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FORUM TRANSCRIPT

Pinterest – User Growth Challenges & Platform Transition – 5 November 2021

  • Public Equity
  • TMT
  • North America
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Specialist

Former senior manager, TPM at Pinterest Inc

Agenda

  • User growth challenges for Pinterest (NYSE: PINS), notably continuing MAU (monthly active user) growth deceleration/declines
  • Increasing importance of commerce and video, and transition from a discovery platform to a shopping-focused one
  • 1-3-year outlook – risks and possible M&A scenarios, highlighting cancelled PayPal (NASDAQ: PYPL) discussions and management’s continued “lack of urgency”

Questions

Transcript

1.
Pinterest recently released its Q3 2021 financial results, which indicated a continuing deceleration in MAU [monthly active user] growth from earlier in the year. What do you think of this trend and is it something you find surprising? Do you expect the company will pivot to emphasise more engagement-related activity rather than user-growth-related activity?

Specialist (SP): I’ll speak broadly to the decline and what my expectations are around it and then I’ll talk a little bit about  potential pivots or reactions, if that’s alright. Around the MAU decline, specifically in the US, this is not a  surprise to me at all, in fact I’m slightly surprised by the market’s reaction to it. MAU behaviours, to the best of  my knowledge, have been steadily slowing across all cohorts for some time. The deceleration in use,  engagement and general fall-off of usage, whether it’s MAU or whether it’s impressions, which is the other  chief metric used to measure those things, is not at all a surprise. In fact, what I would say is that slowdown  had been occluded by pandemic pull-forward gains. If you think of it as if there’s a slow decay in MAU and  then you get this whopping smack of pandemic pull-forward because everybody is inside doing home  improvement and bored, you get exactly what the curve looks like. It looks like it’s flat to maybe down slightly, question mark, then goes rapidly up because the pandemic effects occlude the underlying weakness. Before we  get onto pivot, I would say that the overall MAU decline is somewhat expected and unsurprising. I would say  the timing of it is the only surprising effect because the question is when do you start seeing the pandemic  unwinding because of the pandemic pull-forward usage, both because people are bored and the secondary  effect because people are doing a bunch of home improvement or other crafty, have to cook for myself, etc,  type projects, which plays heavily into Pinterest’s core use cases, which I’m happy to talk about if there’s  interest there. 

On the do I expect a reaction and what reaction do I expect, I would expect a reaction that was already  underway by the time I left, but I would expect a reaction of the nature, given what I’ve said about Pinterest’s  corporate culture, the reaction will be and has been to focus on sustain and retain as a strategy, rather than  doubling down on growth. When I say sustain and retain, I mean what does it take to keep these cohorts? Of  some note is that the spike among pandemic growth can mostly be seen at the low end of the curve, for some  reason that I don’t fully understand and I don’t know that anyone does, ie in the 18-24 bracket, whereas the  sustained drop tends to be seen across all slices of usage. If you control for the low-end user growth, meaning  the 18-24 bracket, you can actually see the decline more clearly and more enduringly across the pandemic, it’s  just muted, as I said. I would expect a reaction to be shifts to sustain the focuses on product strategy that have  to do with maintaining and retaining and increasing depth of engagement of existing users and decreasing  long-term hardcore Pinner fall-off, rather than, for example, “Let’s invest in acquisition, let’s invest in growth,  let’s invest in top-of-funnel or new programmes.” Traditionally, Pinterest’s response has been very defensive,  and so that’s why I would expect that. 

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2.
Could you explain the differentiation in behaviour depending on demographics, particularly around age? It sounded as if there was a more pronounced decline in some of the metrics related to younger users, whereas maybe older users did not drop off as much.

SP: Yes, I’m happy to talk about that for a second. For context, two things happened at the start of the  pandemic, which I’ll consider February-ish 2020. Usage overall shot up, but the usage curve also changed.  Traditionally, Pinterest has a very hardcore US demographic of what you might suspect looks like Midwest  suburban housewife variety. It skews female, it skews slightly older and it skews to a particular demographic  on the income and socio-economic curves. It’s a little bit hard to define that demographic except colloquially.  Literally, knit is a company value. When the pandemic growth hit, it caused growth across all segments, but  that growth, oddly and inexplicably, there was a significant outsized spike in the 18-24 demographic, and so  what I would say is, until the 18- to 24-year-olds have faded or been retained for a post-pandemic significant  period of time, I don’t believe the underlying usage curve has changed, if that makes sense. I don’t believe  Pinterest has done anything to make itself more attractive to the average entertainment slice vs TikTok. That  spike has been, as far as I know, completely unexplained. The shift is twofold. Pandemic growth happened, all  segments went up. As part of pandemic growth happening, and when I say as part of, I mean concurrent with,  not necessarily tied to it logically, 18- to 24-year-olds shot up. If you’re looking to see an easing of that effect,  look in the 18- to 24-year-old bracket and look for Pinterest’s usage curves to either return to traditional  norms to show some signs of settling or to have an explanation for what those 18- to 24-year-olds are doing  and why they are continuing to do it.  

