Pinterest, Inc. (NYSE:PINS) Goldman Sachs Communacopia + Technology Conference 2022 September 14, 2022 6:45 PM ET
Company Participants
Bill Ready – CEO
Todd Morgenfeld – CFO & Head of Business Operations
Conference Call Participants
Unidentified Analyst
Okay, I know everyone’s getting settled. And we’re running around in between chats, but in the interest of time, let’s get going. Our next Fireside Chat is with Pinterest. It’s my pleasure to host Bill Reddy, the new CEO of Pinterest and Todd Morgenfeld, the CFO. Bill and Todd, thanks for being part of the conference this year.
Bill Ready
Yeah. Thanks for having us. We appreciate you hosting.
Question-and-Answer Session
Q – Unidentified Analyst
So Bill, let’s start with you. I think what I hear from a lot of investors and a lot of interest is what attracted you to this role? You’ve had a wide variety of experiences through your professional career. What about this role, and what about your past experiences put this in the right spot for you?
Bill Ready
Yeah. So if you think from my vantage point, prior to joining, there are a number of really unique things about the Pinterest platform that are just completely different than any other platform out there. And I think now, some of those we talked about it, you can say we have a lot more opportunity to leverage those things. But there’s really unique aspects of the Pinterest platform. And so a few of those that I’d highlight, one is this combination of inspiration and intent in the same place. I think that is completely unique amongst platforms in the Western world, where, if you look at platforms that typically drive discovery, or sort of the inspiration side of things, those discovery platforms generally have very low intent. If you look at the platforms that have high intent, they generally tend to lack discovery.
The fact that Pinterest has inspiration and intent in the same place, I think is quite unique. And it’s a place that you see that on the platform today, but a place where you have a lot more opportunity to leverage.
I think the second thing I’d call out, is that when you think about the use cases on Pinterest, the use cases are quite unique, very different from other platforms. And the user base that engages with those is a really attractive user base in terms of like the demographics that you get, what that can mean for advertisers. So I think that is quite interesting as well.
And then you look at what happens on the platform, this combination that exists on Pinterest of really great computer vision, as you’re moving into a world of more and more rich visual content, having great computer vision capabilities, but importantly, paired with a tremendous amount of human curation. Again, I think very unique to the platform where when you think about the problems, or the things that Pinterest can solve for users around, not just where to find a great pair of shoes, or where to find a great jacket, how to put together a great outfit? Or not just where to find a new sofa or a new lamp, how do I put together a great room?
Pinterest can uniquely address these things, because there are hundreds of millions of pinners on the platform that make these associations of which shoes and which accessories and which handbags go with this dress. Or if I want a room and a particular aesthetic, what are the things that go with that? Machine learning alone can’t solve that. You need a lot of human curation and the fact that Pinterest is a lean forward platform where people are doing exactly that, creating these associations on the boards, on Pinterest, lets us go, just address a totally different category of use cases than what other platforms can do.
So there’s still a lot of opportunity, a lot of leverage left in those things. And so I think that’s a part of what our focus is, how do we drive more execution, more leverage around these unique aspects of the platform. But I think those are phenomenally unique attributes to Pinterest, and with a lot of headroom left to go on what we can do with those.
Unidentified Analyst
Okay, so that’s an interesting framing of what Pinterest is and how you think about the platform. When you take that and we jump into the next area, what are your strategic initiatives to marry where it is today, and where you want to take it over the long term? And how should we be thinking about some of the opportunities and the challenges that you have to navigate between now and that?
Bill Ready
Yeah, absolutely. So sort of, I mentioned a couple of times, I think we’ve got a lot more opportunities to leverage these unique attributes to the platform. And so I would say, one, while we have inspiration and intent, we need to do a lot more to take that inspiration and intent and drive it to action. And if we do that, that should drive more engagement and better monetization on the platform.
So I’ll give a tangible example of that, which shopping, we have more than half the people on Pinterest that are there to shop, right? So people are already on Pinterest to shop. People on Pinterest discover a tremendous amount of what they’re interested in, from a shopping perspective on Pinterest. But when they find the thing that they were interested in on Pinterest, what do they have to do next? They tend to copy and paste the description, they copy description on Pinterest and then go paste it into the search bar someplace else.
