Pinterest, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Pinterest operates a visual discovery platform and generates revenue primarily from advertising on its website and mobile application. The financial statements are unaudited and prepared under U.S. GAAP.
Key financial and operating metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $271.9 million | $201.9 million; up 35% |
| Cost of revenue / gross margin | $99.2 million / approximately 64% | $73.7 million / approximately 64% |
| Operating expenses | $318.8 million, excluding cost of revenue | $173.0 million |
| Operating loss | $146.1 million | $44.8 million |
| Net loss | $141.2 million; $0.25 per share | $41.4 million; $0.33 per share |
| Adjusted EBITDA (non-GAAP) | $(53.3) million | $(38.4) million |
| Operating cash flow | $57.3 million | $33.1 million |
| Cash, cash equivalents and marketable securities | $1.737 billion | — |
| Monthly active users (MAUs) | 367 million; up 26% year over year | — |
| Global average revenue per user (ARPU) | $0.77; up 7% year over year | — |
U.S. ARPU was $2.66, up 18%; international ARPU was $0.13, up 76%. The company reported share-based compensation expense of $81.0 million, versus $0.7 million a year earlier. Adjusted EBITDA excludes share-based compensation and other items and should be considered alongside GAAP results.
Liquidity, cash flow and obligations
- At March 31, cash and cash equivalents were $740.8 million, marketable securities were $995.9 million, and restricted cash was $23.8 million. Current assets were $2.0 billion and current liabilities were $170.8 million.
- Cash flow from investing activities was positive $57.8 million, primarily reflecting maturities and sales of marketable securities; purchases of property and equipment and intangible assets were $7.0 million. Financing cash flow was negative $23.7 million, including $44.1 million used for tax withholding on released RSUs, partly offset by option-exercise proceeds.
- The company had no borrowings outstanding under its $500 million revolving credit facility and reported compliance with its covenants. It stated that available cash, securities and facility capacity should meet working capital and capital expenditure needs for at least 12 months, while noting COVID-19 could change its needs or access to financing.
- Operating lease liabilities were $158.3 million. A planned office lease, conditional on specified contingencies, could entail approximately $440 million of non-cancelable minimum payments; commencement was estimated for 2025.
Material changes and management commentary
- Revenue increased $70.0 million year over year, supported by user growth and higher ARPU. Management attributed ARPU growth mainly to more advertising demand before the pandemic’s effects intensified.
- Operating loss widened to $146.1 million. Research and development rose 101%, sales and marketing 53%, and general and administrative expense 132%, with higher share-based compensation and headcount among the principal drivers. Cost of revenue rose 35%, in line with revenue growth.
- Management said revenue growth decelerated sharply beginning in mid-March and that the trend continued into April as advertisers reacted to pandemic-related demand changes. At the same time, more time at home drove increased user engagement, including board creation, visits, saves, searches and conversions.
- The company planned to continue strategic investment while considering expense adjustments. It provided no quantified financial guidance in the supplied filing text and said the duration and full financial effects of COVID-19 were highly uncertain.
- Subsequent event: on April 7, 2020, Pinterest granted 19.4 million RSUs and restricted stock awards with aggregate grant-date fair value of $292.6 million, expected to be recognized over a weighted-average 3.9 years.
Risks, contingencies and unusual items
- COVID-19 may reduce advertiser spending, disrupt operations and impair collections, while pandemic-related engagement increases may not persist. The filing cautions that Q1 metrics may not predict future performance.
- Substantially all revenue comes from advertising. Advertiser concentration in certain verticals, competition, measurement limitations, and privacy rules or browser changes that restrict data use could affect revenue and monetization.
- The company remains loss-making, with an accumulated deficit of $2.35 billion at quarter-end. Unrecognized share-based compensation was $623.0 million; substantial equity compensation may affect future expenses and dilution.
- Ordinary-course legal matters were not believed likely to have a material adverse outcome, though litigation may still entail costs and management distraction. Secured letters of credit totaled $25.5 million.
- Class B shares carried 20 votes per share; holders had approximately 90.2% of voting power at March 31, 2020. This dual-class structure limits Class A holders’ influence.
Important facts for investors to verify
- How revenue growth, advertiser demand and pricing developed after the mid-March deceleration, particularly in April and subsequent quarters.
- Whether higher pandemic-era user engagement persisted, and how MAUs and ARPU trends compare across U.S. and international markets.
- How much of the reported operating cash flow reflected collections and non-cash share-based compensation, and the company’s ongoing cash use and investment needs.
- The future expense and dilution effects of outstanding and newly granted equity awards, including the April 2020 grant.
- Whether the conditional $440 million office lease proceeds and how COVID-19 affects liquidity, credit-facility headroom and compliance with covenants.