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3.
Pinterest’s MAU numbers for Q3 2021 were essentially flat, with 1% growth and 10% decline in the US, continuing that trend. When consider the US, in particular, those are comparable user numbers pre-pandemic vs now. How much normalisation of user activity has Pinterest encountered so far? It seems some behaviours have continued. Some people have realised this is a great website and activity and so they’ve continued on. However, in some cases these were temporary changes in behaviour where people discovered something they liked to do but were just eager to return to their pre-pandemic activities, as you referenced.

SP: I think we’ve seen a superficial completion of that process. I expect we’ll see, too, an immediate short  swing. You’re seeing this in the ripple effect from Peloton, for example, because Peloton is getting hammered,  they’re a bellwether. We won’t get into that too much. Basically, Pinterest is part of a second and third action  in the space. First, you get everybody goes out to dinner again, metaphorically and literally, then you get some  of my medium-term usage patterns change, and then you get my long-term usage patterns change, like I move  or I don’t. I would say right now we are past the first hump, meaning we’re starting to see tentative  normalisation, but, given what happened 3-6 months ago with the second wave and Delta, the second tranche  of that is going to be cautious, that’s not going to happen all at once. I would say we’re past the first tranche of  normalisation where folks were, “Yes, I’ll go out to dinner,” and so, in that sense, I’d say we’re maybe half done  in Pinterest’s case because Pinterest is forward on the curve and we’re maybe through the first quarter to third  of the curve. For Pinterest, we’re maybe half done with that unwind at most. 

Additionally, I’d say you talked about normalisation, the reason it’s not lower for Pinterest, because I think as  a society we’re maybe a third through it, the reason it’s not lower for Pinterest is they’re forward on the curve,  meaning they’re a thing that was affected early in the pandemic and these changes were very dramatic and up.  

The reason it’s not higher for Pinterest, meaning I think we’re mostly done, is fundamentally Pinterest is two  things, it’s a browsing tool and it’s a planning tool. When I say it’s a browsing tool, I go look at 20 sets of  stocks, socks, rather, not stocks, or a planning tool, I’m going to go plan my next home renovation, kid’s  birthday party, wedding, whatever. It has some durable attach until the project is done in that sense. If I stop  using Pinterest today for new things, I don’t stop using Pinterest for a couple of months because I’m  unwinding the project I’ve built on it. 

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4.
Where do you expect Pinterest’s MAU rate to settle over the next 6-12 months? Are there factors in addition to the pandemic that could support MAU growth or protect remaining MAU? We’ve monitored a continuing decline in growth with sequential deceleration through the entirety of 2021. There were 89 million MAUs in the US at the end of Q3, with 356 million internationally.

SP: I think you can look at, as much as you can publicly define or identify, a DAU-MAU split to identify MAU  weakness or coming MAU weakness. I think absent that specific information, there’s going to be continued  MAU softness. MAU is a tailing indicator after DAU [daily active user] because, as part of my daily ritual, is it  something I remember that I have that project and is it something, etc? I don’t need to expand on use cases.  Long and short, I expect continued MAU weakness, I expect continued MAU weakness to probably pre pandemic levels. I wouldn’t expect them to fall significantly further than that. I would expect that you see  some shift, meaning, even if MAU is static, I would expect the US weakness to continue beyond pre-pandemic  because the growth strategy for quite some time has been international-focused, though my depth of  knowledge on that is slightly more shallow than I’d like. I’d say you’ll see continued MAU weakness to pre pandemic levels, but you’ll also see a shift. I’d expect you’d be able to see the trend in US MAU first, if that  makes sense. It’ll keep going down, it’ll keep going down in the US particularly. It’ll keep going down to a  reliable floor of roughly pre-pandemic levels plus or minus some organic behaviours. I believe it will probably  go slightly down beyond that but potentially be buoyed by activities like paid acq because a sizeable war chest,  so there might be some short-term firmness masking long-term weakness there. Of course, if you buy yourself  enough time with enough war chest, maybe you can shore up the long-term weakness too. 