What we can go and give the user the ability to now take action on that directly on the platform, which by the way doesn’t have to be a checkout on the platform, even a link and a high quality handoff to the retailer, the place that’s being sold, that’s solving a real pain point for the user, and should not only drive engagement, but it’s a highly monetizable event as well. So I think that’s one category of like, what we need to execute on, is like, taking that inspiration and intent to action.
I gave shopping as an example that, I think it’s also the case that there’s a lot more that we can do, to go drive home the uniqueness of the platform, not just for users, but for advertisers as well, I think we’re in a very unique place in terms of the full funnel, the full funnel journey of the user, and what we can do for advertisers in terms of helping the advertiser meet the user, in this really sort of magic moment in the funnel, where the user hasn’t — the user has an intent. They’re looking for a new outfit, or a new sofa or redesigning a room, but they haven’t decided what to buy yet.
And being able to connect an advertiser in that moment where the user has intent, but haven’t decided yet what to buy is truly a magic moment, and a place where advertisers already appreciate this about the platform and I think there’s a lot more we can do to lean into that, both in terms of how we make that apparent and the user experience, as I was touching on, but also make it more engageable for the advertisers on that. And so those were a couple examples of some of the specific types of things I think we can do to leverage those unique attributes of the platform.
Unidentified Analyst
Got it. Okay. And on the on the last earnings call, both of you sort of emphasized the theme that Pinterest against that potential end state is clearly in an investment mode right now. Help us understand what you guys see as the mission critical investments to realize that potential or to move us along that point from today to the future vision.
Bill Ready
Yeah, I’ll give a brief overlay and talk and address some of this on how we think about modeling [ph] these things. But to be very clear, we were not growth at all costs. We’re not just here to build good products, we’re here to build a good business, and we have a good business. I think this is like what attracted me to Pinterest. It’s a good business that has generated margin and generated cash flow in this past year, where this year has been an investment year, but we want to get back to how we drive improving margins and those kinds of things. Todd and I both talked about it. I’ll give it to Todd to share more of our thoughts there.
Todd Morgenfeld
Yeah, I think it’s a good call out. I mean, we didn’t want to offer a lot of specific guidance for 2023 on the last call, because we’re still in the summer. We’re at that point, and we were looking out during a very pretty uncertain period right now. So we weren’t necessarily making a guidance call for next year. It was a philosophy point. And the thing that Bill just said is an important — that is the message we were trying to convey. This is not a growth at all costs mentality type company, number one.
Number two, we laid out pretty specific long term margin targets, at the time we went public. We blew through those targets in 2021, saw some opportunity to reinvest in the business to position the company for longer term growth this year. And certainly, we expect to see return on that investment. We’ll see it in terms of top line growth. And if we don’t, there are other things we can do to drive margin expansion. But we know we’re stewards of the investors’ capital, and we need to drive returns over time.
So I think that was the message that we were trying to convey on the calls, that we’re not a growth at all cost company. And we want to see some margin improvement based on returns on the investments we’ve made this year.
Unidentified Analyst
Got it. I feel like I’m in the third calendar year now of talking about volatility in the environment. We’re almost at the point where volatility probably should just be the new normal in the world. But when you think about managing a business in times that are volatile, how should we be thinking about you aligning, trying to build the advertising business against the potential different outcomes we could see in the macro environment, and potential navigating headwinds and tailwinds from a user growth or user time dynamic as well? And some of those are just tough comps, easy comps dynamics, as opposed to anything structural. But how do you think about managing through volatility and achieving your long term goals against what could be volatile times?
Bill Ready
Yes, I’ll let Todd comment on the macro and some of the things there. A quick point I’d make before that is, you talked about managing through, having been through multiple cycles I think going through a market cycle is a great opportunity to differentiate. And I talked about some of the things that are real differentiators on our platform. I think it’ll be a great opportunity for us to differentiate one of those around advertisers. I’ve spoken about a bit is, I can’t imagine there’s an advertiser in this country that hasn’t been approached by their CFO, with the CFO asking for more performance.
I know the advertisers typically face a trade-off of like, oh, if they run towards last click. That is clearly demonstrable performance. But they don’t have a chance to differentiate. They don’t have a chance to tell the brand story. It might be in a context where they get commoditized. And we have this very unique full funnel experience where we can drive performance, but with great brand storytelling capability, great rich visual format, that allow them to continue to differentiate.
