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Filed pursuant to Rule 424(b)(4)
Registration No. 333-230458

 

Prospectus

LOGO    75,000,000 Shares

 

 

Class A Common Stock

 

 

This is our initial public offering, and no public market currently exists for our Class A common stock. Pinterest, Inc. is offering 75,000,000 shares of Class A common stock.

Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price of our Class A common stock is $19.00 per share. Our Class A common stock has been approved for listing on the New York Stock Exchange under the symbol “PINS.”

Following this offering, we will have two classes of common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting, conversion and transfer rights. Each share of Class A common stock will be entitled to one vote. Each share of Class B common stock will be entitled to 20 votes and will be convertible at any time into one share of Class A common stock. All shares of our common stock outstanding immediately prior to this offering, including all shares held by our executive officers and directors, will be reclassified into shares of our Class B common stock immediately prior to the completion of this offering. The holders of our outstanding shares of Class B common stock will initially hold approximately 99.2% of the voting power of our outstanding capital stock following this offering.

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and will be subject to reduced public company reporting requirements. See “Summary—Implications of Being an Emerging Growth Company.”

 

 

Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 20 to read about factors you should consider before deciding to invest in our Class A common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $ 19.00      $ 1,425,000,000  

Underwriting discount (1)

   $ 0.76      $ 57,000,000  

Proceeds, before expenses, to Pinterest

   $ 18.24      $ 1,368,000,000  

 

 

 

(1)

See “Underwriting (Conflicts of Interest)” for a description of compensation payable to the underwriters.

To the extent that the underwriters sell more than 75,000,000 shares of Class A common stock, the underwriters have the option to purchase up to an additional 11,250,000 shares of Class A common stock from us at the initial price to public less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on April 23, 2019.

 

Goldman Sachs & Co. LLC

   

J.P. Morgan

   

Allen & Company LLC

 

BofA Merrill Lynch

  Barclays  

Citigroup

Credit Suisse   Deutsche Bank Securities   RBC Capital Markets

Baird

 

UBS Investment Bank

  Wells Fargo Securities

Prospectus dated April 17, 2019.


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LOGO

Therrin, 35 Mandeville, LA United States
Brooke, 28 Seattle, WA United States
Pablo, 32 Buenos Aires Argentina
Brittany, 26 Brooklyn, NY United States
Priyanka, 25 Mumbai India
Carl, 50 Patterson, LA United States


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LOGO

Lala, 28 Queens, NY United States
Jillian, 18 Orlando, FL United States
Mike, 37 Dayton, KY United States
Brenda, 55 Oakland, CA United States
Richard, 51 Round Rock, TX United States
Reika, 27 Tokyo Japan


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LOGO

Henrik, 31 Berlin Germany
Denise, 30 São Paulo Brazil
Nate and Taylor, 24 and 28 Port St. Lucie, FL
United States
Michael, 35 Marshalltown, IA United States
Mylène, 27 Lyon France
Kaye, 70 Louisville, KY United States


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LOGO

Our mission is
to bring everyone
the inspiration
to create a life
they love


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LOGO

Pinterest at a glance 250m+ monthly active users1 $750m+ revenue1 2b+ monthly searches2 175b+ Pins saved3 4b+ boards created3 Third most relevant 4 brand in the U.S. 1. As of December 31, 2018 2. Monthly average for the year ended December 31, 2018, includes text-based searches and guided searches 3. Cumulative as of December 31, 2018 4. Prophet Brand Relevance Index 2018


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TABLE OF CONTENTS

 

SUMMARY

     1  

RISK FACTORS

     20  

MARKET, INDUSTRY AND OTHER DATA

     57  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     59  

USE OF PROCEEDS

     61  

DIVIDEND POLICY

     62  

CAPITALIZATION

     63  

DILUTION

     66  

SELECTED CONSOLIDATED FINANCIAL INFORMATION

     68  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     70  

A LETTER FROM BEN AND EVAN

     89  

BUSINESS

     91  

MANAGEMENT

     154  

EXECUTIVE COMPENSATION

     163  

PRINCIPAL STOCKHOLDERS

     172  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     177  

DESCRIPTION OF CAPITAL STOCK

     180  

SHARES ELIGIBLE FOR FUTURE SALE

     188  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS

     191  

UNDERWRITING (CONFLICTS OF INTEREST)

     194  

LEGAL MATTERS

     200  

EXPERTS

     201  

WHERE YOU CAN FIND MORE INFORMATION

     202  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

We are responsible for the information contained in this prospectus. We and the underwriters have not authorized anyone to provide any other information, and we take no responsibility for any other information that others may provide you. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

Through and including May 12, 2019 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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SUMMARY

The following summary highlights selected information about our company and this offering that is included elsewhere in this prospectus in greater detail. It does not contain all of the information that you should consider before investing in our Class A common stock. For a more comprehensive understanding of our company and this offering, you should read this entire prospectus carefully, including the information presented under the heading “Risk Factors” and in our consolidated financial statements and notes thereto.

In this prospectus, unless we indicate otherwise or the context requires, “Pinterest, Inc.,” “Pinterest,” “the Company,” “our company,” “the registrant,” “we,” “our,” “ours” and “us” refer to Pinterest, Inc. and its consolidated subsidiaries. Unless otherwise indicated, references to our “common stock” include our Class A common stock and Class B common stock. For additional information about the studies referenced in this prospectus, see “Market, Industry and Other Data.”

Our Company

Pinterest is where more than 250 million people around the world go to get inspiration for their lives. They come to discover ideas for just about anything you can imagine: daily activities like cooking dinner or deciding what to wear, major commitments like remodeling a house or training for a marathon, ongoing passions like fly fishing or fashion and milestone events like planning a wedding or a dream vacation.

We call these people Pinners. We show them visual recommendations, which we call Pins, based on their personal taste and interests. They then save and organize these recommendations into collections, called boards. Browsing and saving visual ideas on our service helps Pinners imagine what their future could look like, which helps them go from inspiration to reality.

Pablo in Buenos Aires uses Pinterest to find new styles and looks, including his next pair of leather boots. Krissy in Atlanta cooked so many of the recipes she found on Pinterest that she gained the confidence to start teaching her own cooking classes. Mark in London says Pinterest is his “creative outlet” when renovating properties ranging from townhouses to cottages.

Pinterest is the productivity tool for planning your dreams. Dreaming and productivity may seem like polar opposites, but on Pinterest, inspiration enables action and dreams become reality. Visualizing the future helps bring it to life. In this way, Pinterest is unique. Most consumer internet companies are either tools (search, ecommerce) or media (newsfeeds, video, social networks). Pinterest is not a pure media channel, nor is it a pure utility. It’s a media-rich utility that satisfies both emotional and functional needs by solving a widespread consumer problem that is unaddressed by many other platforms. We call it discovery.

From Search to Visual Discovery

Search helps people find a discrete piece of information quickly, but it isn’t an adequate tool if you don’t know exactly what you’re looking for, you can’t describe it in words or you’re seeking something that is tailored to your taste. These common dilemmas are best solved by a visual discovery journey, rather than by a text-based search.

Discovery on Pinterest is a rich experience that combines some of the utility features of search with some of the enjoyable features of media. Fundamentally, Pinners are trying to get something done—



 

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plan an event, buy a product, take a trip—so we surface personally relevant and visually rich possibilities for consideration and eventual action. This is useful. But the discovery journey is not linear—along the way, Pinners scroll through their home feeds, browse visual recommendations and see a wide range of inspiring content, much as they would if perusing a catalog or watching a cooking or home renovation show. Thus, discovery is both useful and fun, an exercise in productive play.

Pinners often embark on a discovery journey when they want to purchase something but have not yet decided which product or service best suits their needs and taste. More Pinners say that Pinterest helps them find new shopping ideas and inspiration than users on other consumer internet platforms, according to a survey by Comscore that we commissioned. And 68% of Pinners say they have discovered a new brand or product on Pinterest, according to a survey of weekly active users by Talk Shoppe. People actively seek relevant commercial content on our service, and advertisers are increasingly providing it. This fundamental alignment between Pinner and advertiser objectives differentiates Pinterest from other services, and we believe the continued growth of our advertising business will improve the core Pinner experience over time.

We’re proud to have empowered so many people from around the world to take the journey from inspiration to action and back again, and we’re just getting started. Our mission is to bring everyone the inspiration to create a life they love.

Value Proposition for Pinners

 

   

Visual Experience. People often don’t have the words to describe what they want, but they know it when they see it. This is why we made Pinterest a visual experience. Images and video can communicate concepts that are impossible to describe with words. We believe that Pinterest is the best place on the web for people to get visual inspiration at scale. Visual searches are becoming more and more common on Pinterest, with hundreds of millions of visual searches per month. We have invested heavily in computer vision to help people discover possibilities that traditional text-based search queries cannot offer. Our computer vision models “see” the content of each Pin and optimize billions of recommendations daily.

 

   

Human Curation and Personalization. Pinterest is a curated environment. The vast majority of Pins have been handpicked, saved and organized over the years by hundreds of millions of Pinners creating billions of boards; they are not the result of web crawling or indexing. We call this body of data the Pinterest taste graph.

Machine learning and computer vision help us find patterns in the data. We then understand each individual Pin’s relationship not just to the Pinner who saved it, but also to the ideas and aesthetics reflected by the names and content of the boards where it’s been pinned. We believe we can better predict what content will be helpful and relevant because Pinners tell us how they organize ideas. The Pinterest taste graph is the first-party data asset we use to power our visual recommendations.

When we scale human curation across hundreds of millions of Pinners saving over 175 billion Pins, we believe our taste graph and recommendations get exponentially better. Eighty-two percent of Pinners say Pinterest feels personalized to them, according to a survey of weekly active users by Talk Shoppe.

 

   

Designed for Action. People use Pinterest to visualize what their future could look like and make their dreams a reality. Eighty-five percent of Pinners say that they go to Pinterest to start a new project, according to a Talk Shoppe survey. Our goal is for each Pin to link back to a useful source—everything from a product to buy, ingredients for a recipe or instructions to



 

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build a project. We have built features that encourage Pinners to take action on ideas they see on Pinterest, with a special focus on making it easy for people to purchase products they discover on our service.

 

   

Empowering Environment. Pinners describe Pinterest as an inspiring place where they can focus on themselves, their interests and their future. Ninety-one percent of our users say that Pinterest is filled with positivity, according to a Talk Shoppe survey. This is an important part of our value proposition because people are less likely to dream about their future when they feel self-conscious, preoccupied with the problems of the day or gripped by a “fear of missing out.” On Pinterest, people can explore new things, free of much of the judgment that occurs elsewhere online. Eighty-nine percent of Pinners say that they leave our service feeling empowered, according to a Talk Shoppe survey.

Value Proposition for Advertisers

 

   

Empowering Environment. Advertisers are in the business of inspiration. On Pinterest, businesses have the opportunity to showcase their products and services in an inspiring, creative environment. This is rare on the internet, where consumers’ digital experiences can be stressful or negative, and brands can get caught in the crossfire. In 2018, Prophet, a global brand and marketing consultancy, ranked Pinterest as the third most relevant brand in the United States and first in its inspiration category. We believe that the inspirational and constructive feelings that many people experience on Pinterest make our site an especially effective environment for brands to build an emotional connection with consumers.

 

   

Valuable Audience. Pinterest reaches more than 250 million monthly active users, two thirds of whom are female. In the United States, our total audience includes 43% of internet users, according to an independent study by Comscore based on total unique visitors to our service. This includes eight out of 10 moms, who are often the primary decision-makers when it comes to buying products and services for their household, as well as more than half of all U.S. millennials. We expect to continue to grow our user base over time, especially in international markets.

The value of Pinterest’s audience to advertisers is driven not merely by the number of Pinners on our platform or their demographics, but also by the reason they come to Pinterest in the first place. Getting inspiration for your home, your style or your travel often means that you are actively looking for products and services to buy. Billions of searches happen on Pinterest every month. In the United States, more people use Pinterest to find or shop for products than on social networks, according to a survey by Cowen and Company. Sales at retail stores that primarily focus on our core verticals of food, home, beauty and fashion and internet retail sales of products in those verticals represented nearly two-thirds of retail sales of consumer goods in 2018 in the United States, according to Euromonitor. An analysis by Oracle of retail transactions from 2016 to 2017 showed that on average Pinterest households were 39% more likely to buy retail products, and they spent 29% more than the average household. Commercial content from brands, retailers and advertisers is central to Pinterest; the majority of Pins saved on our service are from businesses. Ads do not compete with the content Pinners want to see—they are native content. The mutually beneficial alignment between advertisers and Pinners differentiates us from other platforms where ads can be distracting or annoying. We are still in the early stages of building an advertising product suite that fully taps the value of this alignment between Pinners and advertisers, but we believe it will be a competitive advantage over the long term.

 

   

The Discovery Journey. Pinners travel from inspiration to action and back again on our service. Advertisers have the opportunity to put relevant content in front of them at every



 

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stage of this journey—when they are browsing through many possibilities, when they are comparing a handful of options and when they are ready to make a purchase. As a result, advertisers can achieve a range of objectives on Pinterest.

Our Market Opportunity

On Pinterest, businesses of all sizes and from many industries can achieve a diverse set of goals, from building brand awareness, to increasing online traffic, to driving sales. Our platform isn’t limited to just advertisers with “top-of-funnel” goals or to those just seeking conversions. The natural progression of Pinners’ discovery journey—from inspiration, to planning, to action—takes them down the full purchasing funnel, and advertisers can provide value to them every step of the way.

The global advertising market is projected to grow to $826 billion in 2022 from $693 billion in 2018, representing a 5% compound annual growth rate (“CAGR”), according to IDC. The digital advertising market alone is projected to grow to $423 billion in 2022 from $272 billion in 2018, representing a 12% CAGR, according to IDC. In 2018, the consumer packaged goods (“CPG”) and retail industries accounted for $64 billion of this digital advertising spend, and the travel, technology (includes computing, consumer electronics and telecom), automotive, media & entertainment and financial services industries accounted for an additional $144 billion. The United States continues to represent the largest digital advertising market in the world. The U.S. digital advertising market is projected to grow to $166 billion in 2022 from $104 billion in 2018, representing a 12% CAGR, according to IDC.

Our addressable market opportunity includes brand advertising and performance-based advertising across various formats.

 

   

Online Brand Advertising. People often come to Pinterest with commercial intent. Usually, they are still undecided about what products and services are right for them; 97% of the 1,000 most popular searches on Pinterest are unbranded. The early commercial intent of Pinners differentiates us from other platforms and is attractive to advertisers looking to raise awareness at the top of the purchasing funnel.

 

   

Offline Brand Advertising. We have an opportunity to capture brand advertising dollars currently being spent in offline channels. People seeking inspiration use Pinterest in ways that mirror how they use magazines and catalogs. Traditional offline advertising options—specifically print, direct mail, television and radio—accounted for $378 billion in global advertising spend in 2018, according to IDC. Long-term trends show that these advertising budgets are shifting to online channels. We believe Pinterest is well-positioned to capture this spend.

 

   

Online Performance Advertising. Pinners don’t just dream about their futures; they explore real options and often want to bring their dreams to life. They browse ideas, visit merchant websites and eventually buy products and services. These middle- and lower-funnel behaviors are highly valued by advertisers seeking consideration and conversions. According to IDC, search advertising alone is projected to grow to $169 billion in 2022 from $118 billion in 2018, representing a 9% CAGR.

Our Growth Strategy

We believe new and improved products for Pinners and advertisers will drive future user and revenue growth for Pinterest.

Pinner Products. Although there are a number of ways users come to Pinterest, historically we’ve attracted a large number of new Pinners organically because people who love our product have a



 

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natural desire to refer others. We expect future product improvements will make Pinterest more useful for current Pinners and attract new users to our service, especially in international markets. Specifically, we plan to:

 

   

improve the relevance of our visual recommendations by leveraging computer vision and other technical innovations, such as Lens, that deepen Pinners’ engagement with our service;

 

   

improve the utility of our service by making it easier for Pinners to go from inspiration to action—in particular, we want to make Pinterest more shoppable;

 

   

explore new features to encourage Pinners to discover a broader set of verticals such as automotive, technology, financial services, media and entertainment and travel;

 

   

make Pinterest more accessible to users around the world by localizing the product and content experience; and

 

   

bring additional high-quality commercial content onto the platform by deepening our partnerships with brands, retailers and content creators.

Advertising Products and Capabilities. We’re still in the early stages of our monetization efforts. Today, our advertising products help businesses reach Pinners across their decision-making journey. We address various advertiser objectives through our Promoted Pin ad format, which contains either a single image, a carousel of images or video. Our ability to develop new and improve existing advertising products will be an important driver of our future growth. Specifically, we are:

 

   

working to improve the relevance of ads on Pinterest by leveraging our insights into Pinners’ taste and interests;

 

   

building products that help advertisers deliver value to Pinners as they move down the purchasing funnel on our platform;

 

   

growing and diversifying our advertiser base, which we believe will also enable us to drive better ad relevance; and

 

   

investing in first- and third-party tools to better measure the performance of ads on our platform and prove their value to advertisers.

Advertiser Relationships. Our strategy to deepen our relationships with advertisers focuses on two priorities:

 

   

Scaling our business with existing advertisers. We currently have relationships with many of the largest CPG companies and retailers in the world. We believe we have a significant opportunity to gain a greater share of their advertising dollars and to attract more of their sister brands to Pinterest, particularly as improved measurement tools better demonstrate returns on current advertising spend.

 

   

Attracting more advertisers. We plan to increase our presence in verticals such as automotive, technology, financial services, media and entertainment and travel. We have also focused on working with SMBs. As we continue to invest in our self-serve platform, we expect our engagement with SMBs to continue to grow. Finally, we are expanding our international advertiser base, with an initial focus on Western Europe and other select markets to follow. Our international strategy targets engagement across advertiser scale and vertical focus. We are forging new and expanding existing relationships with large and mid-market advertisers to target key international markets.

We have experienced significant growth over the last several years. For the year ended December 31, 2018, we generated revenue of $755.9 million, as compared to $472.9 million for the same period in



 

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2017, representing year-over-year growth of 60%. For the year ended December 31, 2018, we generated a net loss of $63.0 million and Adjusted EBITDA of $(39.0) million, as compared to a net loss of $130.0 million and Adjusted EBITDA of $(93.0) million, respectively, in the same period in 2017. See “—Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measure” for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”), to Adjusted EBITDA.

Estimated Preliminary Results

Set forth below are certain estimated preliminary results for the three months ended March 31, 2019. We have provided ranges, rather than specific amounts, because these results are preliminary and subject to change. These ranges are based on the information currently available to us as of the date of this prospectus. Our actual unaudited financial results for the three months ended March 31, 2019 are not yet available and our closing procedures for the three months ended March 31, 2019 are not yet completed. As such, our actual results may vary from the estimated preliminary results presented here and will not be finalized until after the completion of this offering. We have not identified any unusual or unique events or trends that occurred during the period that we believe will affect these estimates.

These are forward-looking statements and are not guarantees of future performance and may differ from actual results. These estimates should not be viewed as a substitute for our full interim or annual financial statements prepared in accordance with GAAP. There can be no assurance that these estimates will be realized, and estimates are subject to risks and uncertainties. Please refer to “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These estimated preliminary results should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto for prior periods included elsewhere in this prospectus.

The following estimated preliminary results have been prepared by, and are the responsibility of, management. Our independent registered public accounting firm, Ernst & Young LLP, has not audited, reviewed or performed any procedures with respect to the preliminary financial results. Accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto.

 

     Three Months Ended  
     March 31,     March 31, 2019  
     2018     Low     High  
     (unaudited, in millions)  

Selected Financial Data

      

Revenue

   $ 131.4     $ 198.9     $ 201.9  

Loss from Operations

   $ (55.0   $ (50.5   $ (47.5

Other Data

      

Monthly Active Users (Global)

     239      
291
 

Average Revenue Per User (Global)

   $ 0.58     $ 0.72     $ 0.73  

Adjusted EBITDA

   $ (45.4   $ (43.5   $ (41.0

 

   

For the three months ended March 31, 2019, we expect to report revenue in the range of $198.9 million to $201.9 million, representing an increase of 51% to 54% compared to the three months ended March 31, 2018. The increase in revenue was primarily driven by a 22% increase in average monthly active users (“MAUs”) and a 24% to 26% increase in Average Revenue per User (“ARPU”) for the low and high estimated preliminary results, respectively. We define ARPU as our total revenue in a given geography during a period



 

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divided by the average of the number of MAUs in that geography during the period. ARPU growth was driven by higher monetization of user base largely due to an increase in the number of advertisements delivered as a result of an increase in the overall number of advertisers on our platform and increased demand from existing advertisers. The impact from an increase in the price of advertisements was not significant for the quarter ended March 31, 2019.

 

   

For the three months ended March 31, 2019, we expect to report a loss from operations in the range of $(50.5) million to $(47.5) million, representing a decrease of 8% to 14% compared to the three months ended March 31, 2018. The decrease in loss from operations was primarily driven by revenue increases outpacing increases in costs and expenses.

 

   

As of March 31, 2019, we expect to report global MAUs of 291 million, representing an increase of 22% compared to March 31, 2018. The increase in global MAUs was primarily due to our continued focus on localizing content in international markets.

 

   

For the three months ended March 31, 2019, we expect to report Adjusted EBITDA in the range of $(43.5) million to $(41.0) million, representing an increase of 4% to 10% compared to the three months ended March 31, 2018. Adjusted EBITDA is a non-GAAP financial measure. The increase in Adjusted EBITDA was primarily due to revenue increases outpacing increases in costs and expenses. See below for a reconciliation of loss from operations, the most directly comparable financial measure calculated and presented in accordance with GAAP that is currently available to us, to Adjusted EBITDA. For further information regarding Adjusted EBITDA see “—Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measure.”

We are not able to reconcile Adjusted EBITDA to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, because we have not yet been able to calculate our provision for income taxes for the three months ended March 31, 2019. Therefore, the following table sets forth a reconciliation of loss from operations, the most directly comparable financial measure calculated and presented in accordance with GAAP that is currently available to us, to Adjusted EBITDA:

 

     Three Months Ended  
     March 31,
2018
    March 31, 2019  
    Low     High  
     (unaudited, in millions)  

Reconciliation of Loss from Operations to Adjusted EBITDA

      

Loss from operations

   $ (55.0   $ (50.5   ($ 47.5

Depreciation and amortization

     4.8       5.9       5.7  

Share-based compensation (1)

     4.8       1.1       0.8  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (45.4   $ (43.5   $ (41.0
  

 

 

   

 

 

   

 

 

 
      

 

(1)

We began granting restricted stock units (“RSUs”) in March 2015. Our RSUs are subject to both a service condition, which is typically satisfied over four years, and a performance condition, which will be satisfied if an initial public offering or change of control (collectively, an “Initial Event”) occurs within seven years of the date of grant. We have not recorded any share-based compensation expense for RSUs as of March 31, 2019 because an Initial Event has not occurred. If this offering had been completed on March 31, 2019, we would have recorded cumulative share-based compensation expense of $974.9 million, and we would expect to recognize the remaining $924.5 million of unrecognized share-based compensation expense over a weighted-average period of 3.7 years. Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs as well as any other share-based awards we may grant in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance—Share-Based Compensation.”



 

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Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in “Risk Factors” beginning on page 20. These risks include, but are not limited to, the following:

 

   

Our ecosystem of Pinners and advertisers depends on our ability to attract, retain and engage our user base. If we fail to add new Pinners or retain current Pinners, or if Pinners engage less with us, our business, revenue and financial results could be harmed.

 

   

If we are not able to continue to provide content that is useful and relevant to Pinners’ personal taste and interests, Pinner growth, retention or engagement could decline, which could result in the loss of advertisers and revenue.

 

   

If we do not develop successful new products or improve existing ones, our business may suffer. We may also invest in new products that fail to attract or retain users or generate revenue.

 

   

Our business depends on a strong brand and reputation, and if we are unable to maintain and enhance our brand and reputation, our ability to expand our user and advertiser base will be impaired and our business, revenue and financial results could be harmed.

 

   

If our security is compromised, or Pinners or advertisers believe our security has been compromised, Pinners and advertisers may use our service less or may stop using our service altogether, which could harm our business, revenue and financial results.

 

   

We depend in part on internet search engines to direct traffic and refer new users to our service. If search engines’ methodologies and policies are modified or enforced in ways we do not anticipate, or if our search results page rankings decline for other reasons, traffic to our service or user growth, retention or engagement could decline, any of which could harm our business, revenue and financial results.

 

   

We allow users to access our service through third-party single sign-on tools. If these third parties discontinue these tools or experience a breach or outage in their platform, user growth or engagement could decline, and our business, revenue and financial results could be harmed.

 

   

If we are unable to compete effectively for users and advertisers, our business, revenue and financial results could be harmed.

 

   

We are in the early stages of our monetization efforts and there is no assurance we will be able to scale our business for future growth.

 

   

We generate substantially all of our revenue from advertising. The failure to attract new advertisers, the loss of advertisers or a reduction in how much they spend could harm our business, revenue and financial results.

 

   

We may not be able to develop effective products and tools, including measurement tools, for advertisers.

 

   

We may not succeed in further expanding and monetizing our platform internationally.

 

   

We have a limited operating history and, as a result, our past results may not be indicative of future operating performance.

 

   

We have incurred operating losses in the past, anticipate increasing our operating expenses, expect to incur operating losses in the future and may never achieve or maintain profitability.

 

   

We may make decisions consistent with our mission and values that may reduce our short- or medium-term operating results.



 

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We receive, process, store, use and share data, some of which contains personal information, which subjects us to complex and evolving governmental regulation and other legal obligations related to data privacy, data protection and other matters, which are subject to change and uncertain interpretation.

 

   

We may be liable as a result of content or information that is published or made available on our service.

 

   

We depend on Amazon Web Services for the vast majority of our compute, storage, data transfer and other services. Any disruption of, degradation in or interference with our use of Amazon Web Services could negatively affect our operations and harm our business, revenue and financial results.