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5.
You highlighted how retention of existing users is of primary importance. However, as Pinterest aims for growth, I imagine engagement becomes more important because when considering the levers to growth, you think of user growth, engagement growth and then pricing. How do you think about engagement? It’s seems a large focus for the company has been initiatives it thinks can help drive engagement and, resultingly, revenue. Private and confidential 5 E-commerce has been a point of emphasis, along with video, as Pinterest TV is launching November 8th, though I believe that has been a missed opportunity. Could you discuss Pinterest’s work with e-commerce and video, along with its efforts to reach out to creators to jump-start engagement?

SP: That’s obviously a ranging topic, so I’ll talk a little bit and we can drill in. When we talk engagement  growth, the problem with video is cost to serve is a nightmare. It is for everyone in the industry, I can speak to  Twitch credibly too. If your ARPU does not support the video from a cost-to-serve perspective, then you not  only simply can’t do it, but it will eat your profit alive. Video was always seen as an, “I would love to compete  with the Facebooks and the Instagrams of the world,” hilariously enough, given my current employment.  Obviously, I don’t speak on behalf of them in any capacity, but it’s so GM-negative that the way some  companies fix that is having differentiated architecture. 

The proposal during my time at Pinterest was to start differentiating and be able to basically serve, you see this  with the launch of IG Lite, so I’ll use Instagram as a straw man for a quick second, a low-cost version  functionally. Pinterest has never had that differentiation in infrastructure, and so the video play is a very  expensive one because either you need to be delivering video for everyone, which makes sense in the US, for  example, but not in India, or you need to be building a wholly separate second serving architecture that  understands a sort of least-cost routing, if you will, to say, “In the US, I’m going to make N dollars per MAU,  and therefore I’m going to serve up an impression that costs me more to serve to get more out of that  impression.” That economy might not be as worth it in India, I might not want to use the same. I’m using  those two deliberately as very different ends of the curve, US is very, very, very high dollars per MAU relative  to literally everywhere else. You asked, Pinterest TV. That answers the video question. I think video is a cost to-serve folly until you hear them invest in a Pinterest Lite. Pinterest web isn’t it because the problem is a  differentiated stack that actually lets you serve different impressions and different quality depending on ability  to recoup that cost. Again, you can war chest your way through that somewhat, but only somewhat. 

The creators’ thrust and Pinterest TV is an interesting one. Everybody in the industry is trying it, from  Facebook to Snap, at this point. Pinterest has been trying it for a while. Pinterest has been trying creators off  and on for the last several years, and they actually have a cultural problem that gets in the way of never fully  committed. When I say never fully committed, meaning 20,000 initiatives, all of which are of equal  importance, therefore nothing gets done. With creators, particularly, the problem is twofold. There’s an  explainability problem, why do you pin on Pinterest, why do you add content, which Pinterest has traditionally  tried to make it less scraping, so let me go proactively grab content or create content partnerships, and an  intrinsic problem of, “What do you mean, I don’t have a website any more.” When I say, “What do you mean, I  don’t have a website any more?” Pinterest is a model where Pinterest has an image and a link and the problem  is there’s nothing to link to any more. Pinterest just tried to offset this weakness with things like Rich Pins and  otherwise rich on-site content. The problem is, in the competition for creators, Pinterest has a hard time  explaining its own worth, meaning I could create a Pin or I could create an Instagram post or I could create a  Snapchat story or I could create, etc, why do I spend my time on Pinterest? Because if I’m having fun, I’m  doing it with my friends, which Pinterest is actually not a social network in that sense, and if I’m doing it for  money, I’m doing it where I’m making the most or at least where I think I’m making the most, both jobs at  which Pinterest has trouble. 

To pull that all together, engagement growth is a focus for the company, but they have trouble with it because  video’s cost to serve eats them. It’s absurd and they don’t have the ability for differentiated serving stacks, ie  give lower things lower dollars. As far as the Pinterest TV, that launches into the video problem. As far as the  creators problem, they have the problem of explainability, why do you add content here? When that’s coupled  with the fact that they have nothing to link to, that makes that very, very, very difficult. You can roll the efforts  all the way back to Rich Pins and see what Pinterest’s historical uptake has been like, if that makes sense. 