And so I think that’s an example of where, yes, we might go through — or are going through a changing, evolving market. But I look at it as a chance to compete and to differentiate. And I think we’ve got some really great areas where we can compete and differentiate. I will give to Todd to talk more about the macro and what we’re seeing there.
Todd Morgenfeld
Yeah, I mean, they’re a bunch of different points we could make on this. I think, Bill was heading in this direction. But fundamentally, we’ve been — this question came up with a different lens over the last couple of years, how do you graduate from experimental budgets into something that’s more sustainable? Today, it’s framed as how are you approaching this macro environment, but the themes are basically the same.
We are a destination for advertising dollars when you want to build a brand in a safe environment. So not sort of burdened by toxic social media commentary. This is a platform defined by inspiration, helping people discover new ideas for themselves in a brand safe environment. We hear that from CMOS as a priority. And we saw it during the election year in 2020 for sure.
So in moments where there’s contentious conflict or topics on social media, we tend to be a default setting for advertisers. So that’s one.
The second, we hear from CMOS all the time, to Bill’s point about CFOs wanting to shut off marketing spend, in moments where you can see where consumer demand is headed. We built this product called Pinterest Trends is an example where you can start to see where the consumer demand on the platform is headed in advance of a purchase decision, well in advance of a purchase decision, when people are deciding what they want to buy. But before they’ve decided on the exact product. That insights-led selling environment is something that’s resonating with our advertisers as well.
Finally, Bill talked about being a full funnel platform. This question comes up a lot, are you just a brand platform? What’s the nature of your performance business? We’ve invested over the last couple of years in building out a true full funnel advertising experience that take a user, the product takes a user from discovery, through consideration and ultimately a purchase.
And that maps to what advertisers are looking for awareness, consideration and conversion, where today, roughly a third, brands are awareness advertising, where roughly a third, these are directional numbers, very roughly a third traffic or click-based buying. And then roughly a third conversion based buying which is lower funnel kind of shopping, optimized conversion objective, formats that are growing faster than the rest of our business as a result of the investments and the go-to-market that we’ve been building upon over the last couple of years.
The backdrop heading into this too, just for context, we can be a big business, even if the macro environment is relatively uncertain because of the size of the market. Hundreds of billions of dollars of digital advertising spend, even the retail digital advertising market in the U.S. alone, the $65 billion market this year. We’re a small fraction of that as a company. So from my perspective, while the macro environment is something we look at, and clearly influences spend, a lot of this is how we execute and go to market and deliver a great product experience to advertisers.
So that’s just a little bit of context.
Unidentified Analyst
Understood. I want to turn to the user side. And I’ve written and said this a lot over the years. And Todd and I had conversations about this going all the way back to even before the IPO. I’ve never really viewed this as my own editorializing, viewed Pinterest as sort of a user growth social media property. And yet it gets lumped together with a lot of that. And when you see user volatility, people worry on the investment side. Bill from your perspective, how do you think about users and behavior of users on the platform, and how the demographic of users could evolve and change from what we’ve learned through the COVID dynamic through to your sort of end state vision for the company?
Bill Ready
Yes, so if you think, I’d say, it’s a one — I think Todd talked about this a lot, from IPO until now, which I fully agree with, which is, this is a story for us is much more about ARPU than it is about MAU growth. I think a lot less than that. And if you presented me with sort of two options and said, hey Bill on this side, you get to have the problem of like, how do you sign up a whole bunch of new users. On this side, you got a whole bunch of users that you just need to get more engaged. I’d take a second of those every single time, that’s a much easier problem to solve. And I think with Pinterest, our opportunity is really about how we drive deeper and deeper engagement and deeper and deeper monetization per unit of engagement with our users.
We — our MAU story doesn’t really tell fully that we have a tremendous amount of episodic usage on the platform. So how do we take an annual active and make them a monthly active, a monthly active make them a weekly active, a weekly active, make them a daily active. And I think, as we talk about use cases, like shopping, that’s a higher frequency use case, and especially when you think about where we are, in terms of the part of shopping and resolve, in fact, a delineation I would I would call out is that the first 20 plus years in ecommerce have really been solving for buying largely, at the expense of shopping, in terms of like the discovery and the inspiration part of the journey.
