Pinterest, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Pinterest generates revenue primarily from advertising on its website and mobile application. All figures below are in U.S. dollars unless stated otherwise.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $632.9 million | $442.6 million | $1,731.4 million | $987.0 million |
| Operating income (loss) | $98.4 million | $(97.0) million | $146.7 million | $(347.7) million |
| Net income (loss) | $94.0 million | $(94.2) million | $141.7 million | $(336.2) million |
| Adjusted EBITDA | $201.5 million | $93.0 million | $463.5 million | $5.8 million |
- Q3 revenue grew 43%; nine-month revenue grew 75%. Q3 operating margin was about 16% versus negative 22% a year earlier; net margin was about 15% versus negative 21%.
- Q3 MAUs were 444 million, up 1% year over year. Global ARPU was $1.41, up 37%; U.S. ARPU was $5.55, up 44%; international ARPU was $0.38, up 81%.
- For the nine months, operating cash flow was $541.1 million, versus cash used of $71.9 million in 2020. Investing cash flow was $3.8 million and financing cash flow was $17.9 million.
- At September 30, cash and cash equivalents were $1.232 billion and marketable securities were $1.075 billion, totaling $2.307 billion. Current assets were $2.871 billion and current liabilities $241.0 million. Total liabilities were $454.4 million, including $189.3 million of operating lease liabilities.
- No amounts were drawn on the $500 million revolving credit facility; Pinterest reported compliance with its covenants. The filing reports no interest-bearing debt outstanding under the facility.
Changes versus the prior comparable period
- Profitability improved substantially: Pinterest reported quarterly and nine-month GAAP net income, compared with losses in 2020.
- Revenue growth was driven primarily by higher ad pricing and ARPU; management said the effect of changes in ad volume was not significant. For Q3, it reported U.S. MAUs down 10% and international MAUs up 4% year over year, alongside slower international user growth overall.
- Q3 operating expenses totaled $534.5 million, down from $539.6 million despite growth in R&D and sales and marketing spending. The comparison reflects $89.5 million of one-time lease-termination expense in Q3 2020, which contributed to the much lower year-over-year G&A expense in 2021.
- Share-based compensation was $96.3 million in Q3 and $276.0 million for the nine months. The company had $902.0 million of unrecognized share-based compensation expense expected to be recognized over a weighted-average 2.9 years.
Outlook, risks and unusual items
- No specific revenue, earnings or other quantitative guidance is provided in the filing. Management says easing COVID-19 restrictions since mid-March 2021 slowed MAU growth and reduced engagement compared with the pandemic-affected prior-year period; it cannot predict the duration or full business impact.
- Management believes available cash, securities and revolver capacity will cover working capital and capital expenditure needs for at least the next 12 months, while noting additional capital could be needed in the future.
- AWS agreement: Pinterest committed to purchase at least $3.25 billion of cloud services through April 2029. The remaining commitment was $3.071 billion at September 30, 2021; the company expects to meet it.
- Substantially all revenue depends on advertising. Key risks include slowing or declining user engagement, competition for users and ad budgets, limited ad measurement and targeting amid privacy and platform changes, reliance on AWS and search engines, evolving privacy/content regulations, and COVID-19 uncertainty.
- Subsequent events: Pinterest expects a $24.8 million non-cash charitable contribution expense in Q4 from shares issued October 4. Following a co-founder’s transition to a consulting role effective October 15, the company expects a one-time $48.6 million Q4 charge related to modification of his RSU award.
- The securities class action disclosed in the filing was dismissed, and judgment was entered for Pinterest and the other defendants. Related derivative litigation concerning workplace discrimination allegations was referred to mediation or stayed; the company said it did not expect a material financial impact.
Important facts for investors to verify
- Whether MAU and engagement trends stabilized after the Q3 decline in U.S. users; the company notes that user metrics are internally calculated estimates and subject to measurement limitations.
- Whether ARPU and ad pricing growth can persist if user growth remains weak, and whether ad measurement changes affect advertiser demand and monetization.
- How recurring operating costs, hiring and share-based compensation affect GAAP profitability and cash generation; Adjusted EBITDA excludes share-based compensation and other items and is not a GAAP measure.
- The scale and duration of the AWS purchase commitment, and the company’s ability to meet it as usage and business conditions change.
- The Q4 charitable contribution and RSU modification charges, as well as developments in derivative litigation and workplace-culture initiatives.