Pinterest, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Pinterest generates substantially all revenue from advertising on its website and mobile app. Figures below are unaudited; financial amounts are in U.S. dollars.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $613.2 million | $272.5 million | $1,098.4 million | $544.4 million |
| Operating income (loss) | $71.2 million | $(104.5) million | $48.3 million | $(250.6) million |
| Net income (loss) | $69.4 million | $(100.7) million | $47.7 million | $(241.9) million |
| Adjusted EBITDA | $178.2 million | $(33.9) million | $262.0 million | $(87.2) million |
| Operating cash flow | Not separately stated | Not separately stated | $375.4 million | $20.8 million |
- Q2 revenue grew 125% year over year; first-half revenue grew 102%. Management attributed growth to higher ad pricing and volume, stronger monetization, and user growth.
- Q2 gross margin was approximately 79% (up from 60%); operating margin was approximately 12% (versus negative 38%); net margin was approximately 11% (versus negative 37%). These are calculated from reported GAAP figures.
- Q2 GAAP diluted EPS was $0.10, compared with a loss of $0.17 a year earlier. First-half diluted EPS was $0.07, compared with a loss of $0.42.
- Q2 monthly active users (MAUs) were 454 million, up 9% year over year. Global ARPU was $1.32, up 89%; U.S. ARPU was $5.08, up 103%; international ARPU was $0.36, up 163%.
- Cash, cash equivalents and marketable securities totaled $2.143 billion at June 30, 2021. Current assets were $2.664 billion and current liabilities $237.4 million. Total liabilities were $381.7 million; the filing reports no borrowings under its $500 million revolving credit facility.
- Q2 share-based compensation expense was $100.3 million, up from $62.1 million. Adjusted EBITDA excludes share-based compensation and other items, so it should not be treated as a substitute for GAAP results.
Material changes versus the prior comparable period
- Revenue and profitability rebounded sharply from the pandemic-affected 2020 comparison period, with the company reporting GAAP net income in both Q2 and the first half of 2021 versus losses in 2020.
- Revenue growth substantially outpaced MAU growth, reflecting increased monetization. Management reported Q2 ad volume up 23% and ad pricing up 83% year over year.
- Despite global MAU growth, U.S. MAUs declined 5% year over year; international MAUs increased 13%. Management said easing pandemic restrictions had slowed global user growth and reduced engagement compared with 2020.
- Operating expenses rose in dollars: Q2 total costs and expenses were $542.0 million versus $377.0 million. Research and development, sales and marketing, and general and administrative expenses increased, including higher staffing, marketing, legal/advisory, and share-based compensation costs.
- First-half operating cash flow increased to $375.4 million from $20.8 million. Investing cash flow was a $46.9 million outflow, primarily reflecting purchases of marketable securities; financing cash flow was $14.9 million inflow.
Outlook, risks, contingencies and unusual items
- The filing gives no quantified revenue or earnings guidance. Management said it could not predict the duration or extent of COVID-19 effects on advertiser demand, user engagement, operations, or financial results; preliminary July observations indicated the user and engagement trends continued.
- Management expects international users to drive global user growth in the near term, while noting uncertainty over post-pandemic engagement. It believes existing cash, securities, and available credit will cover working capital and capital expenditure needs for at least 12 months.
- Pinterest entered a new AWS pricing commitment requiring at least $3.25 billion of cloud-service purchases through April 2029; the remaining commitment was $3.181 billion at June 30, 2021. The company said it expects to meet it. Failure to meet the commitment could require payment of the shortfall.
- Principal business risks include dependence on advertising, user growth and engagement, competition, ad measurement and targeting constraints, privacy regulation, third-party platforms and AWS reliance, content moderation, cybersecurity, and COVID-19 uncertainty. The company also cautions that MAU and ARPU are internally calculated estimates with measurement limitations.
- Pending matters include a securities class action alleging misleading statements about 2019 revenue and user growth, and derivative suits concerning workplace discrimination allegations. The company said it did not believe these matters would materially affect its financial position or results, while acknowledging litigation costs and other potential adverse effects.
- The company reported an IRS examination of its 2018 and 2019 federal returns and said it believes its tax reserves are adequate. It also reported an accumulated deficit of $2.287 billion and $963.8 million of unrecognized share-based compensation expected to be recognized over a weighted-average three years.
Important facts for investors to verify
- Whether the sharp advertising growth and pricing gains persist as pandemic-related comparisons normalize, especially given the reported U.S. MAU decline and ongoing engagement uncertainty.
- How much of reported profitability and Adjusted EBITDA translates into durable cash generation after recurring share-based compensation and operating investment.
- Progress in international monetization and the sustainability of MAU and ARPU trends; these metrics are company estimates and may not be comparable with competitors’ measures.
- Expected AWS spending against the $3.181 billion remaining commitment, and the flexibility this long-term obligation leaves if growth or infrastructure needs change.
- Developments in the disclosed securities and derivative litigation, workplace-culture matters, and the IRS examination.