Well that if you separate shopping from buying, then shopping really is a daily use case for a tremendous number of users. And as we lean more into that use case, which again, more than half of the people on Pinterest are there to shop, as we lean more into that, I think that’s exactly the kind of thing that can drive greater frequency of usage. So you’re getting deeper engagement and moving more of those users from episodic usage to more frequent usage. And those are highly monetizable events, that we can not only monetize those events, but monetize in ways that are additive to user engagement, right?
When you think about Pinterest versus other discovery platforms, this is one of the powerful aspects of like having inspiration and intent in the same place. On other discovery platforms, you’re in a lean back mode, you’re consuming, you’re there to look at pictures of your friends or funny videos or whatever. And then when you see an ad for like, oh, here’s this product, like that’s a departure from the thing that you were there to do.
On Pinterest, where people already there with an intent, with the purpose, shopping is one of those purposes, but there are plenty of others that are very highly monetizable, whether it’s home and garden or your travel or cooking or all these things, when we present really great content, even if it’s ad content, that can be added into what the user was trying to do. And shopping is a great example of that, where if I’m looking for a particular thing, I’m shopping for a particular thing, and I see really rich content from an advertiser for the kind of thing I’m interested in, that’s not just a monetizable event, that’s an engagement positive event when that happens. I think those are pretty unique aspects of the platform for us.
Unidentified Analyst
Understood, I want to stick with product and user behavior. You’ve had a recent bit of buzz around Shuffles. Maybe talk about the genesis of that and what you’ve seen so far from the launch of that product.
Bill Ready
So a couple things, I’d say. One, it’s a great example of like, there’s a lot of good raw material in Pinterest, and a lot of really good innovation that came out of our Labs Group. And I appreciated this even before coming to Pinterest that when you look for like great computer vision talent, Pinterest has done a tremendous amount, really has fantastic talent on computer vision. And in a world where we’re moving to much more rich visual content we’ve got a great talent pool around and a great set of capabilities around it. And Shuffle is a good example of the kind of innovation that’s there, but also an example of where we can drive more innovation by really being clear eyed and focused on what are the things that are unique to our platform.
So you look at Shuffle like that is, it’s creation, so it’s creators, but it’s a totally unique format to Pinterest. And I think that’s an example of how we can lean further into the unique use cases that people expect of Pinterest and drive a lot more there. And it’s early days for that for sure. But I think it’s a good indication of how we can go deeper into these use cases that are unique to our platform, as well as a good call out that when people think about the demographics of Pinterest, we’ve got demographics that I think are fantastic, both in terms of our, what people might think of as our traditional users, that tend to be people that control more of the households then.
We have roughly half the moms in the U.S. on the platform. We skew towards much higher earners. 40% plus of people that are on the internet, earned over $100,000 a year on the platform. But then we also have really good momentum with Gen Z, where from 2019 up until now we’ve more than doubled the number of Gen Z users on the platform even before Shuffle. And you look at the momentum behind Shuffle and the attractiveness of that with that Gen Z audience, we’ve got really good momentum there.
So Shuffle itself It’s early days, but the velocity and momentum there is great. But I think it’s more indicative of how many more adjacencies we have that we can lean into in ways that are unique to our platform, and with demographics that are really interesting and attractive.
Unidentified Analyst
Got it. And speaking of adjacencies, of the tie back to sort of user engagement and use cases and how engagement might more, generally, as I go out and talk to investors, I think they’re confused about what the broader strategy is with respect to the creator economy, short form video, Idea Pins, maybe just level set and take a few minutes of what are the aims of those types of products? How do you see yourself fitting into the broader landscape for some of those products? And how do those products bring the user back to what you’re trying to solve for the platform in totality?
Bill Ready
Great question. So — and this is a place where we’re sharpening our focus quite a bit, where to be very clear, we don’t need to compete for every trade of the phone TikTok, or display every video that’s on TikTok. TikTok, Instagram, those are places that are sort of lean back, more entertainment-driven platforms. We’re a lean-forward intent-driven platform with a tremendous amount of inspiration as well. But people are here with an intent and a purpose. They’re not here for passive lean back consumption.