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6.
What do you think of this notion that creators might find a lot to like about Pinterest due to MAU numbers being very substantial and actually larger than other properties we’ve discussed, despite the company’s MAU challenges? There’s also a powerful discoverability factor in the context of what Pinterest is and the types of users it attracts and has as loyal users. Could creators increasingly aim to use Pinterest as more of a top-of the-funnel solution and then push people to other platforms such as YouTube? Could that be an appealing niche for creators in the near term?

SP: You’re absolutely right. Let me walk through a little bit of the market dynamic there because the problem  is the creator or the external property or both are at odds with Pinterest’s goals. When I say the creator or the  external property or both, Pinterest’s goals are you keep posting things on Pinterest and you see more ads. The  creator’s goals are you click on their link, which means you leave. The goals are fundamentally in tension.  Additionally, some of the sites, YouTube, I’ll take on for a second, your ability to pull metadata, so I go create a  pin, I say, “Hey, I want to make a Pin. I’m a creator, I’ve got all these great videos on YouTube, come check out  my content on YouTube,” I point at the content on YouTube from Pinterest, what do you get on Pinterest? Do I  cut a custom still from that video just for Pinterest or does Pinterest pull through from YouTube properly and  does it do so well? That’s dependent on very large content relationships with external very large providers,  some of which, like Bing, go very well, and some of which, like, for example, YouTube, might go considerably  poorly. You get into a tension and a rivalrousx`ness problem because, ultimately, the people Pinterest is  linking to in terms of the platform are competing with them for the time and the creator doesn’t want you to  stay on the Pinterest account, they want you to transition quickly. Compare and contrast that with, say, a  Discord, where the creator wants you on their Discord and Discord wants you on their Discord and the goals  are aligned. 

The second thing about that, that model, however, is very powerful in terms of traffic generation, so you could  think of it as a lead-gen platform and you could look at it that way. The problem with looking at it as a lead gen platform, that relies on Pinterest’s ability to deliberately spray impressions onto creators’ content, which  they have, but it also relies on their willingness to do so, which has varied over time. In a straw man example,  if you are the best Pin, think of it this way, a Pin is not a Pin, a Pin has several thousand different incarnations,  some of which might be in Japanese, some of which might be from Betty Crocker, some of which might be  from you as a creator. Pinterest takes that entire collection of Pins and picks one to be the canonical Pin out of  that set. This is how it avoids showing you 50,000 pictures of the same set of sneakers, it shows you the  picture of that set of sneakers. Picking that is also an exercise in goals and tension between sending the traffic  where Pinterest opinionatedly wants it to go, ie a creator or something like that, and where the user is ideally  served by it going. When you unnaturally bias that toward creators, you hamstring revenue. When you teach  creators about that trade-off, they tend to game it or be unsophisticated and not care. Yes, Pinterest has a big  traffic lever and yes, that can be converted to money in the form of a creator, but the creator’s goals lie in then  retaining that user in an off-site network, so Pinterest is a transactional entity in that relationship. 

Third Bridge (TB): The complexities of working with and through Pinterest, along with the inherent tensions in establishing  that type of business orientation is fascinating.  

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7.
Users are increasingly focused on shopping within the platforms they happen to be on and serve the ad regarding. Pinterest has done a good job with shopping and shopping Pins. Could connecting creators, video and shopping be a path forward for the company, where leaving the site isn’t such a detrimental conclusion because someone is buying something as a result of what they find on Pinterest? What’s to come for the company with respect to shopping?

SP: I think that’s a scenario where the potential is actually quite bright. For example, this is pure speculation  but it’s a useful concept, if Amazon bought Pinterest, they could take the cost of serving Pinterest, cut it in half  because it’s all AWS anyway, and they could take the top-of-funnel traffic and throw it all through the Amazon  front door. Of course, the product would probably cease to exist within five years because they’d just fold it  into Amazon and have Amazon Collections or something like that. From that perspective, yes, it’s incredibly  powerful and the incentives are aligned when you say, “Wait, if I shop on Pinterest, that aligns with the  fundamental browse use case,” and if I buy on Pinterest or click to buy on Pinterest with a short hop, some  potential Shopify partnership, which is actually already extant, they have the Shopify partnership for that,  there’s high potential there. That’s an alignment-centred model. Affiliate links are already a thing, referral crediting is already a thing, tracking pixels is already a thing. Then you can start talking about Pinterest  increasing basket sizes, here’s the recipe, click to buy it and have it delivered via Instacart, that sort of  potential partnership, absolutely. 