 

   

The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business, revenue and financial results.

 

   

The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our co-founders, executive officers, employees and directors, their affiliates, and all of our other existing stockholders (including those unaffiliated with any of our co-founders, executive officers, employees or directors). This will limit or preclude your ability to influence corporate matters. The holders of our outstanding Class B common stock will initially hold approximately 99.2% of the voting power of our outstanding capital stock following this offering, with 67.9% held by our co-founders, executive officers, directors, holders of more than 5% of our outstanding capital stock and their affiliates.

Channels for Disclosure of Information

Investors, the media and others should note that, following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission (“SEC”), the investor relations page on our website, press releases, public conference calls and webcasts.

The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media and others to follow the channels listed above and to review the information disclosed through such channels.

Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.

Corporate and Other Information

We were incorporated in Delaware in October 2008 as Cold Brew Labs Inc. In April 2012, we changed our name to Pinterest, Inc.

Our principal executive offices are located at 505 Brannan Street, San Francisco, California 94107, and our telephone number is (415) 762-7100. Our corporate website address is investor.pinterestinc.com. We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it part of this prospectus. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.



 

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The Pinterest name, our logo and other trademarks mentioned in this prospectus are the property of their respective owners.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may choose to take advantage of specified reduced disclosure and other requirements otherwise applicable generally to public companies that are not emerging growth companies.

We may take advantage of these exemptions until such time that we are no longer an emerging growth company. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30 and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We may choose to take advantage of some but not all of these reduced disclosure obligations in future filings. If we do, the information that we provide to stockholders may be different than you might get from other public companies in which you hold stock.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this accommodation allowing for delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.



 

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The Offering

 

Class A common stock we are offering

   75,000,000 shares.

Underwriters’ option to purchase additional shares of Class A common stock

  


We may sell up to 11,250,000 additional shares if the underwriters exercise their option to purchase additional shares.

Class A common stock to be outstanding after this
offering

  


75,000,000 shares (or 86,250,000 shares if the underwriters exercise their option to purchase additional shares in full).

Class B common stock to be outstanding after this
offering

  


454,372,774 shares.

Total Class A common stock and Class B common stock to be outstanding after this offering

  


529,372,774 shares (or 540,622,774 shares if the underwriters exercise their option to purchase additional shares in full).

Use of proceeds

  

Our net proceeds from this offering will be approximately $1,360.5 million (or approximately $1,565.7 million if the underwriters exercise their option to purchase additional shares in full) after deducting underwriting discounts and commissions and estimated offering expenses.

 

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock and enable access to the public equity markets for us and our stockholders. We intend to use a portion of the net proceeds from this offering to repay approximately $326.1 million that we expect to borrow under our revolving credit facility prior to the completion of this offering to fund the tax withholding and remittance obligations of approximately $326.1 million related to the RSU Settlement (as defined below). The tax withholding and remittance obligation amount assumes that the completion of this offering had occurred on March 31, 2019, assumes all eligible employees elect to have their tax obligations withheld at maximum statutory rates, which will result in an average withholding rate of approximately 48%, and does not include any additional amounts that may be required to satisfy tax withholding and remittance obligations related to the settlement of RSUs for which the service condition was satisfied from April 1, 2019 to the date of this offering.



 

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We also expect to use the net proceeds for general corporate purposes, including working capital and operating expenses. Additionally, we may use a portion of the net proceeds to acquire or invest in businesses, products, services or technologies. However, we do not have agreements or commitments for any material acquisitions or investments at this time. See “Use of Proceeds.”

Voting rights

  

Shares of our Class A common stock will be entitled to one vote per share.

 

Shares of our Class B common stock will be entitled to 20 votes per share.

 

The holders of our Class A common stock and Class B common stock will generally vote together as a single class on all matters submitted to a vote of our stockholders unless otherwise required by Delaware law or our amended and restated certificate of incorporation. See “Description of Capital Stock.”

Concentration of Ownership

  

The holders of our outstanding Class B common stock will initially hold approximately 99.2% of the voting power of our outstanding capital stock following this offering and will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. See “Principal Stockholders” and “Description of Capital Stock.”

 

All shares of Class B common stock will automatically convert into shares of Class A common stock on (i) the seven-year anniversary of the closing date of this offering, except with respect to shares of Class B common stock held by any holder that continues to beneficially own at least 50% of the number of shares of Class B common stock that such holder beneficially owned immediately prior to completion of this offering, and (ii) a date that is between 90 to 540 days, as determined by the board of directors, after the death or permanent incapacity of Benjamin Silbermann, our Co-Founder, President and Chief Executive Officer.

Dividend policy

   We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not


 

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   expect to pay any dividends in the foreseeable future. See “Dividend Policy.”

Risk factors

   Investing in our Class A common stock involves a high degree of risk. See “Risk Factors,” beginning on page 20, for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

NYSE symbol

   PINS.”

Conflicts of interest

   Affiliates of Goldman Sachs & Co. and J.P. Morgan Securities LLC, underwriters in this offering, will no longer receive at least 5% of the net proceeds of this offering in connection with the repayment of the amount recently borrowed under our revolving credit facility and, therefore, this offering is not subject to FINRA Rule 5121. See “Use of Proceeds.” Nevertheless, this offering is voluntarily being made in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority Inc. (“FINRA Rule 5121”). This rule requires, among other things, that a “qualified independent underwriter” has participated in the preparation of, and has exercised the usual standards of “due diligence” with respect to, the registration statement. Allen & Company LLC has agreed to act as qualified independent underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act.

The number of shares of our Class A common stock and Class B common stock that will be outstanding after this offering is based on no shares of our Class A common stock and 454,372,774 shares of our Class B common stock outstanding as of December 31, 2018, and 75,000,000 shares of Class A common stock to be sold in the offering, and excludes:

 

   

76,634,864 shares of our Class B common stock issuable upon the exercise of options to purchase shares of our Class B common stock outstanding as of December 31, 2018, with a weighted-average exercise price of $2.22 per share;

 

   

39,843,906 shares of our Class B common stock issuable upon the vesting of RSUs outstanding as of December 31, 2018 for which the service condition was not satisfied as of March 31, 2019;

 

   

28,530,519 shares of our Class B common stock issuable upon the vesting of RSUs granted from January 1, 2019 to March 31, 2019 for which the service condition was not satisfied as of March 31, 2019;

 

   

1,083,333 shares of our Class B common stock issuable upon the vesting of RSUs granted after March 31, 2019;

 

   

2,564,103 shares reserved for issuance to fund a charitable giving program to be established by us; and



 

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88,003,454 shares of our Class A common stock reserved for future issuance under the 2019 Omnibus Incentive Plan (the “2019 Plan”). This number of shares includes the addition of a number of shares of our Class A common stock equal to the Prior Plan’s Available Reserve (as defined elsewhere in this prospectus under “Executive Compensation—2019 Omnibus Incentive Plan”), which includes shares that will be withheld by us in connection with the RSU Settlement (as defined below). From and after the date of the completion of this offering, the number of shares of our Class A common stock reserved for issuance under our 2019 Plan will be increased by (i) the number of shares of our Class B common stock that become Prior Plan Returning Shares (as defined elsewhere in this prospectus under “Executive Compensation—2019 Omnibus Incentive Plan”), and (ii) annual increases on each January 1 (through and including January 1, 2029) in an amount equal to 5% of the total number of shares of our Class A common stock and our Class B common stock outstanding on December 31 immediately before each automatic increase, or a lesser number of shares determined by our board of directors. See “Executive Compensation—2019 Omnibus Incentive Plan.”

Except as otherwise noted, all information in this prospectus reflects:

 

   

a 1-for-3 reverse stock split, which we effected March 28, 2019;

 

   

the filing of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, which will be in effect upon the completion of this offering;

 

   

the reclassification of all outstanding shares of our common stock into an equivalent number of shares of our Class B common stock, as if such reclassification had occurred immediately prior to the completion of this offering;

 

   

the automatic conversion and reclassification of our outstanding redeemable convertible preferred stock into 308,372,983 shares of our Class B common stock, as if such conversion and reclassification had occurred immediately prior to the completion of this offering;

 

   

the issuance of 248,653 shares of our Class B common stock upon the automatic net exercise of outstanding warrants, as if such exercise had occurred immediately prior to the completion of this offering;

 

   

the issuance of 18,452,878 shares of our Class B common stock subject to RSUs for which the service condition was satisfied as of March 31, 2019, and for which we expect the performance condition to be satisfied in connection with this offering (after withholding 17,162,405 shares of our Class B common stock subject to RSUs to satisfy tax withholding obligations assuming all eligible employees elect to have their tax obligations withheld at maximum statutory rates, which will result in an average withholding rate of approximately 48%, with an equivalent number of shares of our Class A common stock becoming available for issuance under our 2019 Plan), which we refer to as the “RSU Settlement”;

 

   

no exercise of outstanding stock options or settlement of outstanding RSUs subsequent to December 31, 2018, other than in connection with the RSU Settlement; and

 

   

the underwriters do not exercise their option to purchase additional shares of Class A common stock.

 



 

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The number of shares of our Class B common stock that will be issued in connection with the RSU Settlement is based on the number of RSUs for which the service condition was satisfied as of March 31, 2019 and does not reflect any RSUs for which the service condition was satisfied from April 1, 2019 to the date of this offering. In addition, we currently expect to allow certain employees to elect to have their tax obligations withheld at either applicable statutory rates or maximum statutory rates. The tax withholding and remittance obligation amount assumes all eligible employees elect to have their tax obligations withheld at maximum statutory rates, which will result in an average withholding rate of approximately 48%. As a result, the actual number of shares of Class B common stock that will be issued in connection with the RSU Settlement may be higher or lower, depending on how many employees elect to withhold at maximum statutory rates and the number of RSUs for which all vesting conditions will be met on the date of the RSU Settlement.



 

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Summary Consolidated Financial Information and Other Data

The following tables present our summary historical financial data. The summary historical consolidated statements of operations data for the years ended December 31, 2017 and 2018, and the summary historical consolidated balance sheet data as of December 31, 2018, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated statements of operations data for the year ended December 31, 2016 has been derived from our audited consolidated financial statements that are not included in this prospectus. Our historical operating data may not be indicative of our future performance. The summary consolidated financial data in this section are not intended to replace the consolidated financial statements and related notes thereto included elsewhere in this prospectus and are qualified in their entirety by the consolidated financial statements and related notes thereto included elsewhere in this prospectus.

This information should be read in conjunction with the information contained in “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus.

Consolidated Statements of Operations Data

 

    Year Ended
December 31,
 
            2016                     2017                     2018          
   

(in thousands, except per share amounts)

 

Revenue

  $ 298,870     $ 472,852     $ 755,932  

Costs and expenses (1)(2):

     

Cost of revenue

    159,958       178,664       241,584  

Research and development

    167,549       207,973       251,662  

Sales and marketing

    104,101       162,514       259,929  

General and administrative

    55,270       61,635       77,478  
 

 

 

   

 

 

   

 

 

 

Total costs and expenses

    486,878       610,786       830,653  
 

 

 

   

 

 

   

 

 

 

Loss from operations

    (188,008     (137,934     (74,721

Other income (expense), net:

     

Interest income

    6,368       8,313       13,152  

Interest expense and other income (expense), net

    (179     (112     (995
 

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (181,819     (129,733     (62,564

Provision for income taxes

    280       311       410  
 

 

 

   

 

 

   

 

 

 

Net loss

  $ (182,099   $ (130,044   $ (62,974
 

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted (3)

    $ (1.03   $ (0.50
   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

      126,562       127,091  
   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted

      $ (0.14
     

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted

        448,639  
     

 

 

 

Other financial information:

     

Adjusted EBITDA (4)

  $ (132,283   $ (92,995   $ (39,003
 

 

 

   

 

 

   

 

 

 

 

(1)

Cost of revenue includes $0.1 million, $0.1 million and $0.2 million and general and administrative includes $1.6 million, $1.4 million and $0.5 million of amortization expense for the years ended December 31, 2016, 2017 and 2018, respectively.



 

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(2)

Costs and expenses includes share-based compensation expense as follows (in thousands):

 

     Year Ended
December  31,
 
     2016      2017      2018  

Cost of revenue

   $ 555      $ 372      $ 83  

Research and development

     25,096        19,811        13,155  

Sales and marketing

     6,849        6,267        784  

General and administrative

     9,955        2,354        837  
  

 

 

    

 

 

    

 

 

 

Total share-based compensation

   $ 42,455      $ 28,804      $ 14,859  
  

 

 

    

 

 

    

 

 

 

 

    

Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs as well as any other share-based awards we may grant in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance—Share-Based Compensation.”

 

(3)

See Note 11 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the methods we use to calculate basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share attributable to common stockholders, respectively.

 

(4)

See “—Non-GAAP Financial Measure” for additional information and a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.

Consolidated Balance Sheet Data

 

     As of December 31, 2018  
     Actual     Pro Forma (1)      Pro Forma as
Adjusted (2)
 
     (in thousands)  

Cash, cash equivalents and marketable securities

   $ 627,813     $ 627,813      $ 1,662,227  

Working capital

     780,925       454,839        1,815,339  

Total assets

     1,152,731       1,152,731        2,187,145  

Total liabilities

     281,895       603,047        276,961  

Redeemable convertible preferred stock

     1,465,399               

Total stockholders’ equity (deficit)

     (594,563     549,684        1,910,184  

 

(1)

The pro forma consolidated balance sheet data above gives effect to (i) the reclassification of all outstanding shares of our common stock into an equivalent number of shares of our Class B common stock, (ii) the automatic conversion and reclassification of our redeemable convertible preferred stock into shares of our Class B common stock, as if such conversion and reclassification had occurred on December 31, 2018, (iii) the issuance of 248,653 shares of our Class B common stock upon the automatic net exercise of outstanding warrants, as if such exercise had occurred on December 31, 2018, (iv) the filing and effectiveness of our amended and restated certificate of incorporation in Delaware that will be in effect upon the completion of this offering, (v) share-based compensation expense of $974.9 million associated with RSUs for which the service condition was satisfied as of March 31, 2019, which has been reflected as an increase to additional paid-in capital and accumulated deficit, (vi) the net issuance of 18,452,878 shares of our Class B common stock in connection with the RSU Settlement, (vii) the borrowing of approximately $326.1 million under our revolving credit facility to fund tax withholding and remittance obligations related to the RSU Settlement, and (viii) a cash payment of approximately $326.1 million to satisfy tax withholding and remittance obligations related to the RSU Settlement, which amounts in (vi), (vii) and (viii) assume that the completion of this offering had occurred on March 31, 2019 and that all eligible employees elect to have their tax obligations withheld at maximum statutory rates, which will result in an average withholding rate of approximately 48%, and do not include any additional amounts that may be required to satisfy tax withholding and remittance obligations related to the settlement of RSUs for which the service condition was satisfied from April 1, 2019 to the date of this offering.



 

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(2)

The pro forma as adjusted consolidated balance sheet data above gives effect to (i) the items described in footnote (1) above, (ii) our receipt of net proceeds from the issuance and sale by us of 75,000,000 shares of our Class A common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the use of proceeds from the offering to repay $326.1 million drawn down under our revolving credit facility to fund the tax withholding and remittance obligations related to the RSU Settlement.

Non-GAAP Financial Measure

To supplement our consolidated financial statements presented in accordance with GAAP, we consider Adjusted EBITDA, a financial measure which is not based on any standardized methodology prescribed by GAAP.

We define Adjusted EBITDA as net loss adjusted to exclude depreciation and amortization expense, share-based compensation expense, interest income, interest expense and other income (expense), net and provision for income taxes.

We use Adjusted EBITDA to evaluate our operating results and for financial and operational decision-making purposes. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the income and expenses that it excludes. We also believe Adjusted EBITDA provides useful information about our operating results, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key metrics we use for financial and operational decision-making. We are presenting Adjusted EBITDA to assist potential investors in seeing our operating results through the eyes of management, and because we believe that this measure provides an additional tool for investors to use in comparing our core business operating results over multiple periods with other companies in our industry. However, our definition of Adjusted EBITDA may not be the same as similarly titled measures used by other companies.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net loss, the nearest GAAP equivalent. For example, Adjusted EBITDA excludes:

 

   

certain recurring, non-cash charges such as depreciation of fixed assets and amortization of acquired intangible assets, although these assets may have to be replaced in the future; and

 

   

share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense and an important part of our compensation strategy.



 

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Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our other financial results presented in accordance with GAAP. The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA, for each of the periods indicated:

 

     Year Ended
December 31,
 
     2016     2017     2018  
    

(in thousands)

 

Reconciliation of Net Loss to Adjusted EBITDA

      

Net Loss

   $ (182,099   $ (130,044   $ (62,974

Depreciation and amortization expense

     13,270       16,135       20,859  

Share-based compensation expense

     42,455       28,804       14,859  

Interest income

     (6,368     (8,313     (13,152

Interest expense and other (income) expense, net

     179       112       995  

Provision for income taxes

     280       311       410  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (132,283   $ (92,995   $ (39,003
  

 

 

   

 

 

   

 

 

 


 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the following risks before deciding to invest in our Class A common stock. The occurrence of any of the following risks could harm our business, revenue and financial results. In addition, risks and uncertainties that are not presently known to us or that we currently believe are immaterial could also harm our business, revenue and financial results. If any of these risks occur, the value of our Class A common stock could decline and you may lose all or part of your investment.

Risks Related to the Company and our Industry

Our ecosystem of Pinners and advertisers depends on our ability to attract, retain and engage our user base. If we fail to add new Pinners or retain current Pinners, or if Pinners engage less with us, our business, revenue and financial results could be harmed.

We must continue to attract, retain and engage Pinners. Our active users may not continue to grow, and may decline. We anticipate that our active user growth rate will decline over time if the size of our active user base increases or we achieve higher market penetration rates. If our active user growth rate slows, our financial performance will increasingly depend on our ability to increase Pinner engagement and our monetization efforts.

If current and potential Pinners do not perceive their experience with our service to be useful, or the content that we serve to them to be relevant to their personal taste and interests, we may not be able to attract new Pinners, retain existing Pinners or maintain or increase the frequency and duration of their engagement. In addition, if our existing Pinners do not continue to utilize our service or our user base does not continue to grow, we may be required to incur significantly higher marketing expenses than we currently anticipate to add new Pinners or retain current Pinners.

We also may not be able to penetrate certain demographics in a meaningful manner to grow the number of Pinners. For example, in the United States, our total audience includes 43% of internet users, which includes approximately 80% of women ages 18-64 with children, according to an independent study by Comscore based on total unique visitors to our service. We may not be able to further increase the number of Pinners in this demographic and would need to increase the number of Pinners in other demographics, such as men and international users, in order to maintain our user growth rate. See “—We may not succeed in further expanding and monetizing our platform internationally.” Attracting Pinners from these demographics or countries may require significant expense, and we may not be successful.

In addition, our products typically require high bandwidth data capabilities, and many Pinners live in countries with high-end mobile device penetration and high bandwidth capacity cellular networks with large coverage areas. Therefore, we do not expect to experience rapid Pinner growth or engagement in countries with low smartphone penetration even if such countries have well-established and high bandwidth capacity cellular networks. We may also not experience rapid Pinner growth or engagement in countries where, even though smartphone penetration is high, consumers rely heavily on Wi-Fi due to the lack of sufficient cellular based data network. We have entered into, and plan to continue to enter into, contracts with data service providers that allow users to access our mobile application without it counting toward their monthly data allowance, a practice known as “zero rating.” Changes in regulations could adversely impact our existing and future contracts regarding our access to, and use of, zero-rating offers or other discounts or data usage for our service.

Our ability to serve advertisements on our platform, and therefore the value proposition for our advertisers, depends on the size and engagement of our user base. Our growth efforts are not

 

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currently focused on increasing the number of daily active users, and we do not anticipate that most of our users will become daily active users. Therefore, even if we are able to increase demand for our advertising products, we may not be able to deliver those advertisements if we cannot also increase the size and engagement of our user base, which could harm our business, revenue and financial results.

There are many factors that could negatively affect user growth, retention and engagement, including if:

 

   

our competitors mimic our products or product features, causing Pinners to utilize their products instead of, or more frequently than, our products, harming Pinner engagement and growth;

 

   

we do not provide a compelling Pinner experience because of the decisions we make regarding our products or the type and frequency of advertisements that we display;

 

   

our content is not relevant to Pinners’ personal taste and interests;

 

   

third parties do not permit or continue to permit their content to be displayed on our platform;

 

   

users have difficulty installing, updating or otherwise accessing our service on mobile devices or web browsers as a result of actions by us or third parties;

 

   

there are changes in the amount of time users spend across all applications and platforms, including ours;

 

   

technical or other problems frustrate the Pinner experience, particularly if those problems prevent us from delivering our service in a fast and reliable manner;

 

   

we are unable to address Pinner and advertiser concerns regarding the content, privacy and security of our service;

 

   

we are unable to combat spam, harassment, cyberbullying or other hostile, inappropriate, abusive or offensive content or usage on our products or services;

 

   

users adopt new technologies where our products or services may be displaced in favor of other products or services, or may not be featured or otherwise available; or

 

   

third-party initiatives that may enable greater use of our service, including low-cost or discounted data plans, are discontinued.

Any decrease in Pinner growth, retention or engagement could render our service less attractive to Pinners or advertisers, and could harm our business, revenue and financial results.

If we are not able to continue to provide content that is useful and relevant to Pinners’ personal taste and interests, Pinner growth, retention or engagement could decline, which could result in the loss of advertisers and revenue.

Our success depends on our ability to provide Pinners with content, including advertisements, that is useful and relevant to their personal taste and interests, which in turn depends on the content contributed by our users and advertisers and the manner in which we present that content to Pinners. Pinners engage with content that is relevant to their country, language and gender preferences as well as their personal intent. We may not correctly identify and serve content that is useful and relevant to Pinners. Content that is not visually pleasing, is not intuitive or easy to use or is not in the desired language may not be engaging for Pinners, particularly in non-U.S. and non-English speaking markets. If Pinners do not believe that we offer content that is useful and relevant to their personal taste and interests, Pinner growth, retention or engagement may decline, which could result in the loss of advertisers and revenue.

 

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Some of the actions that we may take to make our content more useful and relevant may reduce traffic that we drive from our platform to the websites of third parties, which may reduce their willingness to contribute content to our service or support the continued availability of that content on our service. As part of our effort to maintain an empowering environment, we endeavor to keep divisive, disturbing or unsafe content off our service. We may do this by deleting or hiding certain types of content, even if this content would be permitted on other platforms, which could result in a decrease in user growth, retention or engagement. We apply significant judgment in making these determinations and may be unsuccessful in our efforts to remove this content on a timely basis, which could also result in a decrease in user growth, retention or engagement and result in liability for us. See “—We may be liable as a result of content or information that is published or made available on our service.”

We regularly monitor how our advertising affects Pinners’ experiences to ensure we do not deliver too many advertisements or irrelevant advertisements to Pinners. Therefore we may decide to change the number of advertisements or eliminate certain types of advertisements to ensure Pinners’ satisfaction in the service. We may make changes to our platform based on feedback provided by Pinners or advertisers. These decisions may not produce the long-term benefits that we expect, in which case Pinner growth, retention and engagement, our relationships with advertisers, and our business, revenue and financial results could be harmed.

Current and future data privacy laws and regulations, including the General Data Protection Regulation (“GDPR”), or new interpretations of existing laws and regulations, may limit our ability to collect and use data, which may impact our ability to effectively deliver relevant content. These laws and regulations may also impact our ability to expand advertising on our platform internationally, as they may impede our ability to deliver targeted advertising and accurately measure our ad performance. Additionally, even if not prohibited by data privacy laws and regulations, we may elect not to collect certain types of data if we believe doing so would be inconsistent with our users’ expectations, if the source is unreliable or for any other reason. Similarly, the increase in news about online privacy may motivate Pinners to take more aggressive steps to protect their privacy. Pinners may elect not to allow data sharing for a number of reasons, such as data privacy concerns. This could impact our ability to deliver relevant content aligned with Pinners’ personal taste and interests. Additionally, the impact of these developments may disproportionately affect our business in comparison to certain peers in the technology sector that, by virtue of the scope and breadth of their operations or user base, have greater access to user data.

Substantially all our revenue is generated from advertising, and a decline in Pinner growth, retention or engagement as a result of our inability to provide relevant and useful content to Pinners, and therefore our inability to serve the volume of advertisements desired by our advertisers, may deter new advertisers from using our platform or cause current advertisers to reduce their spending with us or cease doing business with us altogether, which could harm our business, revenue and financial results.

If we do not develop successful new products or improve existing ones, our business may suffer. We may also invest in new products that fail to attract or retain users or generate revenue.

Our ability to grow, retain and engage our user base and therefore increase our revenue depends on our ability to successfully enhance our existing products and create new products, both independently and in conjunction with platform developers or other third parties, and to do so quickly. We may introduce significant changes to our existing products or develop and introduce new and unproven products with which we have little or no prior development or operating experience. Our focus on innovation and experimentation could result in unintended outcomes or decisions that are

 

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poorly received by Pinners. If new or enhanced products fail to engage our users, we may fail to generate sufficient revenue, operating margin or other value to justify our investments, any of which could harm our business, revenue and financial results. We also may develop new products that increase user engagement and costs that are not intended to increase revenue.

Our products often require users to learn new behaviors that may not always be intuitive to them. This can create a lag in adoption of new products by new or existing users. To the extent that new users are less willing to invest the time to learn to use our products, or if we are unable to make our products easier to learn to use, our user growth, retention or engagement could be affected, and our business, revenue and financial results could be harmed.

Our business depends on a strong brand and reputation, and if we are unable to maintain and enhance our brand and reputation, our ability to expand our user and advertiser base will be impaired and our business, revenue and financial results could be harmed.