So when you think about that, by the way, I think that’s a phenomenal attribute of our platform. It puts us in a very different place in terms of how users think about us, a very different place in terms of how advertisers think about us. And so then, when we think about refreshing content on our platform, it’s not that we need every video that’s on TikTok. We need the right videos, the right creators, and those are going to be the ones that are leaning into purposeful journeys, intent-driven journeys.
So if there’s a creator that’s helping people figure out how to create a new look, how to drive fashion, how to go — put together a great recipe or how to go think about remodeling a room, that’s the kind of thing that users want to see on our platform. And the team having experiments on these things is actually, this isn’t just my hypothesis. The team has experimented with different videos to put in front of users, we actually see that being the case. I think you’ve seen this now with some of what played out with Instagram’s changes, where users are very conscious of what are the things they want from each platform and each experience. And so you saw that in some of the reaction to Instagram changes.
But with Pinterest, as we’ve tried different types of videos, the user engagement makes it very clear to us that they’re not looking for all the lean back entertainment stuff from us. They’re looking for the things that are more aligned with their intent and their purpose on the platform. And I think that’s fantastic, because it says that we do have uniqueness in what users want from us. And in terms of like, how we build that out?
Yeah, we don’t need to go chase every creator out there, we need the creators that are actually engaging in the use cases that we have uniquely. And we have those creators, right. Every Pinner is a creator. When you think about the kinds of things that we can solve in terms of comments I made earlier around, there’s lots of places you could go to find a pair of shoes or find a dress, but where do you go to put together a great outfit, right?
We can solve that because of the human curation on our platform. That human curation of hundreds of millions of pinners that are associating these dresses and these handbags, and these shoes go together. These sofas, and these lamps and these wall coverings go together. Machine learning alone isn’t going to put together a great outfit for you or might be enough for you. You probably don’t want to wear that, not you consider that bad. But when you pair that with really great human curation and then put machine learning with it, that’s quite unique. And so this honing of our focus around, yes, we need short form video, but what kind of short form video and then even broader than that, coming back to Shuffle’s example, I’d say short form video is just one example of the world moving to richer visual content.
So Shuffle and sort of the Collages and things there is another great example of like users, is a broader move to rich visual content. Short form video is one of those examples. And as we’re evolving the platform, we’re seeing like, it’s not just what types of videos, but how do you pair videos with other rich visual content? And I think Shuffle and Collage is a good example of that.
Unidentified Analyst
Got it. Okay. I think going back over the last couple years, one of the most stark things that investors focused on with Pinterest is you have a large and growing international base of users and yet a still small base of international monetization. Maybe talk to us a little bit. And I’m not sure if both of you, or one of you want to engage on this topic, what needs to be built to monetize this user base? And how should we be thinking about the arc and the execution curves, when you think about closing some of the gaps relative to other advertising ecommerce platform?
Bill Ready
Todd and the team have done a bunch of great work. I think I want Todd to start off on?
Todd Morgenfeld
Yeah, I mean, it’s a great question, because even at the time we went public, it was one of the bigger kind of appreciated upside opportunities in the business. So we have the majority of our users outside of the U.S., the vast majority of our users are non-U.S. users. And that’s been an attractive place to point to for business growth is just monetizing that set of users.
The question is, what does that look like? And how do we execute against it? What I would say is that it starts with kind of back to where Bill was going with user engagement. We have the advantage of having a lot of people who just need to be brought back more frequently to the platform.
There’s an analog to our non-U.S. monetization opportunity, which is we have users outside of the U.S. who bring the same commercial intent, the same planning mindset, and many of the same core use cases, things like home, food, fashion and beauty as a starting point, that suggest the monetization opportunity that we’ve proven in the U.S. full funnel advertising, starting with awareness, consideration, and now conversion objective. We’re seeing that unfold internationally starting with non-U.S., non-English or sorry, English speaking countries outside of the U.S.
We then took it to Western Europe, we opened up Latin America a couple of years ago, and then just a few quarters ago, we started monetizing in Japan. So that same playbook and go-to-market around the commercial intent of our users is the opportunity for us. It’s been more of an execution game than anything else. There are product improvements that we need to make. And we need to take what’s been built in the U.S. and migrate it to international markets. Things like our shopping experience are a little less mature, but maturing outside of the U.S.