Executing that is obviously where the difficulty lies and the problems are the catalogue of items, so where  Pinterest gets its catalogue, has always been the tricky bit in that particular relationship. For example, you are  a creator, you have an Etsy store, we really should partner with you such that your stuff is buyable on  Pinterest, that’s probably doable. You are a creator, you have a Shopify store, we should partner with you such  that your stuff is buyable on Pinterest, that’s probably doable. You go to Pinterest with intent to buy, that  happens already, but most of the time you actually end up frustrated and getting that to the point that most of  the time you can buy on Pinterest is a particularly high-lift task. If you want to see what signs of success of that  look like, what they’ll do is they’ll start solving in verticals, so you’ll see any time you see a look, all make-up is  buyable, any time you see make-up and you do the AR make-up try on, there’s a Mac link to click and buy it  instantly and some kickback to the creator of actually the look and the person by default and the Pin, if you’re  not using your Pin. That’s what successful looks like. It looks like them converting a single use case vertically  because previous efforts in the space, including the one I was part of, have tried to boil the ocean, in that  sense, and it’s like building Amazon from scratch today, you don’t build an entire new shopping destination  from scratch unless that’s all you are doing. 

I think that’s got potential, I think it’s a very, very hard execution challenge, for obvious reasons. I think you  either look for that to happen in partnership with Amazon, or even PayPal at that point, or a deeper  partnership with Shopify, or you look for that to happen in a particular vertical where Pinterest really doubles  down on, say, fashion or make-up. Fashion is hard because clothing is hard and the partnership base is  diverse. Make-up is much, much, much easier. What you’d look at is Pinterest, any look you see on Pinterest  from a make-up perspective you can click to buy and that’s what signs of success in this space look like. 

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8.
Do you think one of the challenges Pinterest is facing is pivoting from a visual search and discovery platform to a shopping and buying platform? It seems the company is more more advanced in making that transition among users, but the remaining challenge is about execution, as you referenced. You also discussed management’s identification of the importance of this shift and its commitment with capital to back that up. Can you elaborate on that point? What is necessary to make the transition to a shopping-focused platform successful?

SP: Let’s talk about make to happen in terms of requirements and then we’ll talk about make to happen in  terms of will. Make to happen in terms of requirements, you need a catalogue, you need some strategic  partnerships for fulfilment and dealing with the fiddly bits and you need an incentives model, you need an  everybody wins, the shopper finds what they want, the seller gets money and some affiliates in the chain get  some revenue on the way by. Affiliate model is easy. Transition of traffic is fairly easy because you control your  own recommendation system so I can spray you and I can discover shopping intent reasonably easily, or I can  at least give you the opportunity to pivot to buy. Where it gets tricky, because you asked about the leadership  question, is when you say divisional will, that’s a good way of summarising it. 

I’ll compare and contrast CEOs by personality in that sense. Elon Musk gets on Twitter and says, “We’re going  to space today,” and he burns the building down, in that sense, in very provocative, very declarative, very plant  the flag on top of the hill language, and that reflects who he is internally as well, for better or worse. The  corporate culture at Pinterest is not, “You cannot do that, it’s not a priority,” and it’s not, “You must do this, it  is a priority.” Because it is, “These are our five, 15, 25 big initiatives,” there’s a diffusion of focus. If you’re  going to go chase shopping, here’s a concrete example, to build that catalogue, you need an intense content  partnership or you need a scraper. I’ll pick on Nordstrom for a second. You need something that can go out  and pull Nordstrom’s entire catalogue into Pinterest and understand it. Bing has a team that does this, there  are about 300-400 people. Pinterest has a team that does this, it’s about 15. 15 is a very odd size, it’s a half pregnant size, in that sense. You don’t ever want a 15-size team, you want a 500-size team or zero. You either  want to buy it, decide you don’t need it or build a serious one. That’s a reflection of either priorities spread too thin or priorities not fully invested in, and so what you get is partial fulfilment. If Walmart is a store at which I  can buy only green vegetables, I might go there when I need green vegetables, but if I can’t explain to you what  Walmart is a store for, I simply don’t go, and that’s the problem Pinterest will run into in the space. 

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9.
A lot of people were surprised, perhaps not as much by Pinterest being discussed as a takeover candidate, but that the would-be suitor was PayPal. Why would such a deal have made sense for PayPal, given our conversation about Pinterest transitioning to a shopping-focused platform? What do you think of the reporting regarding PayPal potentially buying Pinterest?

