Pinterest, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Pinterest earns substantially all revenue from advertising on its website and mobile application. Results are unaudited.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $272.5 million | $261.2 million | $544.4 million | $463.2 million |
| Gross margin | 60% | 60% | 62% | 61% |
| Operating loss | $(104.5) million | $(1,167.1) million | $(250.6) million | $(1,212.0) million |
| Net loss | $(100.7) million | $(1,159.5) million | $(241.9) million | $(1,200.9) million |
| Adjusted EBITDA | $(33.9) million | $(26.0) million | $(87.2) million | $(64.5) million |
| Operating cash flow | Six-month period: $20.8 million provided | Prior-year six-month period: $16.4 million used |
Q2 revenue grew 4% year over year; first-half revenue grew 18%. Q2 operating and net margins were approximately (38)% and (37)%, respectively. Q2 diluted loss per share was $0.17, versus $2.62 a year earlier. Adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results.
Q2 global monthly active users (MAUs) reached 416 million, up 39% year over year. Global average revenue per user (ARPU) was $0.70, down 21%; U.S. ARPU was $2.50, down 11%, while international ARPU was $0.14, up 21%.
Liquidity, debt and other financial items
- Cash, cash equivalents and marketable securities totaled $1.703 billion at June 30, 2020; cash and cash equivalents were $863.6 million and marketable securities were $839.5 million.
- The company reported no borrowings on its $500 million revolving credit facility and said it was in compliance with its covenants. The facility includes a $350 million minimum-liquidity covenant, which counts available borrowing capacity.
- Total liabilities were $343.0 million, including $151.3 million of operating lease liabilities. The filing reports no material change in other non-cancelable contractual commitments since year-end.
- Six-month investing cash flow was $215.8 million, primarily reflecting marketable-security maturities and sales; financing cash flow was $(24.1) million. The company reported no off-balance-sheet arrangements.
Changes, outlook and risks
- Revenue growth slowed sharply in mid-March as advertisers reacted to COVID-19, stabilized in April and improved through the quarter. Management said growth continued accelerating in early July, supported by more advertisements, but provided no numerical guidance.
- Management attributed increased user activity to people spending more time at home. It cautioned that pandemic-related user growth may not persist and that the duration and financial effects of COVID-19 were unpredictable. It planned to continue strategic investment while adjusting expenses prudently.
- Revenue growth reflected a 39% increase in MAUs, partly offset by a 21% decline in ARPU. Management cited pandemic-related advertising-demand weakness and lower ad pricing. International monetization grew faster than U.S. monetization.
- The steep year-over-year reduction in reported operating expenses and net loss is not a like-for-like indicator of underlying cost trends: Q2 2019 included $1.135 billion of share-based compensation recorded around the IPO, versus $62.1 million in Q2 2020. Q2 2020 adjusted EBITDA loss nevertheless widened year over year.
- Q2 2020 share-based compensation included a reversal related to forfeited unvested RSUs of the former COO. The company had $764.3 million of unrecognized share-based compensation expense expected to be recognized over a weighted-average 3.2 years.
- A planned San Francisco office lease for approximately 490,000 square feet is delayed; if specified contingencies are met and the lease commences, minimum payments would total approximately $440 million. Management currently estimated commencement in 2025 and may terminate before commencement if contingencies are not satisfied.
- Management believed available liquidity and the revolving facility would fund working capital and capital expenditures for at least 12 months, while noting that prolonged economic disruption could pressure advertising, cash flows and access to financing. Principal risks include advertising demand and pricing, user engagement after pandemic restrictions ease, privacy and measurement changes, competition, platform and AWS reliability, and legal or regulatory exposure. The company said pending ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether the Q2 improvement in revenue momentum and user growth continued after the quarter, and whether pandemic-driven engagement was sustained.
- Whether ARPU, ad pricing and advertiser demand recovered, particularly in the U.S.; distinguish revenue by user location in management’s discussion from revenue by customer billing address in the financial-statement note.
- Underlying expense and profitability trends after accounting for the unusually large IPO-related share-based compensation in the 2019 comparison, and the ongoing dilution and expense from equity awards.
- Liquidity and covenant headroom under the revolver, as well as the timing and conditions for the potential $440 million office lease commitment.
- How management’s estimates of user metrics, expected credit losses and business performance evolve as COVID-19 and related economic uncertainty continue.