We’ve built go-to-market specific tools like business access for an agency heavy market in Europe. And obviously, there are tweaks that we would need to make for other markets, like Latin America, Brazil, in particular, and in Japan. So I’m really excited about this opportunity. I’m excited. This is one of the few companies in the consumer internet landscape where the business and the consumer internet — the consumer experience are really synergistic. I think the same thing is true for our non-U.S. users, where the monetization opportunity looks a lot like what we’ve already built and proven out in the U.S. And we just need to start to continue to execute well, internationally to prove that out.
We’ve seen great success in scaling in Western Europe. And we’re seeing those early, early good returns in Latin America too.
Unidentified Analyst
Great. Thank you. I want to talk a little bit about — Todd you talked a little bit earlier about some of the investment you’ve made in the ad platform. You’ve also introduced some ad product innovation with Idea ads. How do you think about Pinterest as a platform lined up against the broader relative narratives around pricing and ROI and the broader advertising landscape? Because as you referenced earlier, Todd, there’s experimental budget. There’s sort of mainstream, budget, and how do you think about fitting into the broader landscape in what you’re trying to build against in terms of delivering returns for advertisers?
Todd Morgenfeld
Yeah, I mean, I don’t know — I mean — look, we are aware that Bill said this a couple questions ago, everyone in the industry right now is scrutinizing their ad spend, and they’re looking for good returns. We know that we need to be performing in order to earn those dollars. We also know that we bring something that other platforms from a consumer expect — consumer perspective don’t bring, which is this commercial mindset, planning behavior going from discovery to action.
We’re investing in tools that prove that performance is working. And we’re seeing it reflected in the most basic metric, which is our people graduating from experimental budgets into something that looks like more of a commitment. They wouldn’t be voting, they would — there’s no other way to vote than with your dollars. We’re seeing that. I think I talked about this on the last call. But in the first half of this year versus the first half of last year, we saw around 25% growth in the dollars under what we call joint business partnerships, which are informal, non-contractual, but indications of spend commitment from our larger advertising partners.
We wouldn’t be seeing that in this macro backdrop, if those advertisers weren’t seeing good returns on their spend. They — those advertisers understand the brand safety of the platform, the value of our insights-led selling, and that full funnel experience that’s unique to our platform.
The second thing I would reflect on, we’ve talked about this in pieces over the last couple of years, we’ve made a lot of investments on our ad stack that are working. We’ve been investing in automation in particular that while competition for ad slots on the platform have driven prices up, and prices in the industry itself have gone up over time, our investments in automation have taken each format, CPM-based buying, CPC-based buying, conversion-based buying, and now campaign level optimization through automated tools that better deploy budgets at more cost effective rates, reducing the cost per action, and ultimately driving higher returns on ad spend.
So those are the mechanics that have led advertisers to find success on the platform and then show through to these commitments that we’re seeing in joint business partnerships.
Unidentified Analyst
Got it. And obviously, the industry as a whole has been through a lot of seismic change over the last 12 months. As a company, what is your broader perspective on, as you’ve seen the rise of sort of privacy restrictions and operating system changes, impact digital advertising, and how you see yourself positioned for a world where maybe privacy is on the rise and information and identifiers are staying more on device? How do you think about the company operating in that landscape today? And how the landscape might evolve in the years ahead?
Bill Ready
Yeah, I’ll touch on this a little bit. And then Todd, he’s done a lot looking at how we deal with the conversion side of this. SO I think there’s two parts to the privacy conversation. I think there’s one part, which is, ad measurement and the conversion tracking and those kinds of things. And I think on that one there’s an industry wide impact that sort of everybody’s in a sort of similar boat on those things, and doing a lot of work to adapt to that. And so I’ll say that for Todd to address how we’re thinking about those things.
But there’s another part of this, which is — and this is one where I think different platforms are in dramatically different places, which is, how do you know what to serve up to users? And I spoke earlier about what are the difference, what are the things that are really unique about our platform, and having inspiration and intent in the same place?
We’re very different than other discovery platforms where most other discovery platforms are lean back, we are going there to passively consume content. We have first party signal. We don’t need to track users around the internet to know what they’re interested in. Users come to Pinterest and tell us what they’re interested in. That first party signal, that intent on the platform means that for us to serve what is relevant for users, we get that signal, we get tremendous first party signal from users in terms of serving up what’s relevant.