SP: I think there’s an analogue here in Salesforce buying Twitter, frankly, or, for that matter, Microsoft  looking at buying Discord, or, for that matter, actually, when everybody was trying to buy Twitch or TikTok in  their own day. You have a large company with lots of money that isn’t particularly agile in its space right now,  you can look at the difficulty in Venmo, that’s trying to both revivify its portfolio and gain traffic. Okay, cool,  that makes sense. It makes sense because Pinterest is a top-of-funnel company, PayPal, among other things, is  a fulfilment and billing company, and if you think of the challenges that really plague you when you get into a  shopping-type space, you have to deal with returns and currency conversions and showing prices and, wait a  minute, PayPal already has a bunch of tech that does that. They also have a very, very large library of  understanding of content and scrape routines that need to pull information from other sites. Okay, that’s the  value proposition to Pinterest. PayPal is a bottom-of-the-funnel company that’s figured out the money  problem, they have scrape routines, these are all things Pinterest needs, cool, fantastic. Pinterest is a hot brand  name, it’s a commodity that’s in the news a lot that probably has hit, in some sense, peak MAU, unless they do  something very big about it. They could use a large capital infusion to be able to fight the ever-increasing costs  of ML [machine learning] in the space, I’m happy to talk about that a little bit, but basically costs per user to  be good at giving you good recommendations are exploding for everyone and have been for quite some time. 

To Pinterest’s side, there’s obviously the cash aspect but there’s the top-of-funnel traffic part, so Pinterest to  PayPal is, “Hi, I’ve got an immense amount of top-of-funnel traffic, I’ve got an immense amount of high intent,  low availability to fulfil traffic and I’ve got an immense amount of users and I’m sexy darling in the news.”  PayPal to Pinterest is, “Hi, here’s a large amount of money, here’s a solution to two or three top problems  facing you, ie scrapers and fulfilment, returns and partnerships with folks like Shopify. By the way, I  understand some of the more annoying problems in the space, like currency conversion, natively. Boy, let’s go  make some beautiful music together.” That all makes sense and ties together pretty well and returns value for  both sets of shareholders and also gives Pinterest an exit at peak. I would suspect there was some short-term  incentive in discussing deals like that before some of the pandemic softness fully unwound, or the post pandemic softness, because the pandemic growth, that’s pull-forward. 

That’s how I think of the value proposition to both companies, and I’d say that the top-of-funnel, low specificity, unbranded intent, meaning I’m looking for toilet paper rather than, I don’t know, Charmin, is  really, really, really a goldmine of data in that sense, and I think that’s the value prop to PayPal. I think the  reason that it doesn’t make sense, to flip the scales and to completely pick apart everything I just said, it  doesn’t make sense on the whole. PayPal solves some very specific problems, the macro problem, if you recall  the original partnership where Pinterest was interested in a partnership with Microsoft, some of those make  much more sense or perhaps might be more appealing. Obviously, in any merger there’s no perfect join, but  basically Pinterest is traffic and top-of-funnel intent and PayPal is bottom-of-funnel fulfilment and a bunch of  things that Pinterest needs in terms of money and in terms of understanding of conversions and shopping.  Happy to go deeper on that or talk about other aspects or downsides of that deal, but that’s it in a nutshell. 

TB: Many people were confounded by the proposed deal. I agree with your Salesforce-Twitter analogy, where  some people within the would-be acquiring organisation thought these types of transactions made sense.  Then, as news of the potential deal spreads, people within and outside the organisation begin to question and  push back on the deal.

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10.
It seems Pinterest has historically intentionally priced advertising below the market, in part to win market share. Do you expect the company to be more aggressive regarding pricing, given the current circumstances? Could that help the company combat its MAU challenges and have growth there?

SP: I’ll be very open here. Pricing and optioning is not my speciality but I know some of the constraints in the  space and I know some of how Pinterest thinks. With that caveat, Pinterest has always had a head-weighted,  narrowly focused advertiser problem, and when I say head-weighted, narrowly focused advertiser problem,  here are the four advertisers that matter and here are the 4,000 that don’t. The eBays, the Targets of the world  make up a disproportionate share of the advertiser base. Pinterest’s ability to price set is limited because  they’re beholden to a fairly narrow set of advertisers. Part of the reason for hiring Francoise, in fact, was to  diversify the advertiser base. 