We believe that our brand identity and reputation, including that our service is an empowering environment, has significantly contributed to the success of our business. We also believe that maintaining and enhancing the “Pinterest” brand and reputation is critical to retaining and growing our user and advertiser base. We anticipate that maintaining and enhancing our brand and reputation will depend largely on our continued ability to provide high-quality, relevant, reliable, trustworthy and innovative products, which may require substantial investment and may not be successful. We may need to introduce new products or updates to existing products that require Pinners to agree to new terms of service that Pinners do not like, which may negatively affect our brand and reputation. Additionally, advertisements or actions of our advertisers may affect our brand and reputation if Pinners do not think the advertisements help them accomplish their objectives, view the advertisements as intrusive, annoying or misleading or have poor experiences with our advertisers.

Our brand and reputation may also be negatively affected by the content or actions of Pinners that are deemed to be hostile or inappropriate to other Pinners, by the actions of Pinners acting under false or inauthentic identities, by the use of our products or services to disseminate information that is deemed to be misleading, or by the use of our service for illicit, illegal or objectionable ends. We also may fail to respond expeditiously to the sharing of illegal, illicit or objectionable content on our service or objectionable practices by advertisers, or to otherwise address Pinner concerns, which could erode confidence in our brand and damage our reputation. We expect that our ability to identify and respond to this content in a timely manner may decrease as the number of Pinners grows, as the amount of content on the platform increases or as we expand our product and service offerings, such as video. Any governmental or regulatory inquiry, investigation or action, including based on the appearance of illegal, illicit or objectionable content on our platform or the failure to comply with laws and regulations, could damage our brand and reputation, regardless of the outcome.

We have experienced, and expect to continue to experience, media, legislative, governmental and regulatory scrutiny of our decisions. Any scrutiny regarding us, including regarding our data privacy, copyright, content or other practices, product changes, product quality, litigation or regulatory action or regarding the actions of our employees, Pinners or advertisers or other issues, may harm our brand and reputation. In addition, scrutiny of other companies in our industry, including of their impact on user “screen time” or their data privacy practices, could also have a negative impact on our brand and reputation. These concerns, whether actual or unfounded, may also deter Pinners or advertisers from using our service.

In addition, we may fail to adequately address the needs of Pinners or advertisers, which could erode confidence in our brand and damage our reputation. If we fail to promote and maintain the “Pinterest” brand or preserve our reputation, or if we incur excessive expenses in this effort, our business, revenue and financial results could be harmed.

 

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If our security is compromised, or Pinners or advertisers believe our security has been compromised, Pinners and advertisers may use our service less or may stop using our service altogether, which could harm our business, revenue and financial results.

Our efforts to protect the information that Pinners have shared with us may be unsuccessful due to the actions of third parties, software bugs or other technical malfunctions, employee error or malfeasance, hacking, viruses or other factors. In addition, third parties may attempt to fraudulently induce our employees or Pinners to disclose information to gain access to our data or Pinners’ data. Further, because the login credentials or passwords employed by Pinners to access our service may be similar to or the same as the ones that they use in connection with other platforms or websites, a breach in the security of those platforms or websites can allow third parties to gain unauthorized access to Pinners’ accounts on our service. If a third party gains unauthorized access to our service, they may post malicious spam and other content on our platform using a Pinner’s or advertiser’s account. If any of these events occur, our information or Pinners’ information could be accessed or disclosed improperly.

Some third parties, including advertisers, may store information that we share with them on their networks. If these third parties fail to implement adequate data-security practices or fail to comply with our terms and policies, Pinners’ data may be improperly accessed or disclosed. Even if these third parties take all the necessary precautions, their networks may still suffer a breach, which could compromise Pinners’ data.

Any incidents where Pinners’ information is accessed without authorization or is improperly used, or incidents that violate our privacy policy, terms of service or other policies, or the perception that an incident has occurred, could damage our brand and reputation and adversely impact our competitive position. In addition, government authorities or affected Pinners could initiate legal or regulatory action against us over those incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices. Maintaining the trust of Pinners is important to sustain Pinner growth, retention and engagement. Concerns over our data privacy practices, whether actual or unfounded, could subject us to negative publicity and damage our brand and reputation and deter Pinners and advertisers from using our service. Any of these occurrences could harm our business, revenue and financial results.

We depend in part on internet search engines to direct traffic and refer new users to our service. If search engines’ methodologies and policies are modified or enforced in ways we do not anticipate, or if our search results page rankings decline for other reasons, traffic to our service or user growth, retention or engagement could decline, any of which could harm our business, revenue and financial results.

We depend in part on internet search engines, such as Bing, Google, Yahoo! and Yandex, to direct a significant amount of traffic to our service. For example, when a user types a query into a search engine, we may receive traffic and acquire new users when those search results include Pins, boards, Pinners and other features of our service that cause the user to click on the Pinterest result or create a Pinterest account. These actions increase Pinner growth due to signups of new users and increase retention and engagement of existing Pinners.

Our ability to maintain and increase the number of visitors directed to our service from search engines is not within our control. Search engines, such as Google, may modify their search algorithms and policies or enforce those policies in ways that are detrimental to us, that we are not able to predict or without prior notice. When that occurs, we expect to experience declines or de-indexing in the organic search ranking of certain Pinterest search results, leading to a decrease in traffic to our service, new user signups and existing user retention and engagement. We have experienced

 

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declines in traffic and user growth as a result of these changes in the past, and anticipate fluctuations as a result of such actions in the future. For example, in the first quarter of 2018, Google de-indexed our keyword landing pages, which negatively impacted traffic and user growth in the quarters that followed. Our ability to appeal these actions is limited, and we may not be able to revise our search engine optimization (“SEO”) strategies to recover the loss in traffic or user growth resulting from such actions. Changes in policies or their enforcement may not apply in the same manner to our competitors, or our competitors’ SEO strategies may be more successful than ours. In addition, some of these search engines are owned by companies that compete with various aspects of our business. To offset the impact on our user growth, we would need to increase our investment in other growth strategies, such as paid marketing or other initiatives that drive user acquisition, which may cost more and be less effective. Any significant reduction in the number of Pinners directed to our website or mobile application from search engines could harm our business, revenue and financial results.

We allow users to access our service through third-party single sign-on tools. If these third parties discontinue these tools or experience a breach or outage in their platform, user growth or engagement could decline, and our business, revenue and financial results could be harmed.

A significant number of Pinners use their Facebook or Google login credentials to access their accounts on our service. If security on those platforms is compromised, if Pinners are locked out from their accounts on those platforms or if those platforms experience an outage, Pinners may be unable to access our service. As a result, user growth and engagement on our service could be adversely affected, even if for a temporary period. For example, in the second quarter of 2018, Facebook changed its login authentication systems, which negatively impacted our user growth and engagement in that period. Additionally, if Facebook or Google discontinue single sign-on or experience an outage, then we may lose and be unable to recover users previously using this function, and our user growth or engagement could decline. Any of these events could harm our business, revenue and financial results.

If we are unable to compete effectively for users, our business, revenue and financial results could be harmed.

We face significant competition to attract, retain and engage users and for their time and attention. We primarily compete with consumer internet companies that are either tools (search, ecommerce) or media (newsfeeds, video, social networks). Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in user preferences. Barriers to entry in our industry are low, and our intellectual property rights may not be sufficient to prevent competitors from launching comparable products or services.

We compete with larger, more established companies such as Amazon, Facebook (including Instagram), Google, Snap and Twitter, which provide their users with a variety of online products, services, content and advertising offerings, including web search engines, social networks and other means of discovering, using or acquiring goods and services. Many of these competitors have longer operating histories, significantly greater financial, technical, marketing and other resources and larger user bases than we do. These competitors also have access to larger volumes of data and platforms that are used on a more frequent basis than ours, which may enable them to better understand their user base and develop and deliver more relevant content. Our competitors have previously and may continue to develop technology, products, services or interfaces that are similar to our existing and future products quickly and at scale, or that achieve greater market acceptance than our products. Some of our competitors also operate existing products that have significant market power in certain market sectors and could use that market power to advance their own products or services that compete with ours. For example, Amazon, Google and Snap have introduced shopping platforms, each with camera search functionality, Google has developed a series of features on Google Image

 

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Search that are similar to those of our service, including shoppable ads and a version of boards, called “Collections,” and Instagram and other platforms allow users to bookmark and save images and other content and create collections. These competitors may engage in more extensive research and development efforts and undertake more extensive marketing campaigns, which may allow them to build larger, more engaged user bases than we have. Also, some of our existing or potential competitors operate products or services from which we currently derive substantial value, and those competitors could reduce or eliminate the value we receive. See “—We depend in part on internet search engines to direct traffic and refer new users to our service. If search engines’ methodologies and policies are modified or enforced in ways we do not anticipate, or if our search results page rankings decline for other reasons, traffic to our service or user growth, retention or engagement could decline, any of which could harm our business, revenue and financial results” and “—We allow users to access our service through third-party single sign-on tools. If these third parties discontinue these tools or experience a breach or outage in their platform, user growth or engagement could decline, and our business, revenue and financial results could be harmed.”

We also face competition from smaller companies in one or more high-value verticals, including Allrecipes, Houzz and Tastemade, that offer users engaging content and commerce opportunities through similar technology, products, features or services to ours. In addition, emerging startups may be able to innovate and provide technology, products, services or features faster than we can or may foresee the consumer need for new products, services or features before us.

In emerging international markets, where mobile devices often lack large storage capabilities, we may also compete with other applications for the limited space available on a user’s mobile device.

We believe that our ability to compete for users, which impacts the success of our business, depends upon many factors both within and beyond our control, including:

 

   

the usefulness, novelty, performance and reliability of our service compared to those of our competitors;

 

   

the timing and market acceptance of our products, including the developments and enhancements to those products, offered by us or our competitors;

 

   

our brand strength relative to our competitors; and

 

   

the other risks and uncertainties described in this prospectus.

If we are unable to compete effectively for users, our business, revenue and financial results could be harmed.

If we are unable to compete effectively for advertisers, our business, revenue and financial results could be harmed.

We face significant competition for advertising revenue across a variety of formats. To compete effectively, we must enable our advertisers to easily create content and buy, forecast, optimize and measure the performance of advertising on our platform. In order to grow our revenue and improve our operating results, we must increase our share of advertising spend relative to our competitors, many of which are larger companies that offer more traditional and widely accepted advertising products, as well as more robust tools to measure the effectiveness of advertising campaigns.

Some of our larger competitors have substantially broader product or service offerings and leverage their relationships based on other products or services to gain additional share of advertising spend. They have large distributed sales forces and an increasing amount of control over mobile distribution channels. These competitors’ economies of scale allow them to have access to larger volumes of

 

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data and platforms that are used on a more frequent basis than ours, which may enable them to better understand their user base and develop and deliver more targeted advertising. They may not need to rely on third-party data, including data provided by advertisers, in order to effectively target the campaigns of advertisers, which could make their advertising products more attractive to advertisers than ours if third-party data ceases to be available to us, whether because of regulatory changes, privacy concerns or other reasons. If we are unable to provide our advertisers with the ability to effectively target their advertising campaigns, or if our advertisers do not believe that our value proposition is as compelling as those of our competitors, we may not be able to attract new advertisers or retain existing ones, and our business, revenue and financial results could be harmed.

We believe that our ability to compete for advertisers, which impacts the success of our business, depends upon many factors both within and beyond our control, including:

 

   

sales, marketing, customer service and support efforts;

 

   

first- and third-party data available to us relative to our competitors;

 

   

ease of use, performance, price and reliability of solutions developed either by us or our competitors;

 

   

the attractiveness and volume of our product and service offerings (including measurement tools) compared to those of our competitors;

 

   

the strength of our advertiser relationships and offerings compared to those of our competitors;

 

   

the ease with which our advertising products fit into existing advertiser budgets compared to those of our competitors; and

 

   

the other risks and uncertainties described in this prospectus.

If we are unable to compete effectively for advertisers, our business, revenue and financial results could be harmed.

We are in the early stages of our monetization efforts and there is no assurance we will be able to scale our business for future growth.

We are in the early stages of our monetization efforts and are still growing and scaling our revenue model. Our growth strategy depends on, among other things, attracting more advertisers (including serving more mid-market and unmanaged advertisers and expanding our sales efforts to reach advertisers in additional international markets), scaling our business with existing advertisers and expanding our advertising product offerings, such as self-serve tools. There is no assurance that this revenue model will continue to be successful or that we will generate increasing revenue. We do not know if we can sustain the current growth rate of our revenue. To sustain or increase our revenue, we must obtain new advertisers, encourage existing advertisers to maintain or increase their advertising spend on our platform, expand the number of markets where we offer advertising and increase the breadth and functionality of our advertising offerings, including new advertising formats and measurement tools.

In order to obtain new advertisers and further our relationship with current advertisers, we must increase the size of our user base or the engagement of our users. There is no assurance that our user growth or engagement strategy will continue to be successful or that we will increase the number of users on our service. See “—Our ecosystem of Pinners and advertisers depends on our ability to attract, retain and engage our user base. If we fail to add new Pinners or retain current Pinners, or if Pinners engage less with us, our business, revenue and financial results could be harmed.”

 

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In addition, to scale the growth of our ad platform, we will have to successfully develop and target ad products based on Pinners’ personal taste and interests, which will require broad and diverse Pinner data. If we are unable to do this with the data, technology and resources available to us, we may need to consider alternatives, such as partnerships, to grow our business. If we choose not to pursue these partnerships, or if these partnerships are unsuccessful, our business may prove less scalable, and our business, revenue and financial results could be harmed.

We generate substantially all of our revenue from advertising. The failure to attract new advertisers, the loss of advertisers or a reduction in how much they spend could harm our business, revenue and financial results.

Substantially all of our revenue is generated from third-party advertising, a trend that we expect to continue. Most advertisers do not have long-term advertising commitments with us. Many of our advertisers only recently started working with us and spend a relatively small portion of their overall advertising budget with us. In order to increase the number of advertisers and increase the portion of the advertising budget that our existing advertisers spend with us, we must invest in new tools and expand our sales force, and there can be no assurance that those efforts will be successful. In addition, advertisers may view some of our products or our platform as experimental and may devote only a small portion of their advertising spend to our platform until we develop measurement tools that demonstrate the effectiveness of our platform. In addition, many advertisers do not have advertising creative content in a format that would be successful on our platform and may be unable or unwilling to devote the technical or financial resources required to develop content for our platform. Advertisers will not do, or continue to do, business with us if they do not believe that our advertisements are effective in meeting their campaign goals, if we cannot measure the effectiveness of our advertising products or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives.

While no customer accounted for more than 10% of our revenue for the year ended December 31, 2018, a substantial portion of our revenue is derived from a small number of advertisers, and is currently concentrated in certain verticals, particularly CPG and retail. We either contract directly with advertisers or with advertising agencies on behalf of advertisers. Many of these advertising agencies are owned by large media corporations that exercise varying degrees of control over the agencies. Our business, revenue and financial results could be harmed by the loss of, or a deterioration in our relationship with, any of our largest advertisers or with any advertising agencies or the large media corporations that control them.

Our advertising revenue could be harmed by many other factors, including:

 

   

changes in the price of advertisements;

 

   

our inability to create new products that sustain or increase the value of our advertisements;

 

   

our inability to meet advertiser demand on our platform if we cannot increase the size and engagement of our user base;

 

   

changes in Pinner demographics that make us less attractive to advertisers;

 

   

our inability to make our ads more relevant and effective;

 

   

the availability, accuracy and utility of our analytics and measurement solutions that demonstrate the value of our advertisements, or our ability to further improve such tools;

 

   

changes to our data privacy practices (including as a result of changes to laws or regulations) that affect the type or manner of advertising that we are able to provide;

 

   

our inability to collect and share data which new or existing advertisers find useful;

 

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competitive developments or advertiser perception of the value of our products that impact our ability to receive advertising spend or that reduce the volume of the advertising spend we receive;

 

   

product changes or advertising inventory management decisions we make that change the type, size or frequency of advertisements on our platform;

 

   

Pinners that upload content or take other actions that are deemed to be hostile, inappropriate, illicit, objectionable, illegal or otherwise not consistent with our advertisers’ brand;

 

   

the impact of invalid clicks or click fraud on our advertisements;

 

   

the failure of our advertising auction mechanism to target and price ads effectively;

 

   

difficulty and frustration from advertisers who may need to reformat or change their advertisements to comply with our guidelines or experience challenges uploading and conforming their advertisements with our system requirements;

 

   

the macroeconomic climate and the status of the advertising industry in general; and

 

   

the other risks and uncertainties described in this prospectus.

These and other factors could reduce demand for our advertising products, which may reduce the amount that advertisers spend on our platform, or cause advertisers to stop advertising with us altogether. Any of these events could harm our business, revenue and financial results.

Our ability to generate revenue depends on the development of tools to accurately measure the effectiveness of advertisements on our platform.

Most advertisers rely on tools that measure the effectiveness of their ad campaigns in order to allocate their advertising spend among various formats and platforms. If we are unable to measure the effectiveness of advertising on our platform or we are unable to convince advertisers that our platform should be part of a larger advertising budget, our ability to increase the demand and pricing of our advertising products and maintain or scale our revenue may be limited. Our tools may be less developed than those of other platforms with which we compete for advertising spend. Therefore, our ability to develop and offer tools that accurately measure the effectiveness of a campaign on our platform will be critical to our ability to attract new advertisers and retain, and increase spend from, our existing advertisers.

Developing and improving these tools may require significant time and resources and additional investment, and in some cases we may rely on third parties to provide data and technology needed to provide certain measurement data to our advertisers. If we cannot continue to develop and improve our advertising tools in a timely fashion, those tools are not reliable, or the measurement results are inconsistent with advertiser goals, our advertising revenue could be adversely affected.

One differentiating feature of our platform is that advertisers have the opportunity to put relevant content in front of Pinners at every stage of the purchase funnel, including during the early intent phase. However, many existing advertiser tools that measure the effectiveness of advertising do not account for the role of advertising early in a user’s decision-making process, which is when many users come to our service. As a result, we may not be able to demonstrate and measure for our advertisers the value of engaging with a Pinner during the early intent phase.

In addition, web and mobile browser developers, such as Apple, Microsoft or Google, may implement changes in browser or device functionality that impair our ability to measure the effectiveness of advertising on our platform, including by limiting the use of third-party cookies or other tracking

 

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technology. For example, Apple launched its Intelligent Tracking Prevention (“ITP”) feature in its Safari browser. ITP blocks some or all third-party cookies by default on mobile and desktop and ITP has become increasingly restrictive over time. These restrictions make it more difficult for us to measure the effectiveness of advertising on our platform. Developers may release additional technology that further inhibits our ability to collect data that allows us to measure the effectiveness of advertising on our platform. Any other restriction, whether by law, regulation, policy or otherwise, on our ability to collect and share data which our advertisers find useful would impede our ability to attract and retain advertisers. For example, current and future data privacy laws and regulations, including GDPR, or new interpretations of existing laws and regulations, may limit our ability to use or benefit from tracking and measurement technologies, including cookies, and further reduce our ability to measure the effectiveness of advertising on our platform. Advertisers and other third parties who provide data that helps us deliver personalized, relevant advertising may restrict or stop sharing this data. If they stop sharing this data with us, it may not be possible for us to collect this data within the product or from another source.

We rely heavily on our ability to collect and share data and metrics for our advertisers to help new and existing advertisers understand the performance of advertising campaigns. If advertisers do not perceive our metrics to be accurate representations of our user base and user engagement, or if we discover inaccuracies in our metrics, they may be less willing to allocate their budgets or resources to our platform, which could harm our business, revenue and financial results. See “—Pinner metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could harm our business, revenue and financial results.”

We may not be able to develop effective products and tools for advertisers.

Growth in our advertising revenue depends on our ability to continue to develop and offer effective products and tools for advertisers. New ad formats that take up more space on our platform may result in fewer impressions, which could adversely affect our revenue. As the advertising market generates and develops new concepts and technology, we may incur additional costs to implement more effective products and tools. Continuing to develop and improve these products and tools may require significant time and resources and additional investment. If we cannot continue to develop and improve our advertising products and tools in a timely fashion, or if our advertising products and tools are not well received by advertisers, our advertising revenue could be adversely affected.

We may not succeed in further expanding and monetizing our platform internationally.

We plan to continue expanding our business operations abroad and offering content and advertising to Pinners and advertisers in other languages and countries. We plan to enter new international markets where we have limited or no experience in deploying our service or selling advertisements. In order to expand successfully, we need to offer content and products that are customized and relevant to local Pinners and advertisers, which requires significant investment of time and resources. We may launch our advertising platform in countries where we do not have sales staffing in place, where market perception of our service and ad platform may be low or where our audience size in a given market may be low relative to advertiser expectations, all or any of which could limit our ability to monetize those markets. As we expand into new international markets, we may not yet understand the full scope of Pinners’ personal taste and interests, demographics and culture in those markets, as well as advertiser expectations, target audiences and return on advertising spend. This may cause us to expand into markets before we are able to offer a service and advertising platform that has been sufficiently localized for those markets or where those markets lack the necessary demand and infrastructure for long-term adoption of our service. For example, we may experience challenges adapting our content and search tools to be localized for new markets. This may cause us to limit our expansion or decrease our operations in international markets, including discontinuing advertising in

 

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those markets or not monetizing those markets at all, which could harm our reputation and business, revenue and financial results. We expect the international advertising market to continue growing as more advertisers take advantage of the global audience. If the advertising market does not scale as we expect, our business, revenues and financial results could be harmed. If we fail to deploy or manage our operations in these markets successfully, we may not be as appealing to users and advertisers in those markets and our business, revenue and financial results could be harmed.

We plan to continue expanding our Pinner and advertiser base globally, where we have limited operating experience and may be subject to increased business and economic risks that could harm our business, revenue and financial results.

We are subject to a variety of risks inherent in doing business internationally, and our exposure to these risks will increase as we continue to expand our operations, user base and advertiser base globally. These risks include:

 

   

political, social and economic instability;

 

   

fluctuations in currency exchange rates;

 

   

higher levels of credit risk and payment fraud;

 

   

enhanced difficulties of integrating any foreign acquisitions;

 

   

reduced protection for intellectual property rights in some countries;

 

   

difficulties in staffing and managing global operations and the increased travel, infrastructure and legal compliance costs associated with multiple international locations and subsidiaries;

 

   

different regulations and practices with respect to employee/employer relationships, existence of workers’ councils and labor unions, and other challenges caused by distance, language and cultural differences, making it harder to do business in certain international jurisdictions;

 

   

increasing labor costs due to high wage inflation in certain international jurisdictions;

 

   

compliance with statutory equity requirements;

 

   

regulations that might add difficulties in repatriating cash earned outside the United States and otherwise prevent us from freely moving cash;

 

   

import and export controls and restrictions and changes in trade regulations;

 

   

compliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws in other jurisdictions;

 

   

compliance with GDPR and similar data privacy and data protection laws;

 

   

compliance with laws that might restrict content or require us to provide user information, including confidential information, to local authorities;

 

   

compliance with multiple tax jurisdictions and management of tax impact of global operations; and

 

   

the other risks and uncertainties described in this prospectus.

If we are unable to expand internationally and manage the complexity of global operations successfully, our business, revenue and financial results could be harmed.

We cannot assure you that we will effectively manage the growth of our business.

We have experienced rapid growth and demand for our service since inception. The growth and expansion of our business and product offerings and the increase in full-time employees place a

 

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significant strain on our management, operational and financial resources. This growth and expansion create significant challenges for our management, including managing multiple relationships with Pinners, advertisers, technology licensors and other third parties. If we continue to grow our operations or the number of our third-party relationships, our technology systems, procedures or internal controls may not be adequate.

We expect headcount growth to continue for the foreseeable future. As our organization continues to grow and we are required to implement more complex organizational management structures, we may also find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quickly develop and launch new and innovative products. Although our principal offices are located in San Francisco, California, we have many offices, both domestic and abroad. This structure may increase these risks and make it more challenging to foster our culture and adequately oversee employees and business functions. This could harm our business, revenue and financial results.

We have a limited operating history and, as a result, our past results may not be indicative of future operating performance.

We have a limited operating history with the current scale of our business, which makes it difficult to forecast our future results. You should not rely on our past quarterly results of operations as indicators of future performance. You should consider and evaluate our prospects in light of the risks and uncertainty frequently encountered by companies like ours.

We have incurred operating losses in the past, anticipate increasing our operating expenses, expect to incur operating losses in the future and may never achieve or maintain profitability.

For all annual periods of our operating history we have experienced net losses and negative cash flows from operations. We generated net losses of $130.0 million and $63.0 million for the years ended December 31, 2017 and 2018, respectively. As of December 31, 2018, we had an accumulated deficit of $845.4 million. We have not achieved profitability, and we may not realize sufficient revenue to achieve profitability in future periods.

In addition, we have granted RSUs, which are subject to both a service condition, which is typically satisfied over four years, and a performance condition, which will be satisfied if an initial public offering or change of control (collectively, an “Initial Event”) occurs within seven years of the date of grant. As of December 31, 2018, no share-based compensation expense had been recognized for RSUs because an Initial Event had not occurred. In the quarter in which this offering is completed, we will begin recording share-based compensation expense using the accelerated attribution method. If this offering had been completed on March 31, 2019, we would have recorded cumulative share-based compensation expense of $974.9 million, and we would expect to recognize the remaining $924.5 million of unrecognized share-based compensation expense over a weighted-average period of 3.7 years. Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs, as well as any other share-based awards we may grant in the future. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance—Share-Based Compensation.”

We also anticipate that our operating expenses will increase substantially in the foreseeable future as we continue to expand our operations domestically and internationally, enhance our product offerings, broaden our Pinner and advertiser base, expand our marketing channels, hire additional employees and develop our technology. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. We may encounter unforeseen expenses, operating delays or other unknown factors that

 

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may result in losses in future periods. In addition, as of December 31, 2018, we had approximately $731.1 million of long-term contractual commitments that are not cancelable. In March 2019 we also entered into a lease for office space to be constructed near our current headquarters campus for which we will be subject to total non-cancelable minimum lease payments of approximately $420.0 million beginning in 2022 if certain contingencies are met. These non-cancelable commitments limit our ability to reduce our operating expenses in the future. Any failure to increase our revenue as we implement initiatives to grow our business could prevent us from achieving or maintaining profitability on either a quarterly or annual basis.