I think you’ve seen multiple other platforms that are in the more discovery side of this, that don’t have that first party signal, are going to really struggle with relevance. And I think we’re in a very different place than others on our ability to sort of relevant and good personalization from first party signal. But then, of course, like everybody else, we also have work to do on the measurement side of it. And so Todd and team have done a lot of looking at that. So maybe I’ll give it to you Todd to share.
Todd Morgenfeld
Yes, I mean, I think there are a couple of things I would point out. One, we were penalized two and a half years ago when the first kind of lockdown happened. And we were seeing this big influx of demand for app download, crypto — like there was a bunch of what I would call IDFA specifically impacted ad formats that we were under exposed to. And as a result, we grew slower than the industry back in kind of the late spring and early summer of 2020.
That worked out to be an advantageous place to be a couple years later when that unwound. So IDFA, given the fact that we weren’t in the app download business and deprecated that format, we were just less exposed to it, number one.
More importantly, I was mentioning the investments we made in our ad stack and the automation tools. We — because we’re a little behind the industry in terms of maturity, we have a lot of stuff that we’re still building just to get the table stakes. We announced last quarter that we’ve rolled out converged modeled conversions, which is an estimated conversions tool that others have built in the industry, but allow us to do a lot more attribution than we did a year ago. But it’s a tool that many others have already built.
So we’re — despite the headwinds in the industry around privacy, we have a lot we can still innovate and build that close the gap between where we are and where others are, to chip away at this problem. So it’s the advantage of being a little newer that we have more of a tailwind just in terms of catching up.
Unidentified Analyst
So building on that theme, and you touched upon this a little bit earlier, Todd talking about some of the messaging and the philosophy around margins. Maybe just refresh for us how investors should be thinking about the headwinds and tailwinds in the margin structure over the short to medium term. I know some of its explicit of what you said between now and the end of the year. And then you obviously expressed earlier about the philosophy but just hit the reset button there so people understand what the broader message is on the margins.
Todd Morgenfeld
Yeah, I mean, I think we were pretty clear last quarter that we were investing in growth. We want this company to be bigger over the next couple of years and we think value creation will come by growing the business from where it is today. We’ve got lots of opportunities to do that. In the U.S., it’s more of an ARPU story. As Bill mentioned, we have a lot of future opportunity in that vast audience of people outside of the U.S. that are under monetized today. It’s both user growth, and revenue per user.
So that’s we’re a growth company, yes. I don’t want to be confused about that. We’re investing for growth. We really put our foot on the gas this year to do that. We got into 35% to 40% OpEx growth, because we saw an opportunity to invest in exactly the outcome I described, the longer term growth. We heavily indexed in the first half of the year on building up the right kind of talent in the building to create that outcome.
So a lot of engineering recruiting during a pretty tough market environment. We saw a lot more success in bringing people into Pinterest in the second quarter than we did the first. And we felt like that was the right thing to do. Some folks may have seen that we, in the second half of the year were indexed a little less on headcount, and were indexed a little more on marketing spend. We launched a marketing campaign yesterday that is awesome [ph]. I’m really excited about it.
We’ve been talking about doing this for a while. I was guiding to this being something we were going to spend on this year. And now seeing the creative and seeing it out in market, I’m really excited about how it reinforces everything we’re talking about here with a business. That will run for the next six weeks or so. And that’s a big source of what we thought was the right thing to be investing in despite the market environment to communicate what Pinterest is for users, and why advertisers should be on the platform in a pretty competitive market environment.
We think these investments will set the company up for growth next year. And while we’re mindful on headcount growth, and we’re paying close attention to what we’re investing in, we thought it was the right thing to do this year to continue on that plan. But as I mentioned earlier, this is not a growth at all costs company. Our philosophy is to return to margin expansion. We are expecting to see some of those returns play out over the course of next year. And we’ll be mindful of what we’re spending going into that environment.
So bringing it all together, we’ve talked about a lot today, where you want to take the platform, how the product is going to evolve, bring it home on capital allocation. Here you have all these priorities you want to meet, you’ve got the balance sheet you’ve got, you’ve got the company and the positioning it is. How should we be thinking about as you guys find a partnership, as you plan out into 2023 and beyond that, what’s your priorities on allocating capital into the business? And possibly, you know, as a yield or throughput, driving equity returns for shareholders?