I’d say yes, driving up your ARPU is great work if you can get it, but Pinterest’s ability to price set is limited.  Pinterest’s ability to bring in competition has been stifled because they tried to go after mid-market or  downmarket, meaning small to mid-cap functionally. That’s been fairly successful, it brings in new revenue,  but the understanding of what to use Pinterest for and the degree of targeting available on Pinterest, meaning  what campaigns do I run on Pinterest and why, has never been as clear and well-formed as it is for a Facebook  or a Snap or a TikTok or any of the large names you might expect. I think it’s less, “Hey, we’re keeping price  low to gain market share,” and more a disconnect between the types of spend. If you think of it this way, I go  up to Macy’s and I say, “Hey, Macy’s, how much advertising money do you have to spend? Do you want to  spend some of it on Pinterest? We’ve got a great return on ad spend and great basket sizing.” The pitch from  Pinterest has never been compelling to the people who set the budgets, and I think that’s because, if you want  to take a flare on an advertiser and you want to go to some more interesting and edgy advertising route, the  interesting and edgy advertisers, frankly, don’t advertise on Pinterest. It’s a segmentation mismatch in that  sense. If you’re going to be the sort of advertiser that metaphorically only buys IBM, sticks to safe choices only,  then you’re not going to be swayed by “we can we make you a quick buck” advertising pitch. If you’re going to  be the sort of advertiser like Red Bull, for example, that goes, “We’re going to do some very outré stuff because  it gets us press,” the meme end of marketing, if you will, Pinterest is not hot, sexy and interesting in that sense.  They’re stuck between those two. 

The path for success there for Pinterest is to broaden the base and get folks leveraging the fact that Pinterest is  a nice, safe and happier place, more so than the internet at large, there’s less trolling, there’s less flame war  there’s less risk that your ad will be content next to something terrible, do so by pulling in partnerships like  Disney that are traditionally high-sensitivity advertisers and driving up ad load. There’s a trade-off here  though because the more you drive up ad load and the more you flood with impressions, the more risk you  have of running untargeted campaigns. EBay campaigns are particularly notorious for this, and when I say  untargeted campaigns I mean why am I being shown this Pin for cat clothing, I’m looking at soup? That causes  negative user experience and actually causes user attrition. It’s a very complex balancing act and your ability to  price set is more limited than you’d like. 

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11.
It seems there’s a lack of urgency in Pinterest and perhaps that emanates from Ben Silbermann, the Co founder, Chairman, President and CEO. Is that a fair way to characterise some of the issues the company has had? You alluded to how there are so many different projects and priorities that it’s difficult make an impact. What do you think of its management and what could help inject a sense of urgency that hasn’t been there previously?

SP: The short answer there is there’s absolutely no sense of exigent urgency and that stems from the top, and  so exactly what it sounds like in threading through, yes, that. 

The slightly longer answer is Ben is very good at making this feel important but he does that with everything, and so if he was Elon Musk, the company would either be worth USD 1tn or zero by now, and that’s exactly the  right model. Not to pick on Elon or Jeff Bezos or any of the more notable names. Ben is not an explode-or-die  mentality guy, and that’s reflected in the company. A lot of his peers at Snap, whatever, are driven by explode or-die mentality people. What that means is the slow progressive growth and pacing of, “Let me deliver you  reliably YoY a reasonable set of users. Let me set a product strategy that’s mostly focused on retention over  hyper growth,” it would be a little unkind because, at the end of the day, it is USD 50bn, which is by no means  a lifestyle company, but it’s a really big pseudo-lifestyle company. In that sense, the culture that flows from the  top is one of steadiness and stability and it permeates all the holes within the organisation. That both insulates  you from the company running to zero but also insulates you from the company running to infinity, and that  shows at every level. When I say it shows at every level, there was a running gag among product managers that  you did not sit down and tell Ben, “Ben, I know what we’re going to do and we’re going to go make USD 1bn  and we’re going to go take over the world.” You instead said, “Let me tell you how somebody is going to be  happy we shift this,” and that’s reflected tip to tail in Pinterest as a culture. It cuts both ways, obviously.  

TB: What could or should Pinterest do to inject an attitude of urgency into the company? The company no  longer has a COO. Would bringing someone new into the organisation with that kind of hard-charging mentality be positive or, because the person leading the company has a different attitude, that wouldn’t make  much of a difference? 