We may make decisions consistent with our mission and values that may reduce our short- or medium-term operating results.

Our mission—to bring everyone the inspiration to create a life they love—and company values are integral to everything we do. We frequently make decisions regarding our business and service in accordance with our mission and values that may reduce our short- or medium-term operating results if we believe those decisions will improve the experiences of Pinners, advertisers, employees or our community, and therefore benefit our business. For example, we may choose to remove content that we have determined does not create an empowering experience for Pinners or revise our policies in ways that decrease Pinner engagement. Also, we decided to extend certain GDPR rights, such as rights of access, correction and deletion, to all of our users worldwide, as opposed to only those in Europe. These decisions many not be consistent with the expectations of investors and any longer-term benefits may not materialize within the timeframe we expect or at all, which could harm our business, revenue and financial results.

Our operating results are likely to fluctuate from quarter to quarter, which makes them difficult to predict.

Our quarterly operating results are tied to certain key business metrics that have fluctuated in the past and are likely to fluctuate in the future, which makes them difficult to predict. Our operating results depend on numerous factors, many of which are outside of our control, including:

 

   

our ability to generate revenue from our service;

 

   

our ability to improve or maintain gross margins;

 

   

the number and relevancy of advertisements shown to Pinners;

 

   

the manner in which Pinners engage with different products, where certain products may generate different amounts of revenue;

 

   

downward pressure on the pricing of our advertisements;

 

   

the timing, cost of and mix of new and existing marketing and promotional efforts as we grow and expand our operations to remain competitive;

 

   

seasonal fluctuations in spending by our advertisers, product usage by Pinners and growth rates for Pinners and engagement, each of which may change as our product offerings evolve or our business grows;

 

   

seasonal fluctuations in internet usage generally;

 

   

the success of technologies designed to block the display of ads;

 

   

development and introduction of new product offerings by us or our competitors;

 

   

the ability of our third-party providers to scale effectively and provide the necessary technical infrastructure for our service on a timely basis;

 

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system failures, disruptions, breaches of security or data privacy or internet downtime, whether on our service or on those of third parties;

 

   

the inaccessibility of our service due to third-party actions;

 

   

changes in measurement of our metrics;

 

   

costs associated with the technical infrastructure used to operate our business, including hosting services;

 

   

fluctuations in the amount of share-based compensation expense, including in the quarter we complete this offering;

 

   

our ability to anticipate and adapt to the changing internet business or macroeconomic conditions; and

 

   

the other risks and uncertainties described in this prospectus.

We may need additional capital, and we cannot be sure that additional financing will be available.

We have incurred net losses and negative cash flow from operations for all prior annual periods, and we may not achieve or maintain profitability. As a result, we may require additional financing. Our ability to obtain financing will depend on, among other things, our development efforts, business plans, operating performance, investor demand and the condition of the capital markets at the time we seek financing. To the extent we use available funds or are unable to draw on our Revolving Credit and Guaranty Agreement, dated November 15, 2018 (the “revolving credit facility”), we may need to raise additional funds, and we cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our existing stockholders may experience dilution. In the event that we are unable to obtain additional financing on favorable terms, our interest expense and principal repayment requirements could increase significantly, which could harm our business, revenue and financial results.

We receive, process, store, use and share data, some of which contains personal information, which subjects us to complex and evolving governmental regulation and other legal obligations related to data privacy, data protection and other matters, which are subject to change and uncertain interpretation.

We receive, process, store, use and share data, some of which contains personal information. There are numerous federal, state, local and foreign laws and regulations regarding matters central to our business, data privacy and the collection, storing, sharing, use, processing, disclosure and protection of personal information and other data from users, employees and business partners, the scope of which are regularly changing, subject to differing interpretations and may be inconsistent among countries or conflict with other rules. It is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules, industry standards or our practices. The costs of complying with these laws and regulations are high and likely to increase in the future, particularly as the degree of regulation increases, our business grows and our geographic scope expands. The impact of these laws and regulations may disproportionately affect our business in comparison to our peers in the technology sector that have greater resources.

These laws can be particularly restrictive in countries outside the United States. Both in the United States and abroad, these laws and regulations constantly evolve and remain subject to significant

 

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change. The application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate, and as the focus on data privacy and data protection increases globally, we are, and will continue to be, subject to varied and evolving data privacy and data protection laws. GDPR came into application in May 2018 and applies to companies that offer goods or services to, or monitor the behavior of, individuals in Europe. GDPR expands the rights of individuals to control how their personal data is processed, includes restrictions on the use of personal data of children, creates new regulatory and operational requirements for processing personal data (in particular in case of a data breach), increases requirements for security and confidentiality and provides for significant penalties for non-compliance, including fines of up to 4% of global annual turnover for the preceding financial year or 20 million (whichever is higher) for the most serious infringements. In June 2018, the State of California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which will come into effect on January 1, 2020. The CCPA requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, allows consumers to opt out of certain data sharing with third parties and provides a new cause of action for data breaches. However, legislators have stated that they intend to propose amendments to the CCPA, and it remains unclear what, if any, modifications will be made to the CCPA or how it will be interpreted. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. The burdens imposed by these and other laws and regulations that may be enacted, or new interpretations of existing laws and regulations, may require us to modify our data processing practices and policies and to incur substantial costs in order to comply. These laws and regulations may also impact our ability to expand advertising on our platform internationally, as they may impede our ability to deliver targeted advertising and accurately measure our ad performance.

Any failure or perceived failure by us to comply with our privacy policies, data privacy-related obligations to Pinners or other third parties, or our data privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, or other failure to comply with these laws and regulations, may result in governmental enforcement actions or litigation that could expose our business to substantial financial penalties, or other monetary or non-monetary relief. Companies in the technology industry have recently experienced increased regulatory scrutiny relating to data privacy and data protection, and we may become subject to enhanced scrutiny and enforcement actions from regulators to ensure compliance with data privacy and data protection laws and regulations. In particular, in the European Union, we rely on interpretations of the GDPR which have not been tested in court or before the relevant authorities. If the relevant authorities adopt an interpretation of the GDPR that differs from our own, this could result in fines or penalties, lead us to change our data privacy policies and practices and limit our ability to deliver personalized advertising. Public statements against us by consumer advocacy groups or others could also cause Pinners to lose trust in us, which could result in declines in Pinner growth, retention or engagement and have an adverse effect on our brand, reputation and business. Additionally, if third parties that we work with, such as advertisers, service providers or developers, violate applicable laws or our policies, these violations may also put Pinners’ information at risk and could in turn have an adverse effect on our business, revenue and financial results.

Any significant change to applicable laws, regulations or industry practices, or to interpretations of existing laws and regulations, regarding the use or disclosure of Pinners’ data, or regarding the manner in which we obtain express or implied consent from Pinners for the use and disclosure of such data, could require us to modify our products, possibly in a material manner, and may limit our ability to develop new products that make use of the data that Pinners voluntarily share. There currently are a number of proposals pending before federal, state and foreign legislative and regulatory bodies. For example, the European Union is contemplating the adoption of the “ePrivacy Regulation” that would govern data privacy and the protection of personal data in electronic

 

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communications, in particular for direct marketing purposes. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our service, particularly as we expand our operations internationally.

Pinner metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could harm our business, revenue and financial results.

We regularly review metrics, including the number of our active users and other measures to evaluate growth trends, measure our performance and make strategic decisions. We review the number of MAUs, which we define as a logged-in Pinterest user who visits our website or opens our mobile application at least once during the 30-day period ending on the date of measurement, as well as a number of other measures to evaluate growth trends and the depth and quality of engagement of Pinners. These metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we currently believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring how our products are used across large populations globally. If we fail to maintain an effective analytics platform, our metrics calculations may be inaccurate, and we may not be able to identify those inaccuracies. In the past, we have relied on other metrics that measure different activities, such as saving a Pin, clicking and other activities, as indicators of Pinner growth and engagement. We have in the past implemented, and may from time to time in the future implement, new methodologies for calculating these metrics which may result in the metrics from prior periods changing, decreasing or not being comparable to prior periods. For example, in the second quarter of 2018, we implemented our current methodology for tracking active users, which we believe better reflects user action on our service. We have restated our active user data for periods from the fourth quarter of 2016 to the first quarter of 2018 based on the information that was available to us under the prior methodology in a way that we believe is comparable to the current methodology. However, we were not able to restate active users for periods prior to the fourth quarter of 2016 based on the data available to us from those periods. As a result, active user information for the first, second and third quarters of 2016 are based on the prior methodology, although we believe the differences are not material. Our prior methodology for measuring active users relied on different signals depending on the platform where the user activity was measured—iOS, Android, web and mobile web—and inferred user activity in a way that required removal of certain data that would not indicate active use, such as background system requests. Our metrics may also differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology or data used.

Our MAU metrics may also be impacted by false or spam accounts in existence on our service. We regularly deactivate spam accounts that violate our terms of service, and exclude these users from the calculation of our MAU metrics; however, we may not succeed in identifying and removing all spam accounts from our service. Users are not prohibited from having more than one account on our service, and we treat multiple accounts held by a single person as multiple users for purposes of calculating our active users.

In addition, some of our demographic data may be incomplete or inaccurate. For example, because Pinners self-report their date of birth, our age-demographic data may differ from Pinners’ actual ages, or be unavailable. We receive age-demographic data for a portion of those Pinners from other third-party accounts that Pinners chose to authenticate with on our service, such as Facebook and Google, but there can be no assurance that those platforms will continue to give us permission to access that data or that the data we receive from those third parties is accurate. In addition, our data regarding the geographic location of Pinners and revenue by user geography is estimated based on a number of factors, which may not always accurately reflect the actual location and may be different

 

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depending on the metric we are calculating. If our metrics provide us with incorrect or incomplete information about Pinners and their behavior, we may make inaccurate conclusions about our business.

Technologies have been developed that can block the display of our ads, which could harm our business, revenue and financial results.

Technologies have been developed, and will likely continue to be developed, that can block the display of our ads. We generate substantially all of our revenue from advertising, and ad blocking technologies may prevent the display of certain of our ads, which could harm our business, revenue and financial results. Existing ad blocking technologies that have not been effective on our service may become effective as we make certain product changes, and new ad blocking technologies may be developed. More users may choose to use products that block or obscure the display of our ads if we are unable to successfully balance the amount of organic content and paid advertisements, or if users’ attitudes toward advertisements become more negative. Further, regardless of their effectiveness, ad blockers may generate concern regarding the health of the digital advertising industry, which could reduce the value of digital advertising and harm our business, revenue and financial results.

We depend on Amazon Web Services for the vast majority of our compute, storage, data transfer and other services. Any disruption of, degradation in or interference with our use of Amazon Web Services could negatively affect our operations and harm our business, revenue and financial results.

Amazon Web Services (“AWS”) provides the cloud computing infrastructure we use to host our website, mobile application and many of the internal tools we use to operate our business. We have a long-term commitment with AWS and our website, mobile application and internal tools use compute, storage, data transfer and other services provided by AWS. Under the agreement with AWS, as amended by an addendum entered into in May 2017, in return for negotiated concessions, we currently are required to maintain a substantial majority of our monthly usage of certain compute, storage, data transfer and other services on AWS. This addendum is terminable only under certain conditions, including by either party following the other party’s material breach, which may be the result of circumstances that are beyond our control. See “—We may be liable as a result of content or information that is published or made available on our service.” A material breach of this addendum by us, or early termination of the addendum as a result of an acquisition of us by another cloud services provider, could carry substantial penalties, including liquidated damages.

Any significant disruption of, limitation of our access to or other interference with our use of AWS would negatively impact our operations and our business could be harmed. In addition, any transition of the cloud services currently provided by AWS to another cloud services provider would be difficult to implement and would cause us to incur significant time and expense and could disrupt or degrade our ability to deliver our products and services. Our business relies on the availability of our services for Pinners and advertisers. If Pinners or advertisers are not able to access our service or platform or encounter difficulties in doing so, we may lose Pinners or advertisers. The level of service provided by AWS could affect the availability or speed of our services, which may also impact the usage of and Pinners’ and advertisers’ satisfaction with our platform and could harm our business and reputation. If AWS increases pricing terms, terminates or seeks to terminate our contractual relationship, establishes more favorable relationships with our competitors, or changes or interprets its terms of service or policies in a manner that is unfavorable with respect to us, those actions could harm our business, revenue and financial results.

We utilize data center hosting facilities operated by AWS, located in various facilities around the world. An unexpected disruption of services provided by these data centers could hamper our ability

 

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to handle existing or increased traffic, or cause our platform to become unavailable, which may harm our reputation and business. See “—We rely on software, technologies and related services from other parties, and problems in their use or access could increase our costs and harm our business, revenue and financial results” and “—Any significant disruptions in the availability or speed of our systems could result in a loss of Pinners and advertisers” for more information on the risks of disruptions to these systems.

We must effectively operate with mobile operating systems, web browsers, networks, regulations and standards, which we do not control. Changes in our products or to those mobile operating systems, web browsers, networks, regulations or standards may harm Pinner retention, growth and engagement.

Because our service is used on mobile devices and through web browsers, the application must remain interoperable with popular mobile operating systems and browsers, including Android, Chrome, iOS and Safari. We have no control over these operating systems and browsers. Any future changes to these operating systems or browsers that impact the accessibility, speed or functionality of our service or give preferential treatment to competitive products, could harm usage of our service. Our competitors that control the operating systems and browsers that our application runs on could make interoperability of our service with those systems and browsers more difficult. In addition, we plan to continue to introduce new products regularly and have experienced that it takes time to optimize products to function with these systems and browsers.

Historically, a significant amount of Pinner engagement occurred on smartphones with iOS operating systems. As a result, although our service worked with Android mobile devices, we prioritized development of our service to operate with iOS operating systems. As Pinner engagement on Android smartphones has increased over time, we shifted our prioritization to create similar Pinner experiences and feature parity on both mobile operating systems. To continue our user growth, retention and engagement, particularly internationally, we will need to continue these efforts so that Pinners have a consistent, high-quality experience across different devices. If we are unable to deliver consistent, high-quality Pinner experiences across different devices, Pinner growth, retention or engagement may decline, which could harm our business, revenue and financial results.

To deliver high-quality video and other content over mobile cellular networks, our products must work well with a range of mobile technologies, systems, networks, regulations and standards that we do not control. The adoption of any laws or regulations that adversely affect the growth, popularity or use of the internet, including laws governing internet neutrality, could decrease the demand for our products and services and increase our cost of doing business. For example, in June 2018, the Federal Communications Commission repealed the 2015 “open internet rules,” which had prohibited broadband internet access service providers in the United States from impeding access to most content, or otherwise unfairly discriminating against content providers by, for example, entering into arrangements where content providers could pay for faster or better access over their data networks. While the repeal of these net neutrality regulations became effective in June 2018, the future impact of, and any challenges to, this repeal remain uncertain, and the repeal could impact the way Pinners access the internet and the way we interact with internet service providers. These impacts and the uncertainty around them could harm our business. Other countries also have rules requiring equal access to internet content. Regulatory changes could limit Pinners’ ability to access our service or make our service a less attractive alternative to our competitors’ platforms and cause our user growth, retention or engagement to decline, which could harm our business, revenue and financial results.

If it becomes more difficult for Pinners to access and use our service on their browsers or mobile devices, if Pinners choose not to access or use our service on their mobile devices, or if Pinners

 

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choose to use mobile products that limit access to our service, Pinner growth, retention and engagement may decline, which could harm our business, revenue and financial results.

We rely on software, technologies and related services from other parties, and problems in their use or access could increase our costs and harm our business, revenue and financial results.

We rely on software, technologies and related services from third parties to operate critical functions of our business. Access to third-party technologies or services that we utilize may become unavailable due to a variety of reasons, including outages or interruptions. Unexpected delays in their availability or function can, in turn, affect the use or availability of our service. Further, third-party software and service providers may no longer provide such software and services on commercially reasonable terms or may fail to properly maintain or update their software. In such instances, we may be required to seek licenses to software or services from other parties or to redesign our products to function with new software or services. This could result in delays in the release of new products until equivalent technology can be identified, licensed or developed, and integrated into our platform and services. Furthermore, we might be forced to limit the features available in our current or future products. These occurrences, delays and limitations, if they occur, could harm our business, revenue and financial results.

Our business depends on our ability to maintain and scale our technology infrastructure.

Pinners access our service through our website or through a mobile device. Our reputation and ability to attract, retain and serve Pinners and advertisers is dependent upon the reliable performance of our service and our underlying technology infrastructure and content delivery processes. Our advertisers must be able to easily buy, forecast, optimize and measure the performance of ads on a responsive and stable platform. Advertisers will not continue to do business with us if our technology infrastructure is not reliable. Our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could harm our business. As our user and advertiser base and the volume and types of information shared on our service continue to grow, we will need an increasing amount of technology infrastructure, including network capacity and computing power, to continue to satisfy the needs of Pinners and advertisers, which could increase our costs. It is possible that we may fail to effectively scale and grow our technology infrastructure to accommodate these increased demands, which could harm our business, revenue and financial results.

Any significant disruptions in the availability or speed of our systems could result in a loss of Pinners and advertisers.

From time to time, we are subject to interruptions in or disruptions of our systems, whether due to system failures, internet downtime, computer viruses, physical or electronic break-ins, denial of service or fraud or security attacks (whether these issues occur on our platform or on those of third parties), which could affect the security or availability of our service, including our databases, and prevent Pinners and advertisers from accessing and using our service. If our platform is unavailable when Pinners or advertisers attempt to access it, if it does not load as quickly as they expect or if their content is not saved, Pinners may not return to our platform as often in the future, or at all.

In addition, our systems and operations are vulnerable to damage, delays or interruptions from fire, flood, power loss, telecommunications failure, spikes in usage volume, terrorist attacks, acts of war, earthquakes and similar events. We are particularly vulnerable to these types of events because our cloud computing infrastructure is currently located in one geographic region. In addition, the substantial majority of our employees are based in our headquarters located in San Francisco,

 

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California. If there is a catastrophic failure involving our systems or major disruptive event affecting our headquarters or the San Francisco area in general, we may be unable to operate our service. See “—If our security is compromised, or Pinners or advertisers believe our security has been compromised, Pinners and advertisers may use our service less or may stop using our service altogether, which could harm our business, revenue and financial results.”

A substantial portion of our technology infrastructure is provided by third parties. Any disruption or failure in the services we receive from these providers could harm our ability to handle existing or increased traffic or cause our platform to become unavailable, which could harm our business. Any financial or other difficulties these providers face may harm our business. We exercise little control over these providers and are vulnerable to problems with the services they provide.

The occurrence of any of the foregoing risks could result in damage to our systems and hardware or could cause them to fail completely, and our insurance may not cover such risks or may be insufficient to compensate us for losses that may occur. These events may result in distraction of management, loss of revenue and costs from litigation and enforcement. In addition, they could also result in significant expense to repair or replace damaged facilities and remedy resultant data loss or corruption. A prolonged interruption in the availability or reduction in the speed or other functionality of our products could materially harm our reputation and business.

The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business, revenue and financial results.

We currently depend on the continued services and performance of our key personnel, including Benjamin Silbermann and others. Mr. Silbermann’s employment, and the employment of our other key personnel, is at will, which means they may resign or be terminated for any reason at any time. In addition, much of our key technology and systems are custom-made for our business by our personnel. The loss of key personnel, including key members of management as well as our key engineering, design, marketing, sales and product development personnel, could disrupt our operations and harm our business.

In addition, it is important to our business to attract and retain highly talented personnel, particularly engineers with expertise in computer vision, artificial intelligence and machine learning. As we become a more mature company, we may find our recruiting and retention efforts more challenging because the marketplace for talent is highly competitive. The incentives provided by our stock option grants, restricted stock grants and restricted stock unit grants, or by other compensation arrangements, may not be effective to attract and retain employees. We may also be required to enhance wages, benefits and non-equity incentives. If our company culture changes, we may experience difficulties attracting and retaining personnel. If we do not succeed in attracting and retaining highly qualified personnel or the financial resources required to do so increase, we may not be able to meet our business objectives, and our business, revenue and financial results could be harmed.

Action by governments to restrict access to our service or certain of our products in their countries could harm our business, revenue and financial results.

Government authorities outside the United States may seek to restrict access to our service if they consider us to be in violation of their laws or for other reasons, and our service has been restricted by governments in other countries from time to time. For example, access to our service has been or is currently restricted in whole or in part in China, India, Kazakhstan and Turkey. Other governments may seek to restrict access to or block our service, prohibit or block the hosting of certain content available through our service, or impose other restrictions that may affect the accessibility or usability

 

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of our service in that country for a period of time or even indefinitely. For example, some countries have enacted laws that allow websites to be blocked for hosting certain types of content or may require websites to remove certain restricted content. It can be challenging to manage the requirements of multiple jurisdictions governing the type and nature of the content available on our service. If prohibitions or restrictions are imposed on our service, or if our competitors are able to successfully penetrate new geographic markets or capture a greater share of existing geographic markets that we cannot access or where we face other restrictions, our user growth, retention and engagement may be adversely affected, and our business, revenue and financial results could be harmed.

We may be liable as a result of content or information that is published or made available on our service.

We are subject to many U.S. federal and state and foreign laws and regulations that involve matters central to our business, including laws and regulations that involve data privacy and protection, intellectual property (including copyright and patent laws), content regulation, rights of publicity, advertising, marketing, health and safety, competition, protection of minors, consumer protection, taxation, anti-bribery, anti-money laundering and corruption, economic or other trade prohibitions or sanctions or securities law compliance. We may be sued or face regulatory action for claims relating to content or information that is published or made available on our service. Our systems, tools and personnel that help us to proactively detect potentially policy-violating or otherwise inappropriate content cannot identify all such content on our service, and in many cases this content will appear on our service. This risk may increase as we develop and increase the use of certain products, such as video, for which identifying such content is challenging. Additionally, some controversial content may not be banned on our service and, even if it is not featured in advertisements or recommendations to Pinners, may still appear in search results or be saved on boards. This risk is enhanced in certain jurisdictions outside of the United States where our protection from liability for content published on our platform by third parties may be unclear and where we may be less protected under local laws than we are in the United States. Further, if policy-violating content is found on our service, we may be in violation of the terms of certain of our key agreements, which may result in termination of the agreement and, in some cases, payment of damages. We could incur significant costs in investigating and defending such claims and, if we are found liable, damages. If any of these events occur, our business, revenue and financial results could be harmed.

We rely on a variety of statutory and common-law frameworks and defenses relevant to the content available on our service, including the Digital Millennium Copyright Act (the “DMCA”), the Communications Decency Act (the “CDA”) and the fair-use doctrine in the United States, and the Electronic Commerce Directive in the European Union. The DMCA limits, but does not necessarily eliminate, our potential liability for caching, hosting, listing or linking to third-party content that may include materials that infringe copyrights. The CDA further limits our potential liability for content uploaded onto our service by third parties. Defenses such as the fair-use doctrine (and related doctrines in other countries) may be available to limit our potential liability for featuring third-party intellectual property content for purposes such as reporting, commentary and parody. In the European Union, the Electronic Commerce Directive offers certain limitations on our potential liability for featuring third-party content. However, each of these statutes and doctrines is subject to uncertain or evolving judicial interpretation and regulatory and legislative amendments, and we cannot guarantee that such frameworks and defenses will be available for our protection. Regulators in the United States and in other countries may introduce new regulatory regimes that increase potential liability for content available on our service, including liability for misleading or manipulative information, hate speech, privacy and copyrighted content. For example, there have been various Congressional efforts to restrict the scope of the protections available to online platforms under Section 230 of the CDA, and current protections from liability for third-party content in the United

 

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States could decrease or change. Similarly, there are a number of legislative proposals in the United States, at both the federal and state level, and in the European Union, that could impose new obligations in areas affecting our business, such as liability for copyright infringement. The European Union’s proposed “EU Copyright Directive,” expected to be finalized in early 2019, would, if adopted in its current form, impose additional requirements to protect copyright owners against unlicensed use of their work and could add payment obligations or compliance costs and therefore affect our business model.

We could also face fines or orders restricting or blocking our service in particular countries as a result of content on our platform. For example, recently enacted legislation in Germany may impose significant fines for failures to comply with certain content removal and disclosure obligations. Additionally, the European Union is currently debating a regulation that would require the removal of terrorist-related content within one hour of being flagged. If the regulation is passed, the tools we use for certain removal obligations may not work and we may have to build custom tools.

Any new legislation may be difficult to comply with in a timely and comprehensive fashion and may substantially increase our costs. These costs could be prohibitively expensive for a company of our size, which could prevent us from launching a product in a particular market. This could disadvantage us relative to our competitors with more resources. If the rules, doctrines or currently available defenses change, if international jurisdictions refuse to apply similar protections that are currently available in the United States or the European Union or if a court were to disagree with our application of those rules to our service, we could be required to expend significant resources to try to comply with the new rules or incur liability and our business, revenue and financial results could be harmed.

We could become involved in legal disputes involving intellectual property claims or other disputes that are expensive to support, and if resolved adversely, could harm our business, revenue and financial results.

Companies in the internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition and become increasingly high profile, the possibility of receiving a larger number of intellectual property claims against us grows. In addition, various “non-practicing entities” that own patents and other intellectual property rights have asserted, and may in the future attempt to assert, intellectual property claims against us to extract value through licensing or other settlements.

From time to time, we receive letters from patent holders alleging that some of our products infringe their patent rights and from trademark holders alleging infringement of their trademark rights. We also receive letters from holders of copyrighted content alleging infringement of their intellectual property rights, including DMCA take-down requests. We may introduce new products or changes to existing products or make other business changes, including in areas where we currently do not compete, which could increase our exposure to patent, copyright, trademark, trade secret and other intellectual property rights claims from competitors and non-practicing entities. Our technologies and content, including the content that Pinners pin to our service, may not be able to withstand such third-party claims.

