company said remaining liabilities and charges under the plan were immaterial at quarter-end; the plan does not eliminate future lease-payment commitments. A new $500 million share-repurchase authorization was approved in February; $71.6 million was repurchased in Q1, leaving approximately $428.4 million available.
Other notable commitments and risks include a remaining $2,205.1 million minimum AWS cloud-services commitment through April 2029, which management expects to meet; dependence on AWS; advertising-market and ad-pricing pressure; privacy, measurement and regulatory risks; and competition for users and advertisers. The company said ordinary-course legal matters were not reasonably expected to have a material adverse effect, while noting litigation can still consume resources and harm reputation. Disclosure controls were assessed as effective at March 31, 2023.
Key facts for investors to verify
- Whether user growth and international monetization can offset lower global ARPU and falling ad prices.
- How much of the increase in costs reflects recurring personnel and share-based compensation versus restructuring and other unusual items.
- Whether Pinterest can improve profitability and adjusted EBITDA while sustaining its investments in product development and infrastructure.
- Liquidity and spending implications of the AWS minimum commitment, lease obligations and the stock-repurchase program.
- How privacy rules, ad-measurement changes, macroeconomic conditions and platform competition affect advertiser demand and revenue.