SP: Here’s the problem with Ben, and it’s a very human problem. Here are the five people Ben trusts, and he  never trusts anyone other than that. You can look at the Pinterest board and see them. Sometimes he rotates  someone in and out of that set, and new executives tend to spend somewhere between six and 12 months in  that set. Jon Alferness, great fanfare, “We’re going to hire Jon Alferness, we’re going to trust him, we’re going  to have him lead shopping,” six months later he’s gone. Lawrence Ripsher, “We’re going to elevate Laurence  Ripsher to Head of Product, we’re going to put him on all of our mastheads. We’re going to IPO,” next six  months, he’s basically resting investing, officially no one reported to him internally. 12 months later, he’s gone.  The path forward is having urgency in the company. I don’t think you can get it by bringing someone in  because if they win Ben’s trust, that will last for a time and they might be able to inject that sense of urgency,  but, in practice, eventually they get rotated out of that high-trust set. It has the fastest executive both hiring  and firing culture I have seen in any company in ever, shy of like maybe a very aggressively pivoting series B.  You could bring in COOs all day long but I don’t think you would fundamentally change the dynamics. 

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12.
What’s next for Pinterest? We have discussed some of the growth challenges and why PayPal was interested and why that deal didn’t come to fruition. Do you think 1-3 years from now Pinterest is an independent company? You highlighted the notion that a player such as Amazon might make a logical buyer for it. Given the legal and regulatory scrutiny on big tech, I’m not sure a USD 40bn-50bn acquisition would pass muster.

SP: I’ll be brief because I know we’re near time. I’ll give you three good outcomes and one bad one, and I  think the answer is the bad one in the near term and then one of the three good ones in the long term. I think  the next 1-3 years are going to be rough because I think the MAU softness is going to overshadow everything  else. They’ll either fix that or they won’t. I don’t think shopping comes fast enough to fix that, unless it’s by  acquisition, so let’s talk about the three good paths. 

I think the next 1-3 years is rough, MAU softness, full stop. I think there are three exits to that. One is an  acquisition by a large cloud provider. You were absolutely right about what you’d call the Amazon problem.  Anyone who’s running a large cloud provider and has at least one or two core synergistic technologies,  scraping, machine learning, large amounts of cloud resources in general, a high need for traffic, a very, very  large data system already with high retention requirements, that sort of thing, something that either offsets  the cost or supercharges the gains of running Pinterest as a company is a potential acquisition target. One  good out is somebody like a Microsoft buys them. A PayPal is also a logical candidate, Shopify would be too,  though that’s a little bit more of a fraught question for a number of reasons. You’re right that Amazon,  Facebook or Google probably couldn’t make a move. The down pressure there is, of course, if Microsoft buys  them, Google goes, “We’re sending all this traffic to Microsoft tomorrow,” so there’s some tension there even if it was a major in that sense. Keep in mind, Pinterest’s top-line traffic is Google’s front door, Google image  search. That’s one of the three good outcomes, acquisition. 

The second good note is maybe they bounce off the MAU softness and that causes some real motives, in terms  of creators and in terms of shopping, and it causes some focus. What you really want to do is you want to see  rumblings from the company about what they’re not doing. You actually want to see some people unhappy  with the direction because right now everybody is happy because nothing is cut. You want to see half the  people love it and half the people hate it type shift. The second good outcome is culture shift, where they go,  “Here are the three things. That’s all we’re doing. If you’re not on this list, I’m sorry, your job is now one of  these three things.” 

The third good outcome is I could see this very strong partnership potential, so maybe the way you size up the  large-scale technology company is you say, “Better together, friendly consortium between Pinterest and Disney  to make advertising safer,” and you see that kind of language start cropping up. The way they could solve it,  and this is the hardest of the three, but it’s probably the most lucrative in the long run, nobody has really  solved the problem of advertiser and influencer marketing such that, and this is a real-world example from  Twitch, believe it or not, if I promote your products today, I might declare that I’m a terrible, horrible racist  person tomorrow and now your products are tarred and feathered because, “Hey, didn’t you used to be a  spokesman for Disney?” Pinterest has an edge here that is unexploited, in that Pinterest is a happier, nicer  place on the internet, and a nicer place on the internet in terms of brand safety and as a brokerage with  creators and creator content is of incredible durable value. I think that’s the third. It’s going to be gloomy on  the 1-3, unless you start seeing rumours of an acquisition, very, very strong company focus or maybe a solution  to the problem of brand safety in a context of influencer marketing, but that’s an odd bet. 

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