We are presently involved in and have been subject to actual and threatened litigation with respect to third-party patents, trademarks, copyrights and other intellectual property, and we expect to continue to be subject to intellectual property litigation and threats thereof. The costs of supporting such litigation are considerable, and there can be no assurances that a favorable outcome will be obtained. We may be required to settle such litigation on terms that are unfavorable to us. Similarly, if any litigation to which we may be a party fails to settle and we go to trial, we may be subject to an unfavorable judgment which may not be reversible upon appeal. The terms of such a settlement or

 

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judgment may require us to cease some or all of our operations or require the payment of substantial amounts to the other party. With respect to any intellectual property claims, we may have to seek a license to continue using technologies or engaging in practices found to be in violation of a third party’s rights, which may not be available on reasonable terms and may significantly increase our operating expenses. A license to continue such technologies or practices may not be available to us at all. As a result, we may be required to discontinue use of such technologies or practices and to develop alternative non-infringing technologies or practices. The development of alternative non-infringing technologies or practices could require significant effort and expense or may not be achievable at all. Our business, revenue and financial results could be harmed as a result.

If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business, revenue and financial results could be harmed.

We rely, and expect to continue to rely, on a combination of confidentiality, invention assignment and license agreements with our employees, consultants and other third parties with whom we have relationships, as well as trademark, copyright, patent and trade secret protection laws, to protect our proprietary rights. We have filed various applications for certain aspects of our intellectual property in the United States and other countries, and we currently hold issued patents in multiple jurisdictions. In the future we may acquire additional patents or patent portfolios, license patents from third parties or agree to license the use of our patents to third parties, which could require significant cash expenditures.

However, third parties may knowingly or unknowingly infringe or challenge our proprietary rights, and pending and future copyright, trademark and patent applications may not be approved. Effective intellectual property protection may not be available in every country in which we operate or intend to operate our business. We may not be able to prevent infringement without incurring substantial time and expense, if at all. There can be no assurance that others will not offer technologies, products, services, features or concepts that are substantially similar to ours and compete with our business. Similarly, particularly as we expand the scope of our business and the countries in which we operate, we may not be able to prevent third parties from infringing, or challenging our use of, our intellectual property rights, including those used to build and distinguish the “Pinterest” brand. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our technologies, products, services or features or methods of operations. Any of these events could harm our business, revenue and financial results.

Our use of “open source” software could subject us to possible litigation or could prevent us from offering products that include open source software or require us to obtain licenses on unfavorable terms.

A portion of the technologies we use incorporates “open source” software, and we may incorporate open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. These licenses may subject us to certain unfavorable conditions, including requirements that we offer our products that incorporate the open source software for no cost, that we make publicly available the source code for any modifications or derivative works we create based upon, incorporating or using the open source software, or that we license such modifications or derivative works under the terms of the particular open source license. In addition to using open source software, we also license to others some of our software through open source projects. Open sourcing our own software requires us to make the source code publicly available, and therefore can affect our ability to protect our intellectual property rights with respect to that software. Additionally, if a third-party software provider has incorporated open source software into software that we license from such provider, we could be required to disclose any of its source

 

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code that incorporates or is a modification or derivative work of such licensed software. If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from offering our products that contained the open source software, required to release proprietary source code, required to obtain licenses from third parties or otherwise required to comply with the unfavorable conditions unless and until we can re-engineer the product so that it complies with the open source license or does not incorporate the open source software. Any of the foregoing could disrupt our ability to offer our products and harm our business, revenue and financial results.

We may acquire other businesses, which could require significant management attention, disrupt our business, dilute stockholder value and harm our business, revenue and financial results.

As part of our business strategy, we have made and intend to make acquisitions to add specialized employees and complementary companies, products or technologies. Our previous and future acquisitions may not achieve our goals, and we may not realize benefits from acquisitions we make in the future. If we fail to successfully integrate acquisitions, or the personnel or technologies associated with those acquisitions, the business, revenue and financial results of the combined company could be harmed. Any integration process will require significant time and resources, and we may not be able to manage the process successfully. Our acquisition strategy may change over time and future acquisitions we complete could be viewed negatively by Pinners, advertisers, investors or other parties with whom we do business. We may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition, including accounting charges. We may also incur unanticipated liabilities that we assume as a result of acquiring companies. We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could affect our financial condition or the value of our securities. We would expect to finance any future acquisitions through a combination of additional issuances of equity, corporate indebtedness, asset-backed acquisition financing or cash from operations. The sale of equity to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. In the future, we may not be able to find other suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. Our acquisition strategy could require significant management attention, disrupt our business and harm our business, revenue and financial results.

If we default on our credit obligations, our operations may be interrupted and our business, revenue and financial results could be harmed.

Our revolving credit facility provides our lenders with a first-priority lien against substantially all of our domestic assets, as well as certain domestic intellectual property, and contains financial covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations. It contains a number of covenants that limit our ability and our subsidiaries’ ability to, among other things, incur additional indebtedness, pay dividends, make redemptions and repurchases of stock, make investments, loans and acquisitions, incur liens, engage in transactions with affiliates, merge or consolidate with other companies, sell material businesses or assets, or license or transfer certain of our intellectual property. We are also required to maintain certain financial covenants, including a consolidated total assets covenant and a liquidity covenant. Complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.

 

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If we fail to comply with the covenants under the revolving credit facility, lenders would have a right to, among other things, terminate the commitments to provide additional loans under the facility, enforce any liens on collateral securing the obligations under the facility, declare all outstanding loans and accrued interest and fees to be due and payable and require us to post cash collateral to be held as security for any reimbursement obligations in respect of any outstanding letters of credit issued under the facility. If any remedies under the facility were exercised, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and adversely affect our business, cash flows, operations and financial condition. Even if we were able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us.

Additionally, our revolving credit facility utilizes LIBOR or various alternative methods set forth in our revolving credit facility to calculate the amount of accrued interest on any borrowings. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. If a published U.S. dollar LIBOR rate is unavailable, the interest rates on our debt indexed to LIBOR will be determined using one of the alternative methods, any of which could, if the revolver is drawn, result in interest obligations that are more than or that do not otherwise correlate over time with the payments that would have been made on this debt if U.S. dollar LIBOR were available in its current form, which could have a material adverse effect on our financing costs.

The interpretation and application of recent U.S. tax legislation or other changes in U.S. or non-U.S. taxation of our operations could harm our business, revenue and financial results.

Tax legislation commonly referred to as the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. Among other changes, effective for tax years beginning after December 31, 2017, the Tax Act lowers the U.S. federal corporate income tax rate from 35% to 21%, changes the utilization of future net operating losses (generally prohibiting carrybacks and limiting the use of carryforwards) and changes how the United States imposes income tax on multinational corporations in a number of ways. The primary effect of the Tax Act on our financial results was a reduction of our deferred tax assets resulting from the reduction in the U.S. federal corporate income tax rate. Because we have established a full valuation allowance against our deferred tax assets, our consolidated financial statements were not materially affected. The issuance of additional regulatory or accounting guidance may affect our analysis of the impact of the new law on us and may harm our operating results and financial condition. Accordingly, we are still analyzing the Tax Act with our professional advisers. Until that analysis is complete, the full impact of the new tax law on us during future periods is uncertain, and no assurances can be made on any potential impact.

Additionally, in March 2018, the European Commission released a proposal for a European Council directive on taxation of specified digital services. The proposal calls for an interim tax on certain revenues from digital activities, as well as a longer-term regime that creates a taxable presence for digital services and imposes tax on digital profits. We do not yet know the impact this proposal, if implemented, would have on our financial results. A number of other jurisdictions, including the United Kingdom, are considering enacting similar digital tax regimes. These efforts are alongside Organisation for Economic Co-operation and Development’s ongoing work, as part of its Base Erosion and Profit Shifting (BEPS) Action Plan, to issue a final report in 2020 that provides a long-term, multilateral proposal on taxation of the digital economy.

Further changes to the U.S. or non-U.S. taxation of our operations may increase our worldwide effective tax rate, result in additional taxes or other costs or have other material consequences, which could harm our business, revenue and financial results.

 

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We may have greater than anticipated tax liabilities, which could harm our business, revenue and financial results.

We operate in a number of tax jurisdictions globally, including in the United States at the federal, state and local levels, and in many other countries, and plan to continue to expand the scale of our operations in the future. Thus, we are subject to review and potential audit by a number of U.S. federal, state, local and non-U.S. tax authorities. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Further, tax authorities may disagree with tax positions we take and challenge our tax positions. Successful unilateral or multi-jurisdictional actions by various tax authorities, including in the context of our current or future corporate operating structure and third-party and intercompany arrangements (including transfer pricing and the manner in which we develop, value and use our intellectual property), may increase our worldwide effective tax rate, result in additional taxes or other costs or have other material consequences, which could harm our business, revenue and financial results.

Although we do not currently incur significant tax costs due to our history of operating losses, our tax liabilities may increase if our profitability increases in the future. In addition, our effective tax rate may change from year to year based on changes in the mix of activities and income allocated or earned among various jurisdictions, tax laws and the applicable tax rates in these jurisdictions (including future tax laws that may become material), tax treaties between countries, our eligibility for benefits under those tax treaties and the valuation of deferred tax assets and liabilities. Such changes could result in an increase in the effective tax rate applicable to all or a portion of our income, which would reduce our profitability.

Our ability to use or benefit from our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2018, we had federal, California and other state net operating loss carryforwards of $547.5 million, $98.0 million and $96.0 million, respectively. If not utilized, these will begin to expire in 2028, 2028 and 2026, respectively. Utilization of our net operating loss carryforwards and other tax attributes, such as research and development tax credits, may be subject to annual limitations, or could be subject to other limitations on utilization or benefit due to the ownership change limitations provided by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and other similar provisions. Further, the Tax Act changed the federal rules governing net operating loss carryforwards. For net operating loss carryforwards arising in tax years beginning after December 31, 2017, the Tax Act limits a taxpayer’s ability to utilize such carryforwards to 80% of taxable income. In addition, net operating loss carryforwards arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited. Net operating loss carryforwards generated before January 1, 2018 (which represent the substantial majority of our net operating losses) will not be subject to the Tax Act’s taxable income limitation and will continue to have a twenty-year carryforward period. Nevertheless, our net operating loss carryforwards and other tax assets could expire before utilization and could be subject to limitations, which could harm our business, revenue and financial results.

Our financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could harm our revenue and financial results, and could affect the reporting of transactions completed before the announcement of a change.

 

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Risks Related to Our Initial Public Offering and Ownership of Our Class A Common Stock

The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of this offering, including our co-founders, executive officers, employees and directors, their affiliates, and all of our other existing stockholders (including those unaffiliated with any of our co-founders, executive officers, employees or directors). This will limit or preclude your ability to influence corporate matters.

Our Class B common stock will have 20 votes per share, and our Class A common stock, which is the stock we are offering in this offering, will have one vote per share. Because of the 20-to-1 voting ratio between our Class B and Class A common stock, the holders of our outstanding Class B common stock will initially hold approximately 99.2% of the voting power of our outstanding capital stock following this offering, with 67.9% of the voting power of our outstanding capital stock following this offering held by our co-founders, executive officers, directors, and holders of more than 5% of our outstanding capital stock and their affiliates. Because the holders of our Class B common stock will hold in the aggregate significantly more than a majority of the combined voting power of our capital stock upon the completion of this offering, such holders (which include all of our existing stockholders, including those holders unaffiliated with any of our co-founders, executive officers, employees or directors) could control all matters submitted to our stockholders for approval. The holders of Class B common stock will no longer hold in the aggregate over 50% of the voting power of our outstanding capital stock once the Class B common stock represents in the aggregate less than approximately 4.76% of the outstanding capital stock of the company.

As a result, for the foreseeable future, holders of our Class B common stock could have significant influence over the management and affairs of our company and over the outcome of all matters submitted to our stockholders for approval, including the election of directors and significant corporate transactions, such as a merger, consolidation or sale of substantially all of our assets, even if their stock holdings were to represent in the aggregate less than 50% of the outstanding shares of our capital stock. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. These holders of our Class B common stock may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This control may adversely affect the trading price of our Class A common stock. Despite no longer being employed by us, Paul Sciarra, one of our co-founders, remains able to exercise significant voting power. If we terminate our other co-founders’ employment, they would also continue to have the ability to exercise significant voting power to the extent they were to retain their Class B common stock while our other existing holders disposed of their Class B common stock.

Transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, except certain transfers to entities, including certain charities and foundations, to the extent the transferor retains sole dispositive power and exclusive voting control with respect to the shares of Class B common stock, and certain other transfers described in our amended and restated certificate of incorporation. In addition, all shares of Class B common stock will automatically convert into shares of Class A common stock on (i) the seven-year anniversary of the closing date of this offering, except with respect to shares of Class B common stock held by any holder that continues to beneficially own at least 50% of the number of shares of Class B common stock that such holder beneficially owned immediately prior to completion of this offering, and (ii) a date that is between 90 to 540 days, as determined by the board of directors, after the death or permanent incapacity of Mr. Silbermann. Conversions of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, one or more of our existing stockholders were to retain a significant portion of their holdings of Class B common stock for an

 

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extended period of time while all the other existing stockholders disposed of their Class B common stock, then those existing stockholders that retain significant holdings (while all the others dispose) could, in the future, control a majority of the combined voting power of our outstanding capital stock. For a description of the dual class structure, see “Description of Capital Stock.”

Our dual class structure may depress the trading price of our Class A common stock.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. S&P Dow Jones and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500. These changes exclude companies with multiple classes of shares of common stock from being added to these indices. In addition, several stockholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in these indices and may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.

An active trading market for our Class A common stock may never develop or be sustained.

Our Class A common stock has been approved for listing on the NYSE under the symbol “PINS.” However, we cannot assure you that an active trading market for our Class A common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our Class A common stock will develop or be maintained, the liquidity of any trading market, your ability to sell your shares of our Class A common stock when desired or the prices that you may obtain for your shares.

The trading price of our Class A common stock may be volatile, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for shares of our Class A common stock. The initial public offering price of our Class A common stock was determined through negotiation between the underwriters and us. This price does not necessarily reflect the price at which investors in the market will be willing to buy and sell shares of our Class A common stock following this offering. In addition, the trading price of our Class A common stock following this offering is likely to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our Class A common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our Class A common stock include the following:

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

volatility in the trading prices and trading volumes of technology stocks;

 

   

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

   

sales, or anticipated sales, of shares of our Class A common stock by us or our stockholders, including if stockholders sell shares of our Class A common stock into the market when the

 

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applicable lock-up period ends or to cover taxes due upon the settlement of RSUs or the exercise of stock options, or conversions, or anticipated conversions, of a substantial number of shares of our Class B common stock by our stockholders;

 

   

actions by institutional stockholders;

 

   

failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;

 

   

forward-looking financial or operating information or financial projections we may provide to the public, any changes in that information or projections or our failure to meet projections;

 

   

any indebtedness we may incur in the future;

 

   

whether investors or securities analysts view our stock structure unfavorably, particularly our dual class structure and the significant voting control of holders of our Class B common stock;

 

   

announcements by us or our competitors of new products, features, services, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;

 

   

announcements by us or estimates by third parties of actual or anticipated changes in the size of our user base or level of engagement, or those of our competitors;

 

   

the public’s perception of the quality and accuracy of our key metrics on our user base and engagement;

 

   

the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

actual or anticipated fluctuations in our user growth, retention, engagement, revenue or other operating results;

 

   

actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;

 

   

litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;

 

   

developments or disputes concerning our intellectual property or other proprietary rights;

 

   

announced or completed acquisitions of businesses, products, services or technologies by us or our competitors;

 

   

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

   

changes in accounting standards, policies, guidelines, interpretations or principles;

 

   

any significant change in our management; and

 

   

general economic conditions and slow or negative growth of our markets.

In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

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A substantial portion of the outstanding shares of our common stock after this offering will be restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of shares of our common stock eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our Class A common stock.

The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our Class A common stock. Our executive officers, directors and the holders of substantially all of our common stock and securities convertible into or exchangeable for shares of our common stock have entered into market standoff agreements with us or have entered into lock-up agreements with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC under which they have agreed, subject to certain exceptions, not to sell any of our stock for 180 days following the date of this prospectus. We refer to such period as the lock-up period. Pursuant to the lock-up agreements with Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, (i) if the restrictions set forth in the lock-up agreement would apply during any portion of the last trading window (meaning a broadly applicable period regularly scheduled to occur following our quarterly earnings release during which trading in our securities would not otherwise be restricted under our insider trading policy) scheduled to begin prior to the end of the lock-up period, (ii) at least 150 days have elapsed since the date of this prospectus and (iii) we have publicly released results for the quarterly period during which this offering occurred, then the last day of the lock-up period will be the later of (x) the trading day immediately prior to the scheduled commencement of the last trading window and (y) 150 days after the date of this prospectus. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, in their sole discretion, may release certain stockholders from the market standoff agreements or lock-up agreements prior to the end of the lock-up period.

As a result of these agreements and the provisions of our investor rights agreement described further in the section titled “Description of Capital Stock—Registration Rights,” and subject to the provisions of Rule 144 and Rule 701, shares of our common stock will be available for sale in the public market as follows:

 

   

beginning on the date of this prospectus, all shares of our Class A common stock sold in this offering will be immediately available for sale in the public market;

 

   

beginning as early as 31 days following the date of this prospectus, an aggregate of 30,860,371 shares of our Class A common stock, based on the number of options outstanding and exercisable as of March 31, 2019 and the initial public offering price of $19.00 per share, may be eligible for sale in the public market in order to satisfy the tax withholding obligations of stock option holders resulting from the exercise of outstanding options;

 

   

beginning as early as August 5, 2019, additional shares of our Class A common stock may be eligible for sale in the public market in order to satisfy the tax withholding obligations of holders of RSUs resulting from the settlement of the RSUs that fully vest subsequent to the completion of this offering; and

 

   

beginning 181 days after the date of this prospectus (subject to the terms of the lock-up agreements and market standoff agreements described above), the remainder of the shares of our common stock will be eligible for sale in the public market from time to time thereafter.

The shares of our Class A common stock that may be available in the public market prior to 181 days after the date of this prospectus could be higher or lower depending on the price of shares of our

 

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Class A common stock and the actual numbers of RSUs that are fully-vested on the applicable settlement date and on the number of stock options exercised. Upon completion of this offering, stockholders owning an aggregate of 387,152,314 shares of our Class B common stock will be entitled, under our investor rights agreement, to certain rights with respect to the registration of the Class A common stock issuable upon conversion of such shares under the Securities Act. In addition, after this offering, up to 144,930,808 shares of our Class B common stock may be issued upon exercise of outstanding stock options or upon settlement of outstanding RSUs (including those outstanding options and RSUs that may be eligible for sale in the public market in order to satisfy tax withholding obligations), and 88,003,454 shares of our Class A common stock are available for future issuance under our 2019 Plan. We intend to file a registration statement to register shares reserved for future issuance under our equity compensation plans. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and the expiration or waiver of the market standoff agreements and lock-up agreements referred to above, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSU awards will be available for immediate resale in the United States in the open market. Our board has also reserved 2,564,103 shares for issuance to fund a charitable giving program to be established by us.

Sales of our shares as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.

If you purchase our Class A common stock in this offering, you will incur immediate and substantial dilution.

The initial public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock of $3.58 per share as of December 31, 2018. Investors purchasing shares of our Class A common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing Class A common stock in this offering will incur immediate dilution of $15.42 per share, based on the initial public offering price of $19.00 per share.

This dilution is due to the substantially lower price paid by our investors who purchased shares prior to this offering as compared to the price offered to the public in this offering, and any previous exercise of stock options. In addition, as of March 31, 2019, options to purchase 76,556,383 shares of our Class B common stock with a weighted-average exercise price of approximately $2.22 per share were outstanding as well as 68,374,425 shares of our Class B common stock subject to RSUs (excluding RSUs that will be settled in connection with the RSU Settlement). The exercise of any of these options and settlement of any of these RSUs would result in additional dilution. As a result of the dilution to investors purchasing shares in this offering, investors may receive less than the purchase price paid in this offering, if anything, in the event of our liquidation.

Future offerings of debt or equity securities by us may adversely affect the market price of our Class A common stock.

In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional capital stock or offering debt or other securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. Future acquisitions could also require substantial additional capital in excess of cash from operations.

 

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Issuing additional shares of capital stock or other securities, including securities convertible into equity, may dilute the economic and voting rights of our existing stockholders, reduce the market price of our Class A common stock or both. Upon liquidation, holders of debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. As a result, holders of our Class A common stock bear the risk that our future offerings may reduce the market price of our Class A common stock and dilute their stockholdings in us.

Additional stock issuances, including in connection with settlement of equity awards, could result in significant dilution to our stockholders.

Future issuances of shares of our Class A common stock or the conversion of a substantial number of shares of our Class B common stock, or the perception that these sales or conversions may occur, could depress the market price of our Class A common stock and result in significant dilution for holders of our Class A common stock. There are up to 76,556,383 shares of Class B common stock that may be issued upon exercise of outstanding stock options and 68,374,425 shares of Class B common stock that may be issued upon settlement of outstanding RSUs in each case as of March 31, 2019 (excluding RSUs that will be settled in connection with the RSU Settlement). We have 6,489,849,110 shares of authorized but unissued Class A common stock that are currently not reserved for issuance under our equity incentive plans or charitable giving program. We may issue all of these shares of Class A common stock without any action or approval by our stockholders, subject to certain exceptions. We also intend to continue to evaluate acquisition opportunities and may issue Class A common stock or other securities in connection with these acquisitions. Any common stock issued in connection with our equity incentive plans, acquisitions, the exercise of outstanding stock options, settlement of RSUs or otherwise would dilute the percentage ownership held by the investors who purchase Class A common stock in this offering.

We have broad discretion over the use of the net proceeds from this offering and we may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. The failure by our management to apply these proceeds effectively could harm our business, results of operations and financial condition. Pending their use, we may invest our proceeds in a manner that does not produce income or that loses value. Our investments may not yield a favorable return to our investors and may negatively impact the price of our Class A common stock.

 

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Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of this offering could make a merger, tender offer or proxy contest difficult, thereby depressing the market price of our Class A common stock.

Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law (the “DGCL”) may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that may make the acquisition of our company more difficult, including the following:

 

   

our dual class common stock structure, which provides our holders of Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding common stock;

 

   

our board of directors is classified into three classes of directors with staggered three-year terms and directors are only able to be removed from office for cause;

 

   

certain amendments to our amended and restated certificate of incorporation will require the approval of 6623% of the then-outstanding voting power of our capital stock;

 

   

our amended and restated bylaws will provide that the affirmative vote of 6623% of the then-outstanding voting power of our capital stock, voting as a single class, is required for stockholders to amend or adopt any provision of our bylaws;

 

   

our stockholders will only be able to take action at a meeting of stockholders and not by written consent;

 

   

vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;

 

   

no provision in our amended and restated certificate of incorporation or amended and restated bylaws provides for cumulative voting, which limits the ability of minority stockholders to elect director candidates;

 

   

only our chairman of the board of directors, our chief executive officer, our president or another officer selected by a majority of the board of directors are authorized to call a special meeting of stockholders;

 

   

certain litigation against us can only be brought in Delaware;

 

   

nothing in our amended and restated certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our Class A common stock;

 

   

our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of our capital stock; and

 

   

advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate

 

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actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.

Our amended and restated certificate of incorporation will designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation that will be in effect upon completion of this offering will provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders, (iii) any action arising pursuant to any provision of the DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, any state or federal district court in the state of Delaware), in all cases subject to the court’s having jurisdiction over indispensable parties named as defendants.

Any person or entity purchasing or otherwise acquiring any interest in our securities shall be deemed to have notice of and consented to this provision. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find the exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.

In making your investment decision, you should understand that we and the underwriters have not authorized any other party to provide you with information concerning us or this offering.

You should carefully evaluate all of the information in this prospectus. We have in the past received, and may continue to receive, a high degree of media coverage, including coverage that is not directly attributable to statements made by our officers and employees, that incorrectly reports on statements made by our officers or employees or that is misleading as a result of omitting information provided by us, our officers or employees. We and the underwriters have not authorized any other party to provide you with information concerning us or this offering.

Our Class A common stock market price and trading volume could decline if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business.

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competition. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If one or more of the analysts who cover us downgrade our Class A common stock, provide a more favorable recommendation about our competitors or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline. If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our Class A common stock to decline.

 

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We do not intend to pay cash dividends for the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future gains on their investment. In addition, our revolving credit facility contains restrictions on our ability to pay dividends.

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to public companies that are not emerging growth companies, including:

 

   

not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We could be an emerging growth company for up to five years following the completion of this offering. Our status as an emerging growth company will end upon the earliest of:

 

   

the last day of the fiscal year following the fifth anniversary of the completion of this offering;

 

   

the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion;

 

   

the date on which we are deemed to be a large accelerated filer under the Exchange Act, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30; or

 

   

the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on any of the exemptions afforded emerging growth companies. If some investors find our Class A common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our Class A common stock and the market price of our Class A common stock may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this accommodation allowing for delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

The requirements of being a public company may strain our resources, result in more litigation and divert management’s attention.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing

 

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requirements of the NYSE and other applicable securities rules and regulations. Complying with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results.

By disclosing information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If those claims are successful, our business, revenue and financial results could be harmed. Even if the claims do not result in litigation or are resolved in our favor, the time and resources needed to resolve them could divert our management’s resources and harm our business, revenue and financial results.

 

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MARKET, INDUSTRY AND OTHER DATA

This prospectus contains estimates and information concerning our service and our industry, including market size and growth rates of the markets in which we participate, that are based on industry surveys and publications or other publicly available information, other third-party survey data and research reports commissioned by us and our internal sources. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates and information. Industry surveys and publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of the included information. We have not independently verified this third-party information. Similarly, other third-party survey data and research reports commissioned by us, while believed by us to be reliable, are based on limited sample sizes and have not been independently verified by us.