Todd Morgenfeld
Yeah, I think we made mention of this. You probably picked up on some of the comments on the last call. But I view this as a continuation of the last question, basically. We were starting with strategy. Bill laid it out. We’re building a very unique property in this landscape. It’s the one place where the consumer experience and the business are uniquely intertwined, and mutually reinforcing or amplifying, like our business can actually create a better user experience and vice versa.
So that’s where it starts. Then we’re figuring out how we invest in a way that drives great returns, and shows margin expansion over time. And finally, the capital allocation pieces are a company that, as I mentioned, has shown great cash flow generation over the last few years, we’re blessed with a robust balance sheet, and we want to make sure that we have enough on the balance sheet to weather any kind of market turbulence, number one.
Number two, this will be an environment that will be increasingly open to acquiring great assets. We bought two smaller companies in the last few quarters. We’re going to keep our eyes open for that. Bill and I’ll work on priorities there. And to the extent there’s capital leftover, I worked at Silver Lake for a long time. I don’t like seeing balance sheets that are overly capitalized and want to make sure that we have the right strategy for what to do with what’s leftover.
Unidentified Analyst
Understood. Okay, so with a minute to go, Bill I love to end on sort of an outside the box question. You’ve got a number of constituencies, you’ve got users, you’ve got advertisers. You’re new in the role but you’re building your perspective of the company. What do you think differentiates the platform? Or is it properly appreciated by the various constituencies around what you’re trying to build and where the platform’s going to go?
Bill Ready
Yeah, it’s a great one to end on. I think I’ve touched on several aspects of the platform that are probably underappreciated, but also perhaps underappreciated, because they’ve been under leveraged. And we intend to leverage them a lot more. And so I talked about having inspiration and intent in the same place, what that means in terms of what we can do to take user from inspiration and intent to the next set of actions, how that can drive more engagement, and more monetization, for advertisers. How we can help the advertiser solve through the full funnel and what we can do with that as well as like, the human curation on the platform and how that just lets us solve things that are very unique and different than what others can solve.
Very different kinds of shopping journeys, right? When you think about what we’re solving for and shopping, it’s not just the buying side of it, that we will solve for. If you think about, if everything in the physical world is moving to digital, in the physical world, even a utilitarian journey, like grocery shopping, you walk in the store with like five things on your list. And then 95% of the stuff in your cart when you walked out, you sort of discovered along the way?
Well, ecommerce was solving for the utilitarian part of that. That was the five things in the cart, not the other 95%. That is more discovery driven and inspiration driven. And that is having a world solve for [ph] in the digital world. I think we are uniquely equipped to go solve that. And so again, I think, underappreciated but also under leveraged.
And then finally, Todd touched on this with some of the marketing that we’re starting on the consumer side, where if you’ve heard this about Pinterest previously being a more positive place on the internet, I think there is a tremendous amount that we can do to really lean into that with users that — and there’s good research on this where Nielsen studies of like 8 out of 10 users on Pinterest, say the platform makes them feel positive.
Contrast that with how users feel about social media generally, where similar research is saying that, only 3 in 10 would feel that about like other social media platforms, 3 in 10 versus 8 in 10m a dramatic difference. And it’s quite topical. It’s something that matters more and more to people in a world where like, toxicity is driving so much of the internet, how do we make sure that every user knows and understands that when they’re ready to unplug from the vitriol and the toxicity and places that you go. And you get sort of shouted down or torn down or people are being driven to hate their neighbors and being divided?
Where do you go when you just want to be lifted up instead of torn down? Where do you go when you want to find inspiration when you just want to plug into positivity? And I think Pinterest has that already. It’s really unique. It’s something that is and the users know it, but I don’t know if they know it is like immediate recall, but they feel it. And the research says that, but how do we lean into that more so that you could grab a user walking down the street or grab a person walking down the street and ask them, how’s Pinterest different than every other platform and they can give you that answer. I think that’s going to be a real opportunity for us to lean into more as well.
Unidentified Analyst
Got it. Okay. Really interesting. Bill, Todd, thanks for taking the time. I really enjoyed the conversation. Please join me in thanking Pinterest to be a part of the conference.
Bill Ready
Thank you.
Todd Morgenfeld
Thank you.
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