Pinterest, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. Pinterest operates a visual discovery platform and generates substantially all revenue from advertising. This unaudited quarterly report covers the three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $684.6 million | $632.9 million | $1,925.4 million | $1,731.4 million |
| Operating income (loss) | $(69.4) million | $98.4 million | $(107.5) million | $146.7 million |
| Net income (loss) | $(65.2) million | $94.0 million | $(113.5) million | $141.7 million |
| Adjusted EBITDA | $77.3 million | $201.5 million | $246.2 million | $463.5 million |
| Operating margin | (10.1)% | 15.5% | (5.6)% | 8.5% |
- Q3 revenue grew 8% year over year; nine-month revenue grew 11%. Q3 GAAP diluted loss per share was $0.10 (versus $0.14 diluted earnings per share); nine-month diluted loss per share was $0.17 (versus $0.20 earnings per share).
- Q3 costs and expenses were $753.9 million, up from $534.5 million. Share-based compensation was $136.2 million, up $39.9 million year over year. Management attributed expense growth primarily to personnel, marketing, hosting, and related costs.
- Q3 Adjusted EBITDA fell 62% year over year. It is a non-GAAP measure that excludes, among other items, recurring share-based compensation; assess it alongside GAAP results.
- For the nine months, operating cash flow was $410.9 million, down from $541.1 million. Investing cash flow was $(62.1) million and financing cash flow was $(93.6) million. Cash, cash equivalents and restricted cash ended at $1,678.7 million.
- At September 30, cash and cash equivalents were $1,671.3 million and marketable securities were $994.2 million, totaling $2,665.5 million. Current assets were $3,262.1 million versus current liabilities of $344.7 million. Total liabilities were $547.7 million, including $183.2 million of operating lease liabilities. The filing reports no borrowings under the revolving facility as of the filing date.
Material changes and operating trends
- Global monthly active users were 445 million, flat year over year and up 3% sequentially. Management cited continued effects from lower search traffic following search-engine algorithm changes and competition for users’ time.
- Global Q3 average revenue per user was $1.56, up 11%. U.S. and Canada ARPU rose 15% to $6.13; Europe fell 3% to $0.72; Rest of World rose 38% to $0.11.
- Management said revenue growth reflected a 15% increase in ads served, partly offset by a 6% decrease in ad prices. Q3 revenue based on user location rose 9% in U.S. and Canada, fell 4% in Europe, and increased 36% in Rest of World.
- Operating cash flow declined amid lower earnings, partly offset by increased accounts-receivable collections. The company attributed higher financing cash outflow primarily to net settlement of taxes on vested equity awards.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or margin guidance. Management expected existing cash, marketable securities and available revolving credit to meet working-capital and capital-expenditure needs for at least 12 months, while noting possible future capital needs.
- In October 2022, Pinterest replaced its prior facility with a five-year $400 million revolving credit facility, with an option to increase commitments by up to $405 million subject to conditions. It was undrawn as of the filing date. The facility includes a net-leverage covenant and liens on substantially all domestic assets, including certain intellectual property.
- Pinterest acquired The Yes Platform, an AI-powered fashion shopping platform, in June 2022 for $87.6 million in cash. The acquisition added $60.0 million of goodwill and $28.6 million of identifiable intangible assets; the company said it did not materially affect the financial statements.
- The company has a remaining $2.513 billion minimum cloud-services purchase commitment to AWS through April 2029 and expects to meet it.
- Key risks include macroeconomic and advertising-market weakness, inflation and foreign-exchange pressures, competition, user growth and engagement, dependence on advertising, privacy and measurement restrictions, search-engine changes, and reliance on AWS. Management noted foreign-exchange and macroeconomic headwinds in Europe and lower ad prices.
- Shareholder derivative litigation concerning workplace discrimination allegations was settled and approved in May 2022; a related Delaware case was dismissed in July 2022. The filing states it does not expect current legal matters to have a material adverse effect, while acknowledging litigation costs and uncertainty.
Important facts for investors to verify
- Whether user growth and engagement improve, particularly given flat year-over-year MAUs and search-traffic pressure.
- Whether ad pricing stabilizes and ARPU growth can continue amid macroeconomic uncertainty and competition for advertising budgets.
- Whether operating expenses, headcount and share-based compensation moderate enough to restore GAAP profitability and improve Adjusted EBITDA.
- How cash generation develops, and whether Pinterest meets its AWS commitment and maintains compliance with the new credit-facility covenants.
- Whether The Yes acquisition supports shopping monetization, and how the company’s disclosed user and ARPU estimates compare with other available indicators.