While we are not aware of any misstatements regarding any industry or similar data presented herein, such data involve risks and uncertainties and are subject to change based on various factors, including those discussed under the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections in this prospectus.

Certain statistical data estimates and forecasts contained in this prospectus are based on the following independent industry publications or reports:

 

   

International Data Corporation, Inc. (“IDC”), Digital Advertising Market Model (DAMM) 4Q18;

 

   

IDC, New Media Market Model (NMMM), 4Q18;

 

   

Euromonitor International Limited, Retailing 2019 edition;

 

   

Cowen and Company, “Facebook: US Ad Buyer Survey and Consumer Survey Highlights; Model Update,” January 10, 2019;

 

   

Comscore Media Metrix® Multi-Platform, Claims based on three audience groups: total audience, persons age: 18-34, and females 18-64 with kids, January 2019, U.S.; and

 

   

Prophet Brand Relevance Index 2018.

Information in this prospectus on the retailing market is from independent market research carried out by Euromonitor International Limited. Retail stores that primarily focus on the core verticals of food, home, beauty and fashion refer to the aggregation of the following channels as per Euromonitor definitions: grocery retailers, apparel and footwear, bags and luggage and jewellery and watch retailers, beauty specialist retailers, drugstores/parapharmacies, home and garden retailers and home improvement and gardening and homewares and furnishing internet retailing. Internet retail sales represent total online sales of a corresponding product category.

Certain statistical information in this prospectus is based on the following survey and research reports commissioned by us:

 

   

“Time Well Spent Study,” Comscore custom research, December 2018, U.S.;

 

   

Talk Shoppe, U.S., Pinterest Personalization & Relevance Study, July 2018;

 

   

Talk Shoppe, U.S., Emotions, Attitudes and Usage Study, October 2018;

 

   

Oracle Data Cloud, Audience Profile Analysis, 2017;

 

   

Oracle Data Cloud, Albertsons 2017 Holiday campaign, 2018 Summer BBQ campaign;

 

   

Analytic Partners, Inc., Pinterest 2017 Measurement Cases Overview, May 2017; and

 

   

Millward Brown, Pinterest Norms Meta Analysis, 4Q 2018.

 

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Unless otherwise indicated, these reports were based on surveys of monthly active users.

The Pinner and advertiser testimonials contained in this prospectus are from actual Pinners and advertisers. The Pinners and advertisers have agreed to the use of their testimonials and likenesses for marketing, advertising and other purposes. Some of these Pinners and advertisers were compensated nominal amounts for their time and effort associated with providing the testimonials and appearing in pictures or videos. The Pins and boards presented in this prospectus are illustrative examples of actual Pins and boards on our service.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made under the headings “Summary,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus contain forward-looking statements that reflect our plans, beliefs, expectations and current views with respect to, among other things, future events and financial performance, and our estimated preliminary results for the three months ended March 31, 2019.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and are often characterized by the use of words such as “believes,” “estimates,” “expects,” “projects,” “may,” “intends,” “plans” or “anticipates,” or by discussions of strategy, plans or intentions. Such forward-looking statements involve known and unknown risks, uncertainties, assumptions and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from historical results or any future results, performance or achievements expressed, suggested or implied by such forward-looking statements. These include, but are not limited to, statements about:

 

   

our ability to attract and retain Pinners and their level of engagement;

 

   

our ability to provide content that is useful and relevant to Pinners’ personal taste and interests;

 

   

our ability to develop successful new products or improve existing ones;

 

   

our ability to maintain and enhance our brand and reputation;

 

   

potential harm caused by compromises in security;

 

   

our financial performance, including revenue, cost of revenue and operating expenses;

 

   

potential harm caused by changes in internet search engines’ methodologies, particularly search engine optimization methodologies and policies;

 

   

discontinuation, disruptions or outages in third-party single sign-on access;

 

   

our ability to compete effectively in our industry;

 

   

our ability to scale our business, including our monetization efforts;

 

   

our ability to attract and retain advertisers and scale our revenue model;

 

   

our ability to develop effective products and tools for advertisers, including measurement tools;

 

   

our ability to expand and monetize our platform internationally;

 

   

our ability to effectively manage the growth of our business;

 

   

our lack of operating history and ability to attain and sustain profitability;

 

   

fluctuations in our operating results;

 

   

decisions that reduce short-term revenue or profitability or do not produce the long-term benefits we expect;

 

   

our ability to raise additional capital;

 

   

our ability to receive, process, store, use and share data, and compliance with laws and regulations related to data privacy and content;

 

   

our ability to comply with modified or new laws and regulations applying to our business, and potential harm to our business as a result of those laws and regulations;

 

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real or perceived inaccuracies in metrics related to our business;

 

   

disruption of, degradation in or interference with our use of AWS and our infrastructure;

 

   

our ability to attract and retain personnel; and

 

   

our expected uses of the net proceeds from this offering.

These statements are based on our historical performance and on our current plans, estimates and projections in light of information currently available to us, and therefore you should not place undue reliance on them. The inclusion of this forward-looking information should not be regarded as a representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Forward-looking statements made in this prospectus speak only as of the date of this prospectus, and we undertake no obligation to update them in light of new information or future events, except as required by law.

You should carefully consider the above factors, as well as the factors discussed elsewhere in this prospectus, including under “Risk Factors,” before deciding to invest in our Class A common stock. The factors identified above should not be construed as an exhaustive list of factors that could affect our future results, and should be read in conjunction with the other cautionary statements that are included in this prospectus. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. If any of these trends, risks or uncertainties actually occurs or continues, our business, revenue and financial results could be harmed, the trading prices of our securities could decline and you could lose all or part of your investment. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

 

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USE OF PROCEEDS

Our net proceeds from this offering will be approximately $1,360.5 million (or approximately $1,565.7 million if the underwriters exercise their option to purchase additional shares in full), after deducting underwriting discounts and commissions and estimated offering expenses.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock and enable access to the public equity markets for us and our stockholders.

We intend to use a portion of the net proceeds from this offering to repay approximately $326.1 million that we expect to borrow under our revolving credit facility prior to the completion of this offering to fund the tax withholding and remittance obligations of approximately $326.1 million related to the RSU Settlement. The tax withholding and remittance obligation amount assumes that the completion of this offering had occurred on March 31, 2019, assumes all eligible employees elect to have their tax obligations withheld at maximum statutory rates, which will result in an average withholding rate of approximately 48%, and does not include any additional amounts that may be required to satisfy tax withholding and remittance obligations related to the settlement of RSUs for which the service condition was satisfied from April 1, 2019 to the date of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for additional information regarding our revolving credit facility.

We also expect to use the net proceeds for general corporate purposes, including working capital and operating expenses. Additionally, we may use a portion of the net proceeds to acquire or invest in businesses, products, services or technologies. However, we do not have agreements or commitments for any material acquisitions or investments at this time.

We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds from this offering as described above, we may invest the net proceeds that we receive in this offering in short-term and long-term interest-bearing instruments, including government and investment grade debt securities and money market funds.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.

Future cash dividends, if any, will be at the discretion of our board of directors, subject to applicable law, and will depend upon, among other things, our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors the board of directors may deem relevant.

In addition, our revolving credit facility contains restrictions on our ability to pay dividends.

 

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CAPITALIZATION

The following table sets forth cash and cash equivalents, as well as our capitalization, as of December 31, 2018, as follows:

 

   

on an actual basis;

 

   

on a pro forma basis, giving effect to (i) the reclassification of all outstanding shares of our common stock into an equivalent number of shares of our Class B common stock, (ii) the automatic conversion and reclassification of our redeemable convertible preferred stock into shares of our Class B common stock, as if such conversion and reclassification had occurred on December 31, 2018, (iii) the issuance of 248,653 shares of our Class B common stock upon the automatic net exercise of outstanding warrants, as if such exercise had occurred on December 31, 2018, (iv) the filing and effectiveness of our amended and restated certificate of incorporation in Delaware that will be in effect upon the completion of this offering, (v) share-based compensation expense of $974.9 million associated with RSUs for which the service condition was satisfied as of March 31, 2019, which has been reflected as an increase to additional paid-in capital and accumulated deficit, (vi) the net issuance of 18,452,878 shares of our Class B common stock in connection with the RSU Settlement, (vii) the borrowing of approximately $326.1 million under our revolving credit facility to fund the tax withholding and remittance obligations related to the RSU Settlement, and (viii) a cash payment of approximately $326.1 million to satisfy tax withholding and remittance obligations related to the RSU Settlement, which amounts in (vi), (vii) and (viii) assume that the completion of this offering had occurred on March 31, 2019 and that all eligible employees elect to have their tax obligations withheld at maximum statutory rates, which will result in an average withholding rate of approximately 48%, and do not include any additional amounts that may be required to satisfy tax withholding and remittance obligations related to the settlement of RSUs for which the service condition was satisfied from April 1, 2019 to the date of this offering; and

 

   

on a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above, (ii) our receipt of net proceeds from the issuance and sale by us of 75,000,000 shares of our Class A common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the use of proceeds from the offering to repay $326.1 million drawn down under our revolving credit facility to fund the tax withholding and remittance obligations related to the RSU Settlement.

 

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The pro forma as adjusted information set forth in the table below is illustrative only. You should read this table together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

     As of December 31, 2018  
     Actual     Pro forma     Pro forma
as adjusted
 
     (in thousands, except per share data)  

Cash, cash equivalents and marketable securities

   $ 627,813     $ 627,813     $ 1,662,227  
  

 

 

   

 

 

   

 

 

 

Revolving credit facility

   $ —       $ 326,086     $ —    

Redeemable convertible preferred stock warrant liability

     4,934       —         —    

Redeemable convertible preferred stock, par value $0.00001 per share: 928,676 shares authorized, 308,373 issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma, and pro forma as adjusted

     1,465,399       —         —    

Stockholders’ equity (deficit):

      

Common stock, par value $0.00001 per share: 1,932,500 shares authorized, 127,298 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     1       —         —    

Class A common stock, par value $0.00001 per share: no shares authorized, issued and outstanding, actual; 6,666,667 shares authorized, no shares issued and outstanding, pro forma; and 6,666,667 shares authorized, 75,000 shares issued and outstanding, pro forma as adjusted

     —         —         1  

Class B common stock, par value $0.00001 per share: no shares authorized, issued and outstanding, actual; 1,333,333 shares authorized, 454,373 shares issued and outstanding, pro forma and pro forma as adjusted

     —         5       5  

Additional paid-in capital

     252,212       2,371,306       3,731,805  

Accumulated other comprehensive loss

     (1,421 )       (1,421 )       (1,421 )  

Accumulated deficit

     (845,355     (1,820,206     (1,820,206 )  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (594,563 )       549,684       1,910,184  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 875,770     $ 875,770     $ 1,910,184  
  

 

 

   

 

 

   

 

 

 

 

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If the underwriters’ option to purchase additional shares of Class A common stock were exercised in full, pro forma as adjusted cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders’ equity (deficit), total capitalization and shares of Class A common stock outstanding as of December 31, 2018 would be $1,867.4 million, $3,937.0 million, $2,115.4 million, $2,115.4 million and 86,250,000 shares, respectively.

 

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DILUTION

If you invest in our Class A common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Dilution results from the fact that the per share offering price of our Class A common stock is substantially in excess of the pro forma net tangible book value per share attributable to our existing stockholders. Pro forma net tangible book value per share is determined by dividing our total tangible assets, less our total liabilities, by the number of shares of common stock outstanding at that date, after giving effect to the automatic conversion and reclassification of our redeemable convertible preferred stock, issuance of Class B common stock upon the automatic net exercise of outstanding warrants prior to the completion of this offering and the RSU Settlement.

Our pro forma net tangible book value as of December 31, 2018 was $534.3 million, or approximately $1.18 per share of common stock (assuming 454,372,774 shares of common stock outstanding, after giving effect to the automatic conversion and reclassification of our redeemable convertible preferred stock, the issuance of shares of Class B common stock upon the automatic net exercise of outstanding warrants prior to the completion of this offering and the RSU Settlement, as if such conversion, reclassification, exercise and settlement had occurred on December 31, 2018).

Pro forma as adjusted net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of our Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after completion of this offering. Investors participating in this offering will incur immediate, substantial dilution. After giving effect to our sale of 75,000,000 shares of our Class A common stock in this offering at an initial public offering price of $19.00 per share, and after deducting the underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of December 31, 2018 would have been approximately $1,894.8 million or approximately $3.58 per share. This amount represents an immediate increase in pro forma net tangible book value of $2.40 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $15.42 per share to purchasers of our Class A common stock in this offering, as illustrated in the following table.

 

Initial public offering price per share of Class A common stock

      $ 19.00  

Pro forma net tangible book value per share as of December 31, 2018

   $ 1.18     

Increase in pro forma net tangible book value per share attributable to investors in this offering

     2.40     
  

 

 

    

Pro forma net tangible book value per share as adjusted to give effect to this offering

        3.58  
     

 

 

 

Dilution in pro forma as adjusted net tangible book value per share to investors in this offering

      $ 15.42  
     

 

 

 

 

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The following table summarizes, as of December 31, 2018, on the pro forma as adjusted basis described above, the differences between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share of our common stock paid by existing stockholders. The calculation with respect to shares purchased by new investors in this offering reflects the issuance of 75,000,000 shares of our Class A common stock in this offering at an initial public offering price of $19.00 per share, before deducting the underwriting discounts and commissions and estimated offering expenses.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

     454,372,774        85.8   $ 1,722,546,147        54.7   $ 3.79  

New investors

     75,000,000        14.2   $ 1,425,000,000        45.3   $ 19.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     529,372,774        100     3,147,546,147        100  

If the underwriters exercise their option to purchase additional shares in full, the number of shares of our Class A common stock held by new investors will increase to 86,250,000, or 16% of the total number of shares of our common stock outstanding after this offering.

To the extent that any outstanding options are exercised, outstanding RSUs settle, new options or RSUs are issued under our equity compensation plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

 

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following tables present our selected historical financial data. The selected historical consolidated statements of operations data for the years ended December 31, 2017 and 2018, and the selected historical consolidated balance sheets data as of December 31, 2017 and 2018, have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical consolidated statements of operations data for the year ended December 31, 2016 has been derived from our audited consolidated financial statements that are not included in this prospectus. Our historical operating data may not be indicative of our future performance. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and related notes thereto included elsewhere in this prospectus and are qualified in their entirety by the consolidated financial statements and related notes thereto included elsewhere in this prospectus.

This information should be read in conjunction with the information contained in “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus.

Consolidated Statements of Operations Data

 

     Year Ended
December  31,
 
             2016                      2017                      2018          
    

(in thousands, except per share amounts)

 

Revenue

   $ 298,870      $ 472,852      $ 755,932  

Costs and expenses (1)(2):

        

Cost of revenue

     159,958        178,664        241,584  

Research and development

     167,549        207,973        251,662  

Sales and marketing

     104,101        162,514        259,929  

General and administrative

     55,270        61,635        77,478  
  

 

 

    

 

 

    

 

 

 

Total costs and expenses

     486,878        610,786        830,653  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (188,008      (137,934      (74,721

Other income (expense), net:

        

Interest income

     6,368        8,313        13,152  

Interest expense and other income (expense), net

     (179      (112      (995
  

 

 

    

 

 

    

 

 

 

Loss before provision for income taxes

     (181,819      (129,733      (62,564

Provision for income taxes

     280        311        410  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (182,099    $ (130,044    $ (62,974
  

 

 

    

 

 

    

 

 

 

Net loss per share attributable to common stockholders, basic and diluted (3)

      $ (1.03    $ (0.50
     

 

 

    

 

 

 

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

        126,562        127,091  
     

 

 

    

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted

         $ (0.14
        

 

 

 

Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted

           448,639  
        

 

 

 

Other financial information:

        

Adjusted EBITDA (4)

   $ (132,283    $ (92,995    $ (39,003
  

 

 

    

 

 

    

 

 

 

 

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(1)

Cost of revenue includes $0.1 million, $0.1 million and $0.2 million and general and administrative includes $1.6 million, $1.4 million and $0.5 million of amortization expense for the years ended December 31, 2016, 2017 and 2018, respectively.

 

(2)

Costs and expenses includes share-based compensation expense as follows (in thousands):

 

     Year Ended December 31,  
           2016                  2017                  2018        

Cost of revenue

   $ 555      $ 372      $ 83  

Research and development

     25,096        19,811        13,155  

Sales and marketing

     6,849        6,267        784  

General and administrative

     9,955        2,354        837  
  

 

 

    

 

 

    

 

 

 

Total share-based compensation

   $     42,455      $     28,804      $     14,859  
  

 

 

    

 

 

    

 

 

 

Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs as well as any other share-based awards we may grant in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance —Share-Based Compensation.”

 

(3)

See Note 11 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the methods we use to calculate basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share attributable to common stockholders, respectively.

 

(4)

See “Summary—Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measure” for additional information and a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.

Consolidated Balance Sheets Data

 

     As of December 31,  
     2017     2018  
     (in thousands)  

Cash, cash equivalents and marketable securities

   $ 711,628     $ 627,813  

Working capital

     807,157       780,925  

Total assets

     1,173,045       1,152,731  

Total liabilities

     254,110       281,895  

Redeemable convertible preferred stock

     1,465,399       1,465,399  

Total stockholders’ equity (deficit)

     (546,464     (594,563

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

Overview / History

Pinterest is where more than 250 million people around the world go to get inspiration for their lives. They come to discover ideas for just about anything you can imagine: daily activities like cooking dinner or deciding what to wear, major commitments like remodeling a house or training for a marathon, ongoing passions like fly fishing or fashion, and milestone events like planning a wedding or a dream vacation.

On Pinterest, inspiration enables action because people want to make their dreams a reality. Getting inspiration for your home, your style or your travel often means that you are actively looking for products and services to buy. Ads do not compete with the content Pinners want to see—they are native content. We believe Pinners’ and advertisers’ interests are fundamentally aligned on Pinterest, allowing us to build a sustainable business while simultaneously improving our core product experience.

Since our founding, we’ve focused on creating long-term value through a series of investments with specific objectives. Prior to 2015, our priority was to build an outstanding core product experience for our U.S. users. We invested heavily in the development of our technology platform to deliver relevant visual content to our users and create a highly personalized and meaningful service. These investments led to significant growth in our U.S. active user base. In 2016, we expanded our focus to include an international audience using a deliberate, staged approach. Initially, we localized our content and improved product comprehension in five countries to develop a “playbook” for internationalization. Once we refined this playbook, we expanded our focus to 15 international markets and have continued to expand from there. Concurrent with this international expansion, we also continued to make investments in order to attract new users in our existing markets, including in the United States. For example, we are working to develop new features that complement a broader set of verticals such as automotive, technology, financial services, media and entertainment and travel, which we believe will attract new users to our service.

We took a similarly deliberate approach to our monetization efforts. In 2014, we introduced advertising to our platform. We initially built our business with large CPG and retail advertisers in the United States who typically have large marketing budgets and had the greatest affinity for our core use cases at that time. We then scaled our sales force to support these advertisers and grew their spend with us over time while broadening the mix of advertisers across verticals. As these advertisers scaled their investment on our platform, we have increased our focus on building the product and measurement tools required to serve mid-market and unmanaged advertisers. Recently, we have also begun to focus on expanding our international advertiser base. We believe that increased international monetization presents an important opportunity for growth, and we are working on localizing our product and expanding our business operations to better serve our international user and advertiser base.

We have experienced significant growth in users and monetization over the last several years. To support this growth, we have made, and will continue to make, investments to drive specific

 

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objectives in technology, sales and marketing. As we continue to grow users, expand our advertising business and optimize our cost structure, we expect to benefit from increasing operating leverage. We work with third-party infrastructure partners to host our applications rather than making up-front capital commitments to build our own infrastructure.

For the year ended December 31, 2018, we generated revenue of $755.9 million, as compared to $472.9 million for the year ended December 31, 2017, representing year-over-year growth of 60%. For the year ended December 31, 2018, we generated a net loss of $63.0 million and Adjusted EBITDA of $(39.0) million, as compared to a net loss of $130.0 million and Adjusted EBITDA of $(93.0) million, respectively, for the year ended December 31, 2017. See “Summary—Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measure” for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.

Key Metrics

Trends in User Metrics

Monthly Active Users. We define a monthly active user as a logged-in Pinterest user who visits our website or opens our mobile application at least once during the 30-day period ending on the date of measurement. We present MAUs based on the number of MAUs measured on the last day of the current period. We calculate average MAUs based on the average between the number of MAUs measured on the last day of the current period and the last day prior to the beginning of the current period. MAUs are the primary metric by which we measure the scale of our active user base.

Quarterly Monthly Active Users

(in millions)

 

 

LOGO

 

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LOGO

Note: For a discussion of how we measured MAUs for the first, second and third quarters of 2016, see “Risk Factors—Risks Related to the Company and our Industry—Pinner metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could harm our business, revenue and financial results.” United States and International may not sum to Global due to rounding.

A portion of our MAUs visit Pinterest on a weekly basis. We define a weekly active user (“WAU”) as a logged-in Pinterest user who visits our website or opens our mobile application at least once during the seven-day period ending on the date of measurement. We actively monitor the relationship of WAUs to MAUs, which has stayed relatively consistent over time. As of December 31, 2018, the proportion of WAUs to MAUs was 57%.

We have experienced significant growth in our global MAUs over the last several years. In particular, our international MAUs have grown significantly as a result of our recent focus on localizing content in international markets. We expect this international user growth to continue to outpace U.S. user growth in the near term.

 

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Trends in Monetization Metrics

Revenue. We calculate revenue by user geography based on our estimate of the geography in which ad impressions are delivered. The geography of our users affects our revenue and financial results because we currently only monetize certain countries and currencies and because we monetize different geographies at different average rates. Our revenue in the United States is higher primarily due to our decision to focus our earliest monetization efforts there and also due to the relative size and maturity of the U.S. digital advertising market.

Quarterly Revenue

(in millions)

 

 

LOGO

 

 

LOGO

 

Note: Revenue by geography in the charts above is geographically apportioned based on our estimate of the geographic location of our users when they perform a revenue-generating activity. This allocation differs from our disclosure of revenue disaggregated by geography in the notes to our consolidated financial statements where revenue is geographically apportioned based on our customers’ billing addresses. United States and International may not sum to Global due to rounding; quarterly amounts may not sum to annual due to rounding.

Average Revenue per User (“ARPU”). We measure monetization of our platform through our average revenue per user metric. We define ARPU as our total revenue in a given geography during a

 

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period divided by the average of the number of MAUs in that geography during the period. We calculate ARPU by geography based on our estimate of the geography in which revenue-generating activities occur. We present ARPU on a U.S. and international basis because we currently monetize users in different geographies at different average rates. U.S. ARPU is higher primarily due to our decision to focus our earliest monetization efforts there and also due to the relative size and maturity of the U.S. digital advertising market.

Quarterly Average Revenue per User

 

 

LOGO

 

 

LOGO

For the year ended December 31, 2018, global ARPU was $3.14, which represents an increase of 25% compared to the year ended December 31, 2017. For the year ended December 31, 2018, U.S. ARPU was $9.04 and international ARPU was $0.25, which represent increases of 47% and 22%, respectively, compared to the year ended December 31, 2017.

Factors Affecting Our Performance

Growth in MAUs. User growth trends, which are reflected in the number of MAUs, are a key factor that affects our revenue and financial results. As our user base and the quality of engagement of our users grow, we believe the potential to increase our revenue grows.

 

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We are focused on increasing the ways Pinners use and get value from our platform and on expanding our user base, with an emphasis on international markets.

We may face challenges enhancing the quality of engagement and increasing the size of our user base, including competition from alternative products and services, saturation of existing markets, difficulties scaling in international markets, a lack of sufficiently relevant content available on Pinterest, actions by external parties (such as changes in search engine methodologies and policies and disruptions in single sign-on access) or changes in regulations (which require changes to our products in a manner that negatively impacts our user growth, retention and engagement). We expect revenue growth will be driven more by the quality of user engagement and higher monetization of users than by sheer growth of users. To the extent our user growth slows, our revenue growth will become increasingly dependent on our ability to increase the quality of user engagement.

Growth in Monetization. Monetization trends, which are reflected in ARPU, are a key factor that affects our revenue and financial results.

We are in the early stages of our monetization efforts. We are focused on increasingly serving more mid-market and unmanaged advertisers and expanding our sales efforts to reach advertisers in additional international markets, with an initial focus on Western Europe and other select markets to follow. We are working on building more self-serve tools to help our mid-market and unmanaged advertisers with ad creation, campaign scaling and measurement.

There are many variables that impact ARPU, including the number of ad impressions shown on our platform and the price per ad, which depends on a number of factors including the engagement of our audience and the quality of that engagement, the number and diversity of our advertisers, the amount of advertising spend, an advertiser’s objectives, ad performance, the effectiveness of our advertising products and our ability to measure that effectiveness for our advertisers, as well as the effect of geographic differences on each of these factors. Due to our decision to focus our earliest monetization efforts in the United States, we have less experience monetizing international markets and therefore may experience challenges scaling and monetizing these markets due to differences in Pinners’ taste and interests and advertisers’ expectations. The international advertising market is also smaller and less mature than the U.S. digital advertising market.

Investment in Technology. We make investments in technology that we believe will enhance Pinner and advertiser experiences. Key investment areas for our platform include machine learning, computer vision and our recommendation engine. We also invest heavily in our advertising products, including our self-serve platform and first- and third-party measurement tools. Our ability to grow our user base, attract new advertisers and increase our revenue will depend, in part, on our ability to continue innovating in visual search and discovery and our ability to successfully launch new products for Pinners and advertisers. We plan to continue making significant investments in research and development and may develop products for Pinners that cannot be immediately monetized.

Investment in Talent. Our business relies on our ability to attract and retain talent. As of December 31, 2018, we had 1,797 full-time employees, an increase of 32% compared to December 31, 2017.

Competition. We face significant competition in almost every aspect of our business. We primarily compete with consumer internet companies that are either tools (search, ecommerce) or media (newsfeeds, video, social networks). We also compete for advertising revenue across a variety of formats. Some of our competitors have greater financial resources and substantially larger user bases. These competitors’ economies of scale allow them to have access to larger volumes of data and platforms that are used on a more frequent basis than ours, which may enable them to better

 

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understand their user base and develop and deliver more targeted advertising. We must compete effectively for users and advertisers in order to grow our business and increase our revenue. We believe that our ability to compete for users depends on a number of factors, including the quality of our users’ experience on our service and on other platforms. We believe that our ability to compete effectively for advertisers depends on a number of factors, including our ability to offer attractive advertising products with robust targeting and measurement tools.

Seasonality. We experience seasonality in user growth, engagement and monetization on our platform. Historically, sequential user growth is slowest in the second calendar quarter. Industry advertising spend tends to be strongest in the fourth quarter, and we observe a similar pattern in our historical advertising revenue. The significant user and monetization growth have partially offset these trends in historical periods.

Share-Based Compensation. We began granting RSUs in March 2015. Our RSUs are subject to both a service condition, which is typically satisfied over four years, and a performance condition, which will be satisfied if an initial public offering or change of control (collectively, an “Initial Event”) occurs within seven years of the date of grant.

As of December 31, 2018, no share-based compensation expense had been recognized for RSUs because an Initial Event had not occurred. In the quarter in which this offering is completed, we will begin recording share-based compensation expense using the accelerated attribution method. If this offering had been completed on December 31, 2018, we would have recorded cumulative share-based compensation expense of $885.5 million, and we would expect to recognize the remaining $484.6 million of unrecognized share-based compensation expense over a weighted-average period of 3.4 years. If this offering had been completed on March 31, 2019, we would have recorded cumulative share-based compensation expense of $974.9 million, and we would expect to recognize the remaining $924.5 million of unrecognized share-based compensation expense over a weighted-average period of 3.7 years. Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs, as well as any other share-based awards we may grant in the future. Unrecognized share-based compensation expense relating to stock options was not material as of December 31, 2018 and March 31, 2019.

For more information about the factors impacting our performance, see “Risk Factors.”

Components of Results of Operations

Revenue. We generate revenue by delivering ads on our website and mobile application. Advertisers purchase ad products directly with us or through their relationships with advertising agencies. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a cost per click (“CPC”) basis or views an ad contracted on a cost per thousand impressions (“CPM”) basis.

Cost of Revenue. Cost of revenue consists primarily of expenses associated with the delivery of our service, including the cost of hosting our website and mobile application. Cost of revenue also includes personnel-related expense, including salaries, benefits and share-based compensation for employees on our operations teams, payments associated with partner arrangements, credit card and other transaction processing fees, and allocated facilities and other supporting overhead costs.

Research and Development. Research and development consists primarily of personnel-related expense, including salaries, benefits and share-based compensation for our engineers and other employees engaged in the research and development of our products, and allocated facilities and other supporting overhead costs.

 

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Sales and Marketing. Sales and marketing consists primarily of personnel-related expense, including salaries, commissions, benefits and share-based compensation for our employees engaged in sales, sales support, marketing, business development and customer service functions, advertising and promotional expenditures, professional services and allocated facilities and other supporting overhead costs. Our marketing efforts also include user and advertiser focused marketing expenditures.

General and Administrative. General and administrative consists primarily of personnel-related expense, including salaries, benefits and share-based compensation for our employees engaged in finance, legal, human resources and other administrative functions, professional services, including outside legal and accounting services, and allocated facilities and other supporting overhead costs.

Other Income (Expense), Net. Other income (expense), net consists primarily of interest earned on our cash equivalents and marketable securities.

Provision for Income Taxes. Provision for income taxes consists primarily of income taxes in foreign jurisdictions and U.S. federal and state income taxes.

Adjusted EBITDA. We define Adjusted EBITDA as net loss adjusted to exclude depreciation and amortization expense, share-based compensation expense, interest and other income (expense), net and provision for income taxes. We use Adjusted EBITDA to evaluate our operating results and for financial and operational decision-making purposes. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the income and expenses that it excludes. See “Summary—Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measure” for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.

Results of Operations

The following tables set forth our consolidated statements of operations data (in thousands):

 

     Year Ended
December 31,
 
     2017     2018  

Revenue

   $ 472,852     $ 755,932  

Costs and expenses (1):

    

Cost of revenue

     178,664       241,584  

Research and development

     207,973       251,662  

Sales and marketing

     162,514       259,929  

General and administrative

     61,635       77,478  
  

 

 

   

 

 

 

Total costs and expenses

     610,786       830,653  
  

 

 

   

 

 

 

Loss from operations

     (137,934     (74,721

Other income (expense), net:

    

Interest income

     8,313       13,152  

Interest expense and other income (expense), net

     (112     (995
  

 

 

   

 

 

 

Loss before provision for income taxes

     (129,733     (62,564

Provision for income taxes

     311       410  
  

 

 

   

 

 

 

Net loss

   $ (130,044   $ (62,974
  

 

 

   

 

 

 

Adjusted EBITDA (2)

   $ (92,995   $ (39,003
  

 

 

   

 

 

 

 

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(1)

Includes share-based compensation expense as follows (in thousands):

 

     Year Ended December 31,  
           2017                  2018        

Cost of revenue

   $ 372      $ 83  

Research and development

     19,811        13,155  

Sales and marketing

     6,267        784  

General and administrative

     2,354        837  
  

 

 

    

 

 

 

Total share-based compensation

   $     28,804      $     14,859  
  

 

 

    

 

 

 

 

    

Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs as well as any other share-based awards we may grant in the future. See “—Factors Affecting Our Performance—Share-Based Compensation.”

 

(2)

See “Summary—Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measure” for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.

The following table sets forth our consolidated statements of operations data (as a percentage of revenue):

 

     Year Ended December 31,  
     2017      2018  

Revenue

             100%                100%  

Costs and expenses:

     

Cost of revenue

     38        32  

Research and development

     44        33  

Sales and marketing

     34        34  

General and administrative

     13        10  
  

 

 

    

 

 

 

Total costs and expenses

     129        110  
  

 

 

    

 

 

 

Loss from operations

     (29)        (10)  

Other income (expense), net:

     

Interest income

     2        2  

Interest expense and other income (expense), net

             
  

 

 

    

 

 

 

Loss before provision for income taxes

     (27)        (8)  

Provision for income taxes

             
  

 

 

    

 

 

 

Net loss

     (28)%        (8)%  
  

 

 

    

 

 

 

Years Ended December 31, 2017 and 2018

Revenue

 

     Year Ended
December 31,
        
     2017      2018      % change  
     (in thousands)         

Revenue

   $ 472,852      $ 755,932        60

Revenue for the year ended December 31, 2018 increased by $283.1 million compared to the year ended December 31, 2017. Revenue based on the geographic location of our users increased by 59% in the United States to $715.1 million and by 72% internationally to $40.8 million. U.S. revenues

 

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were driven by an 8% increase in average U.S. MAUs and a 47% increase in U.S. ARPU. International revenues were driven by a 41% increase in average international MAUs and a 22% increase in international ARPU. ARPU growth in the United States and internationally was driven by higher monetization of both of those user bases largely due to an increase in the number of advertisements delivered as a result of an increase in the overall number of advertisers on our platform and increased demand from existing advertisers. The impact from an increase in the price of advertisements was not significant for the year ended December 31, 2018.

Cost of Revenue

 

     Year Ended
December 31,
        
     2017      2018      % change  
     (in thousands)         

Cost of revenue

   $ 178,664      $ 241,584                35%  

Percentage of revenue

     38%        32%     

Cost of revenue for the year ended December 31, 2018 increased by $62.9 million compared to the year ended December 31, 2017. The increase was primarily due to higher absolute hosting costs due to user growth, which were partially offset by lower relative hosting costs due to the May 2017 amendment of our enterprise agreement with AWS.

Research and Development

 

     Year Ended
December 31,
        
     2017      2018      % change  
     (in thousands)         

Research and development

   $ 207,973      $ 251,662        21

Percentage of revenue

     44%        33%     

Research and development for the year ended December 31, 2018 increased by $43.7 million compared to the year ended December 31, 2017. The increase was primarily due to a 20% increase in average headcount, which drove higher personnel and facilities-related expenses.

Sales and Marketing

 

     Year Ended
December 31,
        
     2017      2018      % change  
     (in thousands)         

Sales and marketing

   $ 162,514      $ 259,929        60

Percentage of revenue

     34%        34%     

Sales and marketing for the year ended December 31, 2018 increased by $97.4 million compared to the year ended December 31, 2017. The increase was primarily due to a 46% increase in average headcount, which drove higher personnel and facilities-related expenses, as well as higher consulting and marketing expenses.

 

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General and Administrative

 

     Year Ended
December 31,
        
     2017      2018      % change  
     (in thousands)         

General and administrative

   $   61,635      $   77,478        26

Percentage of revenue

     13%        10%     

General and administrative for the year ended December 31, 2018 increased by $15.8 million compared to the year ended December 31, 2017. The increase was primarily due to a 30% increase in average headcount, which drove higher personnel and facilities-related expenses.

Other Income (Expense), Net

 

     Year Ended December 31,        
         2017             2018         % change  
     (in thousands)        

Interest income

   $ 8,313     $ 13,152       58

Interest expense and other income (expense), net

     (112     (995     788
  

 

 

   

 

 

   

Other income (expense), net

   $ 8,201     $ 12,157       48
  

 

 

   

 

 

   

Other income (expense), net for the year ended December 31, 2018 increased by $4.0 million compared to the year ended December 31, 2017. The increase was primarily due to higher returns on our marketable securities as a result of higher interest rates.

Provision for Income Taxes

 

     Year Ended December 31,         
         2017              2018          % change  
     (in thousands)         

Provision for income taxes

   $          311      $          410            32

Provision for income taxes was primarily due to profits generated by our foreign subsidiaries for both of the periods presented.

Net Loss and Adjusted EBITDA

 

     Year Ended December 31,        
     2017     2018     % change  
     (in thousands)        

Net loss

   $ (130,044   $ (62,974     (52 )% 

Adjusted EBITDA

   $ (92,995   $ (39,003     (58 )% 

Net loss for the year ended December 31, 2018 was $63.0 million, as compared to $130.0 million for the year ended December 31, 2017. Adjusted EBITDA was $(39.0) million for the year ended December 31, 2018, as compared to $(93.0) million for the year ended December 31, 2017, due to the factors described above. See “Summary—Summary Consolidated Financial Information and Other Data—Non-GAAP Financial Measure” for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.

 

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Unaudited Quarterly Results of Operations Data

The following table sets forth our unaudited quarterly consolidated results of operations for each of the eight quarterly periods in the period ended December 31, 2018. Our unaudited quarterly results of operations have been prepared on the same basis as our audited consolidated financial statements, and we believe they reflect all normal recurring adjustments necessary for the fair statement of our results of operations for these periods. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical operating data may not be indicative of our future performance.

 

    Three Months Ended    

 

 
    Mar. 31,
2017 (1)
    Jun. 30,
2017
    Sep. 30,
2017
    Dec. 31,
2017
    Mar. 31,
2018
    Jun. 30,
2018
    Sep. 30,
2018
    Dec. 31,
2018
 
    (in thousands)        

Revenue

  $ 82,425     $ 101,128     $ 115,953     $ 173,346     $ 131,359     $ 161,192     $ 190,197     $ 273,184  

Costs and expenses (2):

               

Cost of revenue

    51,542       35,991       42,457       48,674       51,653       57,974       63,649       68,308  

Research and development

    48,069       51,495       53,930       54,479       60,047       61,604       63,541       66,470  

Sales and marketing

    31,554       37,388       41,970       51,602       55,774       65,148       66,722       72,285  

General and administrative

    14,260       14,642       15,653       17,080       18,867       17,834       18,716       22,061  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    145,425       139,516       154,010       171,835       186,341       202,560       212,628       229,124  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (63,000     (38,388     (38,057     1,511       (54,982     (41,368     (22,431     44,060  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net:

               

Interest income

    1,685       1,824       2,338       2,466       2,638       3,187       3,547       3,780  

Interest expense and other income (expense), net

    168       39       94       (413     (242     (214     82       (621
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

    (61,147     (36,525     (35,625     3,564       (52,586     (38,395     (18,802     47,219  

Provision for income taxes

    53       78       20       160       123       12       72       203  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (61,200   $ (36,603   $ (35,645   $ 3,404     $ (52,709   $ (38,407   $ (18,874   $ 47,016  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (3)

  $ (51,266   $ (26,956   $ (26,864   $ 12,091     $ (45,361   $ (31,898   $ (13,426   $ 51,682  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Cost of revenue for the three months ended March 31, 2017 was higher due to higher hosting costs we incurred prior to the May 2017 amendment of our enterprise agreement with AWS. See Note 6 to our consolidated financial statements included elsewhere in this prospectus for additional information about our agreement with AWS.

 

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(2)

We began granting RSUs in March 2015. Our RSUs are subject to both a service condition, which is typically satisfied over four years, and a performance condition, which will be satisfied if an Initial Event occurs within seven years of the date of grant. We have not recorded any share-based compensation expense for RSUs in any quarterly period presented above because an Initial Event has not occurred. In the quarter in which this offering is completed, we will begin recording stock-based compensation expense using the accelerated attribution method. See Note 1 to our consolidated financial statements included elsewhere in this prospectus. Our unaudited quarterly results of operations data, therefore, includes share-based compensation expense related primarily to stock options granted before March 2015, as follows (in thousands):

 

     Three Months Ended  
     Mar. 31,
2017
     Jun. 30,
2017
     Sep. 30,
2017
     Dec. 31,
2017
     Mar. 31,
2018
     Jun. 30,
2018
    Sep. 30,
2018
     Dec. 31,
2018
 

Cost of revenue

   $ 125      $ 113      $ 95      $ 39      $ 32      $ 20     $ 16      $ 15  

Research and development

     5,161        5,053        4,888        4,709        4,054        3,608       3,380        2,113  

Sales and marketing

     1,706        1,662        1,586        1,313        241        352       188        3  

General and administrative

     583        466        704        601        507        (21     304        47  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total share-based compensation

   $ 7,575      $ 7,294      $ 7,273      $ 6,662      $ 4,834      $ 3,959     $ 3,888      $ 2,178  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Following this offering, our future operating expenses, particularly in the quarter in which this offering is completed, will include substantial share-based compensation expense with respect to our RSUs as well as any other share-based awards we may grant in the future. See “—Factors Affecting Our Performance—Share-Based Compensation.”

 

(3)

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA (in thousands):

 

     Three Months Ended  
     Mar. 31,
2017
    Jun. 30,
2017
    Sep. 30,
2017
    Dec. 31,
2017
    Mar. 31,
2018
    Jun. 30,
2018
    Sep. 30,
2018
    Dec. 31,
2018
 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

                

Net Income (Loss)

   $ (61,200   $ (36,603   $ (35,645   $ 3,404     $ (52,709   $ (38,407   $ (18,874   $ 47,016  

Depreciation and amortization

     4,159       4,138       3,920       3,918       4,787       5,511       5,117       5,444  

Share-based compensation

     7,575       7,294       7,273       6,662       4,834       3,959       3,888       2,178  

Interest income

     (1,685     (1,824     (2,338     (2,466     (2,638     (3,187     (3,547     (3,780

Interest expense and other (income) expense, net

     (168     (39     (94     413       242       214       (82     621  

Provision for income taxes

     53       78       20       160       123       12       72       203  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (51,266   $ (26,956   $ (26,864   $ 12,091     $ (45,361   $ (31,898   $ (13,426   $ 51,682  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table sets forth the components of our unaudited quarterly consolidated statements of operations for each of the periods presented as a percentage of revenue:

 

    Three Months Ended  
    Mar. 31,
2017
    Jun. 30,
2017
    Sep. 30,
2017
    Dec. 31,
2017
    Mar. 31,
2018
    Jun. 30,
2018
    Sep. 30,
2018
    Dec. 31,
2018
 

Revenue

    100     100     100     100     100     100     100     100

Costs and expenses:

               

Cost of revenue

    63       36       37       28       39       36       33       25  

Research and development

    58       51       47       31       46       38       33       24  

Sales and marketing

    38       37       36       30       42       40       35       26  

General and administrative

    17       14       13       10       14       11       10       8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    176       138       133       99       142       126       112       84  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

    (76     (38     (33     1       (42     (26     (12     16  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net:

               

Interest income

    2       2       2       1       2       2       2       1  

Interest expense and other income (expense), net

                                               

Income (loss) before provision for income taxes

    (74     (36     (31     2       (40     (24     (10     17  

Provision for income taxes

                                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (74 )%      (36 )%      (31 )%      2     (40 )%      (24 )%      (10 )%      17
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

We have historically financed our operations primarily through private sales of our stock and payments received from our customers. Our primary uses of cash are personnel-related costs and the cost of hosting our website and mobile application.

As of December 31, 2018, we had $627.8 million in cash, cash equivalents and marketable securities. Our cash equivalents and marketable securities are primarily invested in short-duration fixed income securities, including government and investment-grade corporate debt securities and money market funds. As of December 31, 2018, $20.3 million of our cash and cash equivalents was held by our foreign subsidiaries.

In November 2018, we entered into a five-year $500.0 million revolving credit facility with an accordion option which, if exercised, would allow us to increase the aggregate commitments by the greater of $100.0 million and 10% of our consolidated total assets, provided we are able to secure additional lender commitments and satisfy certain other conditions. Interest on any borrowings under the revolving credit facility accrues at either LIBOR plus 1.50% or at an alternative base rate plus 0.50%, at our election, and we are required to pay an annual commitment fee that accrues at 0.15% per annum on the unused portion of the aggregate commitments under the revolving credit facility.

The revolving credit facility also allows us to issue letters of credit, which reduce the amount we can borrow. We are required to pay a fee that accrues at 1.50% per annum on the average aggregate daily maximum amount available to be drawn under any outstanding letters of credit.

The revolving credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our ability to incur indebtedness, grant liens, make distributions to holders of our stock or the stock of our subsidiaries, make investments or engage in transactions with our affiliates. The revolving credit facility also contains two financial maintenance

 

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covenants: a consolidated total assets covenant and a minimum liquidity balance of $350.0 million, which includes any available borrowing capacity. The obligations under the revolving credit facility are secured by liens on substantially all of our domestic assets, including certain domestic intellectual property assets. We have not drawn down on this facility.

We believe our existing cash, cash equivalents and marketable securities and amounts available under our revolving credit facility will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months, though we may require additional capital resources in the future.

Prior to the completion of this offering, we expect to borrow approximately $326.1 million under our revolving credit facility to fund the satisfaction of the tax withholding and remittance obligations related to the RSU Settlement, and we intend to use a portion of the net proceeds from this offering to repay the borrowings under our revolving credit facility. See “Use of Proceeds.”

For the years ended December 31, 2017 and 2018, our net cash flows were as follows (in thousands):

 

     Year Ended December 31,  
           2017                 2018        

Net cash provided by (used in):

    

Operating activities

   $ (102,913   $ (60,369

Investing activities

   $ (57,250   $ 114,063  

Financing activities

   $ 150,264     $ (2,216

Operating Activities

Cash flows from operating activities consist of our net loss adjusted for certain non-cash items, such as share-based compensation, depreciation and amortization, and changes in our operating assets and liabilities. Net cash used in operating activities decreased by $42.5 million for the year ended December 31, 2018 compared to the year ended December 31, 2017. The decrease was primarily due to the May 2017 amendment of our enterprise agreement with AWS. Prior to the amendment, we primarily purchased hosting services pursuant to one-year prepayment arrangements. Under the amended agreement, the term of our existing prepayments was extended, and we no longer prepay for hosting services. See Note 6 to our consolidated financial statements included elsewhere in this prospectus for additional information about our agreement with AWS.

Investing Activities

Cash flows from investing activities consist of capital expenditures for improvements to new and existing office spaces. We also actively manage our operating cash and cash equivalent balances and invest excess working capital in short-duration marketable securities, the maturities of which we use to fund our ongoing working capital requirements. Net cash provided by (used in) investing activities increased by $171.3 million for the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to our investment of excess working capital raised through our sale of $150.0 million of Series H redeemable convertible preferred stock in June 2017.

Financing Activities

Cash flows from financing activities consist of proceeds from sales of our stock. Net cash provided by (used in) financing activities decreased by $152.5 million for the year ended December 31, 2018 compared to the year ended December 31, 2017, due to our sale of $150.0 million of Series H redeemable convertible preferred stock in June 2017.

 

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Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2018.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of December 31, 2018 (in thousands):

 

     Total      2019      2020-2021      2022-2023      Thereafter  

Operating leases

   $ 290,059      $ 39,707      $ 87,153      $ 41,448      $ 121,751  

Purchase commitments

     441,059                      441,059         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 731,118      $ 39,707      $ 87,153      $ 482,507      $ 121,751  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

In May 2017, we amended the enterprise agreement governing our use of services from AWS with an addendum. Under the agreement, as amended by the addendum, we agreed that a substantial majority of our monthly usage of certain compute, storage, data transfer and other services must be provided under the addendum, and we are required to purchase at least $750.0 million of cloud services, which we primarily use for compute, storage and data transfer services, from AWS through July 2023. If we fail to meet the contractual commitment, we are required to pay the difference, except in limited circumstances, such as termination due to acquisition of us by another cloud services provider (which would result in an obligation to pay liquidated damages under the addendum), but we are not otherwise subject to annual purchase commitments during the remainder of the six-year term of the addendum. The addendum restricts our ability to terminate the agreement until the minimum spend commitment is satisfied, other than termination only under certain additional conditions (such as the other party’s material breach or acquisition of us by another cloud services provider). As of December 31, 2018, the remaining contractual commitment was $441.1 million, which we expect to meet during the term of the addendum primarily through our use of AWS cloud services.

In March 2019, we entered into a lease for approximately 490,000 square feet of office space to be constructed near our current headquarters campus in San Francisco, California. The estimated commencement and expiration dates are in 2022 and 2033, respectively. We may terminate the lease prior to commencement if certain contingencies are not satisfied. We will be subject to total non-cancelable minimum lease payments of approximately $420.0 million, which are excluded from the table above, if these contingencies are met.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP. Preparing our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as related disclosures. Because these estimates and judgments may change from period to period, actual results could differ materially, which may negatively affect our financial condition or results of operations. We base our estimates and judgments on historical experience and various other assumptions that we consider reasonable, and we evaluate these estimates and judgments on an ongoing basis. We refer to such estimates and judgments, discussed further below, as critical accounting policies and estimates.

Refer to Note 1 to our consolidated financial statements included elsewhere in this prospectus for further information on our other significant accounting policies.

 

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Revenue Recognition

We generate revenue by delivering ads on our website and mobile application. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a CPC basis or views an ad contracted on a CPM basis. We typically bill customers on a CPC or CPM basis, and our payment terms vary by customer type and location. The term between billing and payment due dates is not significant.

We occasionally offer customers free ad inventory or measurement studies that demonstrate the effectiveness of their advertising campaigns on our platform. In either case, we recognize revenue only after satisfying our contractual performance obligation. When contracts with our customers contain multiple performance obligations, we allocate the overall transaction price, which is the amount of consideration to which we expect to be entitled in exchange for promised goods or services, to each of the distinct performance obligations based on their relative standalone selling prices. We generally determine standalone selling prices based on the effective price charged per contracted click or impression or based on expected cost plus margin, and we do not disclose the value of unsatisfied performance obligations because the original expected duration of our contracts is generally less than one year.

Share-Based Compensation

We grant stock options and RSUs. We measure stock options based on their estimated grant date fair values, which we determine using the Black-Scholes option-pricing model, and we record the resulting expense in the consolidated statements of operations over the requisite service period, which is generally four years.

We measure RSUs based on the fair market value of our common stock on the grant date. Our RSUs are subject to both a service condition, which is typically satisfied over four years, and a performance condition, which will be satisfied if an Initial Event occurs within seven years of the grant date. We have not recorded any share-based compensation expense for RSUs as of December 31, 2018, because an Initial Event has not occurred. If an Initial Event occurs in the future, we will record cumulative share-based compensation expense using the accelerated attribution method for those RSUs for which the service condition has been satisfied prior to the Initial Event, and we will record the remaining unrecognized share-based compensation expense over the remainder of the requisite service period.

We account for forfeitures as they occur.

Valuation of Common Stock and Redeemable Convertible Preferred Stock Warrants

We determine the fair value of our common stock and redeemable convertible preferred stock warrants using the most observable inputs available to us, including recent sales of our stock as well as income and market valuation approaches. The income approach estimates the value of our business based on the future cash flows we expect to generate discounted to their present value using an appropriate discount rate to reflect the risk of achieving the expected cash flows. The market approach estimates the value of our business by applying valuation multiples derived from the observed valuation multiples of comparable public companies to our expected financial results.

We use the Probability Weighted Expected Return Method (“PWERM”) to allocate the value of our business among our outstanding stock and share-based awards. We apply the PWERM by first defining the range of potential future liquidity outcomes for our business, such as an initial public offering, and then allocating its value to our outstanding stock and share-based awards based on the

 

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relative probability that each outcome will occur. We use the Option Pricing Method to allocate the value of our business to our outstanding stock and share-based awards under the non-initial public offering outcome we consider within the PWERM.

Applying these valuation and allocation approaches involves the use of estimates, judgments and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and cash flows, as well as discount rates, valuation multiples, the selection of comparable public companies and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between these assumptions, impact our valuation as of each valuation date and may have a material impact on the valuation of our common stock and redeemable convertible preferred stock warrants.

We will no longer apply these valuation and allocation approaches following the completion of this offering because our Class A common stock will be traded in the public market.

Income Taxes

We account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting and tax bases of assets and liabilities using the enacted statutory tax rates in effect for the years in which we expect the differences to reverse. We establish valuation allowances to reduce deferred tax assets to the amounts we believe it is more likely than not we will be able to realize. We recognize tax benefits from uncertain tax positions when we believe it is more likely than not that the tax position is sustainable on examination by tax authorities based on its technical merits.

Operating Lease Incremental Borrowing Rate

We lease office space under operating leases with expiration dates through 2033. We determine whether an arrangement constitutes a lease and record lease liabilities and right-of-use assets on our consolidated balance sheets at lease commencement. We measure lease liabilities based on the present value of the total lease payments not yet paid discounted based on the more readily determinable of the rate implicit in the lease or our incremental borrowing rate, which is the estimated rate we would be required to pay for a collateralized borrowing equal to the total lease payments over the term of the lease. We estimate our incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to our own. We measure right-of-use assets based on the corresponding lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs we incur and (iii) tenant incentives under the lease. We begin recognizing rent expense when the lessor makes the underlying asset available to us, we do not assume renewals or early terminations unless we are reasonably certain to exercise these options at commencement, and we do not allocate consideration between lease and non-lease components.

Recent Accounting Pronouncements

Refer to Note 1 to our consolidated financial statements included elsewhere in this prospectus for accounting pronouncements adopted in 2018 and recent accounting pronouncements not yet adopted as of the date of this prospectus.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, including changes in foreign currency exchange and interest rates, in the ordinary course of our business.

 

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Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar, and the functional currency of our subsidiaries is either their local currency or the U.S. dollar, depending on the circumstances. While the majority of our revenue and operating expenses are denominated in U.S. dollars, we have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. We have experienced and will continue to experience fluctuations in our net loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances denominated in currencies other than the functional currency of the subsidiaries in which they are recorded. To date, these fluctuations have not been material. We have not engaged in hedging activities relating to our foreign currency exchange risk, although we may do so in the future. We do not believe a 10% increase or decrease in the relative value of the U.S. dollar would have materially affected our consolidated financial statements as of and for the year ended December 31, 2018.

Interest Rate Risk

As of December 31, 2018, we held cash, cash equivalents and marketable securities of $627.8 million. Our cash equivalents and marketable securities primarily consist of short-duration fixed income securities, including government and investment-grade corporate debt securities and money market funds, and our investment policy is meant to preserve capital and maintain liquidity. Changes in interest rates affect the interest income we earn on our cash, cash equivalents and marketable securities and the fair value of our cash equivalents and marketable securities. A hypothetical 100 basis point increase in interest rates would not have materially affected our consolidated financial statements as of and for the year ended December 31, 2018.

 

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A letter from Ben and Evan We are excited to share our story. We hope this document gives you insight into why we feel Pinterest is special. But as the saying goes, sometimes ...what is essential is invisible to the eye.1 So here are five principles about Pinterest we want to make sure you know. 1. Pinterest is designed to inspire. Pinners tell us they love how they feel on Pinterest: optimistic, confident and inspired. We work hard to keep the enemies of inspirationcomparison, cynicism, judgmentoff of Pinterest. 2. Pinterest is about your future. People come to Pinterest to find ideas they can use to envision and act on their future, not relive the past. 3. Pinterest is personal. Not social. Pinterest isnt about your friends or celebrities, it is about you. There are many tools to connect people, but there are few that help you connect with yourself. 4. Pinterest is made for real world action. Most ideas on Pinterest can be made, bought, tried or visited. Our end goal isnt for you to browse images and videos all day. We want you to eventually make the ideas you see a part of your life. 5. Pinterest puts Pinners first. Putting our users first means providing them with a useful and easy-to-use set of services that also respects their time, privacy and emotional well-being. We believe that meeting this high standard is both our ethical responsibility and the best way to build a healthy, long-term business. Thank you for considering our company. We feel grateful for your interest. Ben Silbermann and Evan Sharp A letter from Ben and Evan 1. Antoine de Saint-Exupéry, The Little Prince


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BUSINESS

Overview

Pinterest is where more than 250 million people around the world go to get inspiration for their lives. They come to discover ideas for just about anything you can imagine: daily activities like cooking dinner or deciding what to wear, major commitments like remodeling a house or training for a marathon, ongoing passions like fly fishing or fashion and milestone events like planning a wedding or a dream vacation.

We call these people Pinners. We show them visual recommendations, which we call Pins, based on their personal taste and interests. They then save and organize these recommendations into collections, called boards. Browsing and saving visual ideas on our service helps Pinners imagine what their future could look like, which helps them go from inspiration to reality.

Pablo in Buenos Aires uses Pinterest to find new styles and looks, including his next pair of leather boots. Krissy in Atlanta cooked so many of the recipes she found on Pinterest that she gained the confidence to start teaching her own cooking classes. Mark in London says Pinterest is his “creative outlet” when renovating properties ranging from townhouses to cottages.

Pinterest is the productivity tool for planning your dreams. Dreaming and productivity may seem like polar opposites, but on Pinterest, inspiration enables action and dreams become reality. Visualizing the future helps bring it to life. In this way, Pinterest is unique. Most consumer internet companies are either tools (search, ecommerce) or media (newsfeeds, video, social networks). Pinterest is not a pure media channel, nor is it a pure utility. It’s a media-rich utility that satisfies both emotional and functional needs by solving a widespread consumer problem that is unaddressed by many other platforms. We call it discovery.

From Search to Visual Discovery

Search helps people find a discrete piece of information quickly, but it isn’t an adequate tool if you don’t know exactly what you’re looking for, you can’t describe it in words or you’re seeking something that is tailored to your taste. These common dilemmas are best solved by a visual discovery journey, rather than by a text-based search.

Discovery on Pinterest is a rich experience that combines some of the utility features of search with some of the enjoyable features of media. Fundamentally, Pinners are trying to get something done—plan an event, buy a product, take a trip—so we surface personally relevant and visually rich possibilities for consideration and eventual action. This is useful. But the discovery journey is not linear—along the way, Pinners scroll through their home feeds, browse visual recommendations and see a wide range of inspiring content, much as they would if perusing a catalog or watching a cooking or home renovation show. Thus, discovery is both useful and fun, an exercise in productive play.

Pinners often embark on a discovery journey when they want to purchase something but have not yet decided which product or service best suits their needs and taste. More Pinners say that Pinterest helps them find new shopping ideas and inspiration than users on other consumer internet platforms, according to a survey by Comscore that we commissioned. And 68% of Pinners say they have discovered a new brand or product on Pinterest, according to a survey of weekly active users by Talk Shoppe. People actively seek relevant commercial content on our service, and advertisers are increasingly providing it. This fundamental alignment between Pinner and advertiser objectives differentiates Pinterest from other services, and we believe the continued growth of our advertising business will improve the core Pinner experience over time.

 

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We’re proud to have empowered so many people from around the world to take the journey from inspiration to action and back again, and we’re just getting started. Our mission is to bring everyone the inspiration to create a life they love.

Value Proposition for Pinners

 

   

Visual Experience. People often don’t have the words to describe what they want, but they know it when they see it. This is why we made Pinterest a visual experience. Images and video can communicate concepts that are impossible to describe with words. We believe that Pinterest is the best place on the web for people to get visual inspiration at scale. Visual searches are becoming more and more common on Pinterest, with hundreds of millions of visual searches per month. We have invested heavily in computer vision to help people discover possibilities that traditional text-based search queries cannot offer. Our computer vision models “see” the content of each Pin and optimize billions of recommendations daily.

 

   

Human Curation and Personalization. Pinterest is a curated environment. The vast majority of Pins have been handpicked, saved and organized over the years by hundreds of millions of Pinners creating billions of boards; they are not the result of web crawling or indexing. We call this body of data the Pinterest taste graph.

Here’s a closer look at how human curation leads to discovery and personalization on Pinterest. An image of Machu Picchu may initially be saved by a single Pinner to a board she names “Bucket List.”

 

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But once that Pin is in our data set and is discoverable by other Pinners, it will be saved to hundreds or even thousands of other boards with hundreds or thousands of different names.

 

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Machine learning and computer vision help us find patterns in the data. We then understand each individual Pin’s relationship not just to the Pinner who saved it, but also to the ideas and aesthetics reflected by the names and content of the boards where it’s been pinned: adventure, hiking at altitude, Seven Wonders, abandoned places, South America. When people organize ideas into collections on Pinterest, they are sharing how they contextualize that idea. One person’s way of organizing ideas is not the same as another’s. Computers have a hard time understanding these subtle differences in contextualization. But on Pinterest, we believe we can better predict what content will be helpful and relevant because Pinners tell us how they organize ideas. The Pinterest taste graph is the first-party data asset we use to power our visual recommendations.

When we scale human curation across hundreds of millions of Pinners saving over 175 billion Pins, we believe our taste graph and recommendations get exponentially better. The more people use Pinterest, the richer the taste graph gets, and the more an individual uses Pinterest, the more personalized their home feed becomes. Eighty-two percent of Pinners say Pinterest feels personalized to them, according to a survey of weekly active users by Talk Shoppe.

 

   

Designed for Action. People use Pinterest to visualize what their future could look like and make their dreams a reality. Eighty-five percent of Pinners say that they go to Pinterest to start a new project, according to a Talk Shoppe survey. Our goal is for each Pin to link back to a useful source—everything from a product to buy, ingredients for a recipe or instructions to build a project. We have built features that encourage Pinners to take action on ideas they see on Pinterest, with a special focus on making it easy for people to purchase products they

 

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discover on our service. Product Pins include up-to-date pricing and stock information, as well as links that go directly to the checkout page on the retailer’s site where a Pinner can buy in a few clicks. Pinners can also use our “Shop the Look” feature, which leverages computer vision technology to identify specific products for sale within fashion and home decor Pins.

 

   

Empowering Environment. Pinners describe Pinterest as an inspiring place where they can focus on themselves, their interests and their future. Ninety-one percent of our users say that Pinterest is filled with positivity, according to a Talk Shoppe survey. This is an important part of our value proposition because people are less likely to dream about their future when they feel self-conscious, preoccupied with the problems of the day or gripped by a “fear of missing out.” On Pinterest, people can explore new things, free of much of the judgment that occurs elsewhere online. While online media channels let people read news, broadcast opinions and scroll through feeds focused on the lives of others, Pinterest enables a personal journey toward action that is focused on the self and the future, away from the noise. We have designed Pinterest to be an empowering place that nurtures self-confidence and creativity. Eighty-nine percent of Pinners say that they leave our service feeling empowered, according to a Talk Shoppe survey.

Value Proposition for Advertisers

 

   

Empowering Environment. Advertisers are in the business of inspiration. On Pinterest, businesses have the opportunity to showcase their products and services in an inspiring, creative environment. This is rare on the internet, where consumers’ digital experiences can be stressful or negative, and brands can get caught in the crossfire. In 2018, Prophet, a global brand and marketing consultancy, ranked Pinterest as the third most relevant brand in the United States and first in its inspiration category. For its Brand Relevance Index, Prophet surveyed consumers to measure brands on four key principles: customer obsession, ruthless pragmatism, pervasive innovation and distinctive inspiration. It wrote that “in an era of increased lack of trust in social media, Pinterest stands above the pack, ranking first among [the] ‘makes me feel inspired’ and ‘engages with me in new and creative ways’ measures.” We believe that the inspirational and constructive feelings that many people experience on Pinterest make our site an especially effective environment for brands to build an emotional connection with consumers.

 

   

Valuable Audience. Pinterest reaches more than 250 million monthly active users, two thirds of whom are female. In the United States, our total audience includes 43% of internet users, according to an independent study by Comscore based on total unique visitors to our service. This includes eight out of 10 moms, who are often the primary decision-makers when it comes to buying products and services for their household, as well as more than half of all U.S. millennials. We expect to continue to grow our user base over time, especially in international markets.

The value of Pinterest’s audience to advertisers is driven not merely by the number of Pinners on our platform or their demographics, but also by the reason they come to Pinterest in the first place. Getting inspiration for your home, your style or your travel often means that you are actively looking for products and services to buy. Billions of searches happen on Pinterest every month. In the United States, more people use Pinterest to find or shop for products than on social networks, according to a survey by Cowen and Company. Sales at retail stores that primarily focus on our core verticals of food, home, beauty and fashion and internet retail sales of products in those verticals represented nearly two-thirds of retail sales of consumer goods in 2018 in the United States, according to Euromonitor. An analysis by Oracle of retail transactions from 2016 to 2017 showed that on average Pinterest households were 39% more likely to buy retail products, and they spent 29% more than the average household.

 

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Commercial content from brands, retailers and advertisers is central to Pinterest; the majority of Pins saved on our service are from businesses. Ads do not compete with the content Pinners want to see—they are native content. The mutually beneficial alignment between advertisers and Pinners differentiates us from other platforms where ads can be distracting or annoying. We are still in the early stages of building an advertising product suite that fully taps the value of this alignment between Pinners and advertisers, but we believe it will be a competitive advantage over the long term.

 

   

The Discovery Journey. Pinners travel from inspiration to action and back again on our service. Advertisers have the opportunity to put relevant content in front of them at every stage of this journey—when they are browsing through many possibilities, when they are comparing a handful of options and when they are ready to make a purchase. As a result, advertisers can achieve a range of objectives on Pinterest.

 

 

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Our Market Opportunity

On Pinterest, businesses of all sizes and from many industries can achieve a diverse set of goals, from building brand awareness, to increasing online traffic, to driving sales. Our platform isn’t limited to just advertisers with “top-of-funnel” goals or to those just seeking conversions. The natural progression of Pinners’ discovery journey—from inspiration, to planning, to action—takes them down the full purchasing funnel, and advertisers can provide value to them every step of the way.

The global advertising market is projected to grow to $826 billion in 2022 from $693 billion in 2018, representing a 5% CAGR, according to IDC. The digital advertising market alone is projected to grow to $423 billion in 2022 from $272 billion in 2018, representing a 12% CAGR, according to IDC. In 2018, the CPG and retail industries accounted for $64 billion of this digital advertising spend, and the travel, technology (includes computing, consumer electronics and telecom), automotive, media &

 

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entertainment and financial services industries accounted for an additional $144 billion. The United States continues to represent the largest digital advertising market in the world. The U.S. digital advertising market is projected to grow to $166 billion in 2022 from $104 billion in 2018, representing a 12% CAGR, according to IDC.

Our addressable market opportunity includes brand advertising and performance-based advertising across various formats.

 

   

Online Brand Advertising. People often come to Pinterest with commercial intent. Usually, they are still undecided about what products and services are right for them; 97% of the 1,000 most popular searches on Pinterest are unbranded. The early commercial intent of Pinners differentiates us from other platforms and is attractive to advertisers looking to raise awareness at the top of the purchasing funnel.

 

   

Offline Brand Advertising. We have an opportunity to capture brand advertising dollars currently being spent in offline channels. People seeking inspiration use Pinterest in ways that mirror how they use magazines and catalogs. Traditional offline advertising options—specifically print, direct mail, television and radio—accounted for $378 billion in global advertising spend in 2018, according to IDC. Long-term trends show that these advertising budgets are shifting to online channels. We believe Pinterest is well-positioned to capture this spend.

 

   

Online Performance Advertising. Pinners don’t just dream about their futures; they explore real options and often want to bring their dreams to life. They browse ideas, visit merchant websites and eventually buy products and services. These middle- and lower-funnel behaviors are highly valued by advertisers seeking consideration and conversions. According to IDC, search advertising alone is projected to grow to $169 billion in 2022 from $118 billion in 2018, representing a 9% CAGR.

Our Growth Strategy

We believe new and improved products for Pinners and advertisers will drive future user and revenue growth for Pinterest.

Pinner Products

Although there are a number of ways users come to Pinterest, historically we’ve attracted a large number of new Pinners organically because people who love our product have a natural desire to refer others. We expect future product improvements will make Pinterest more useful for current Pinners and attract new users to our service, especially in international markets. Specifically, we plan to:

 

   

improve the relevance of our visual recommendations by leveraging computer vision and other technical innovations, such as Lens, that deepen Pinners’ engagement with our service;

 

   

improve the utility of our service by making it easier for Pinners to go from inspiration to action—in particular, we want to make Pinterest more shoppable;

 

   

explore new features to encourage Pinners to discover a broader set of verticals such as automotive, technology, financial services, media and entertainment and travel;

 

   

make Pinterest more accessible to users around the world by localizing the product and content experience; and

 

   

bring additional high-quality commercial content onto the platform by deepening our partnerships with brands, retailers and content creators.

 

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Advertising Products and Capabilities

We’re still in the early stages of our monetization efforts. Our ability to develop new and improve existing advertising products will be an important driver of our future growth. Specifically, we are:

 

   

working to improve the relevance of ads on Pinterest by leveraging our insights into Pinners’ taste and interests;

 

   

building products that help advertisers deliver value to Pinners as they move down the purchasing funnel on our platform;

 

   

growing and diversifying our advertiser base, which we believe will also enable us to drive better ad relevance; and

 

   

investing in first- and third-party tools to better measure the performance of ads on our platform and prove their value to advertisers.

Advertiser Relationships

Our strategy to deepen our relationships with advertisers focuses on two priorities:

 

   

Scaling our business with existing advertisers. We currently have relationships with many of the largest CPG companies and retailers in the world. We believe we have a significant opportunity to gain a greater share of their advertising dollars and to attract more of their sister brands to Pinterest, particularly as improved measurement tools better demonstrate returns on current advertising spend.

 

   

Attracting more advertisers. We plan to increase our presence in verticals such as automotive, technology, financial services, media and entertainment and travel. We have also focused on working with SMBs. As we continue to invest in our self-serve platform, we expect our engagement with SMBs to continue to grow. Finally, we are expanding our international advertiser base, with an initial focus on Western Europe and other select markets to follow.

 

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How People Use Pinterest

Ideas

People come to Pinterest because it is filled with billions of great ideas. Each idea is represented by a Pin. Pinners create Pins using an image or video that has been found and saved from around the web or created by that Pinner—whether it’s a recipe, a renovation project or the perfect summer look. Pins have an image or video and, regularly, a link back to the site where they were found. When people click on a Pin, they can learn more and act on it.

Most Pins are created by individual users. When someone finds an image or video anywhere on the web and wants to save it, they can use our browser extension or Save button to create a Pin with that image or video in it. Pinners can also create Pins featuring their own original work, like a recipe they made or a landscape they photographed.

Businesses also create Pins on our platform in the form of both organic content and paid advertisements. We believe the addition of organic content from merchants adds significant value to the experience of both Pinners and advertisers. We expect that these Pins will become a larger part of our content in the future.

In addition to our regular image-based Pins, we have a variety of other types of Pins and Pin features on our platform to help people take action, whether it’s to do or make something with Recipe Pins and Video Pins, or it’s to buy items with Product Pins and Shop the Look. More types of Pins and features will come in the future.

 

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Pins. A Pin is an idea represented by an image or video, regularly linked to other websites that showcase a variety of content and ideas for Pinners to explore.

 

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Pins are ideas represented by images or videos-just tap to learn more
Save to one of your boards
Tap to visit the site the Pin was saved from
Follow whoever saved it for more great ideas

 

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Product Pins. Product Pins make items shoppable with up-to-date pricing, information about availability and links that go directly to the checkout page of a retailer’s website.

 

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The price tag icon means its shoppable Price and availability Tap to visit the retailer's site. On the retailer's site you can learn more and buy the item

 

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Recipe Pins. Recipe Pins make it easy to cook a meal by bringing the relevant information right to the Pin. This includes ingredients, cooking time and serving information. Pinners can use search filters to discover specific meals based on their preferences or what’s in their refrigerator.

 

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Recipe Pins make it easy to cook a meal
Scroll down to see ingredients, prep time and more information

 

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Shop the Look. Shop the Look enables Pinners to shop for the individual products they see within fashion and home decor Pins.

 

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Tap each identified item to learn more
Shop items spotted in the pin
Price and availability. Tap to visit the site and buy the item

 

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Video Pins. Video Pins are short videos with topics like how-to content about cooking and beauty that help Pinners more deeply engage by watching the transformation of an idea.

 

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Video Pins play automatically to bring ideas to life
Save to your boards to take action later

 

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Discovery Tools

People go to Pinterest to discover the best ideas for their lives. Because this is not a linear journey, we have developed a number of tools to help people discover what they love.

Home Feed. When people open Pinterest, they see their home feed, which is where they will find Pins that are relevant to their interests based on their recent activity. They will also see Pins from the people, topics and boards they choose to follow. Every home feed is personalized to reflect the taste and interests of the Pinner.

 

See ideas inspired by your activity and interests The more you use Pinterest, the more personalized it becomes

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Search. Pinners can search for Pins, boards, people or hashtags in the search bar. Pinners who use search generally don’t want to find a single “right answer.” They want to see many relevant possibilities that are personalized for their individual taste and interests. Often, Pinners start by typing in something general like “dinner ideas,” then use Pinterest’s built-in search guides (like “weekday” or “family”) to narrow down the results. Over two billion text-based searches and guided searches happen on Pinterest every month, based on monthly average searches for the year ended December 31, 2018, with 85% on mobile devices.

 

Type a broad search, then refine based on your taste

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Related Search. When a Pinner taps on a Pin to learn more about an idea or image, they will also see a feed of relevant images beneath the tapped image. These are Related Pins. They account for the highest source of engagement on Pinterest, helping Pinners springboard off a point of inspiration to explore deeper into an interest or narrow in on the perfect idea.

 

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Each pin includes related ideas-just scroll down to discover more

 

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Visual Search. Pinners can use our Lens tool to narrow in on key objects that appear in a Pin—a lamp in a picture of a living room, a pair of shoes in an image of a man walking down the street—and it will automatically start a visual search and help people instantly discover similar Pins.

 

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Tap here to start a visual search Highlight what interests you to find similar ideas

 

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People also use Lens to point their smartphone camera at anything in the world around them, take a picture and discover related ideas.

 

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Point your phone
Tap to search
Discover related ideas

 

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Planning

Boards are where Pinners save and organize their Pins into collections around a topic. Every new Pin must be saved to a particular board and is associated with a particular context (such as “bedroom rug ideas,” “electric bikes” or “healthy kids’ snacks”). Once the Pin has been saved, it exists on the board of the Pinner who saved it, but it also joins the billions of Pins available for other Pinners to discover and save to their own boards. Pinners access their boards in their profile and organize them however they prefer.

 

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Create and name your board
Fill it with ideas to try
Organize your boards into sections

 

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Pinners can create sections in a board to better organize Pins. For example, a “Quick Weekday Meals” board could have sections like “breakfast,” “lunch,” “dinner” and “desserts.” A board can be made visible to anyone on Pinterest or kept a secret so only the Pinner can see it. As Pinners plan projects, like a home renovation or a wedding, they can invite others on Pinterest to a shared group board, and these collaborative boards can be either public or secret. When a Pinner follows another person on Pinterest, they can choose to follow a select board or their entire account. As of December 31, 2018, there are approximately 4 billion boards on Pinterest where Pinners have cumulatively saved over 175 billion Pins.

 

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Only you can see Pins saved to your secret boards
Add collaborators to your board
Share ideas and plan for the future

 

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Meet people inspired on Pinterest


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Inspired on Pinterest A renovation that made a house feel like home
“Pinterest has been part of every major life milestone—from planning our wedding, to getting a dog, renovating our house and having a baby.”
Emily and Shane Annapolis, MD United States
Currently saving to: Nursery Update, Baking and Backyard
Emily and Shane have been on Pinterest since their earliest days together, and it’s been a part of their journey as a couple ever since. They created boards for planning all the elements of their wedding, ideas for their dog and for renovating a house for their growing family. “It helps us get on the same page. When I couldn’t visualize what Shane had in mind, he immediately showed me what other people had done on Pinterest. Once I could picture it, it got me excited to knock down walls. Pinterest has inspired us to think bigger—and make better decisions—every time.”


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Inspired on Pinterest A new kind of treasure hunt
“I found exactly what I was looking for. Pinterest opened up a whole new shopping experience for me.”
Mark London
United Kingdom
Currently saving to: Travel Mykonos, Kitchen extension and Garden ideas
Mark is a headmaster with a passion for interior design. One day in a pub, he saw the perfect barstool for a country cottage he was redoing. “No one knew where it came from, so I used Pinterest to find something almost identical. It was from a London-based company right near me that I’d never heard of.” He ended up buying even more items from that same collection. “It’s an incredible tool to discover new products and brands you might never have known about.”


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Inspired on Pinterest A bucket list balloon trip
“At least once or twice a year I’ll see a Pin and think, ‘Wow. I have to go there.’ Within months, I’m packing my bags.”
Lalaina Paris France
Currently saving to: Cool Shades, My Wish List and Cozy Coats
Lalaina is a blogger in Paris who’s always planning her next trip. “Pinterest helps me keep everything that interests me in a single place. For example, my Wanderlust board is a bucket list of all the things I want to see or do in the world. When I saw a Pin of hot air balloons in Cappadocia, I immediately saved it and started searching for more.” A few months later, she surprised her boyfriend with a sky-high ride on those exact same balloons.


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Inspired on Pinterest Weeknight wins
“Pinterest keeps me sane. I plan a week’s worth of meals every weekend so I can remove a major stress after work.”
Krissy Atlanta, GA United States
Currently saving to: Noah’s Bedroom,
Toddler Life and Easy Weeknight Meals
Krissy is a working mom who cooks at least six out of seven days a week. “Having dinner as a family is super important to me, and it’s a tradition that I grew up with. Even though the amount of time I have to cook has changed drastically since I’ve become a mom, it’s still a priority.” She considers Pinterest her go-to cookbook and relies on creative ideas she finds, like one-pan recipes, that save her time and stress. “It’s the one thing I use to make my meal plans for the week and even the month. When I step into my kitchen, I feel like I can take over the world.”


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Inspired on Pinterest A backyard masterpiece
“Pinterest is where I go to dream. I’ll see something I want to try, and it often turns into something even bigger and better.”
Mac
Portland, OR United States
Currently saving to: Bar Build, Recipes and Art Ideas
Mac is an entrepreneur and dad with two young kids. He went to Pinterest looking for a simple swing set to build in his new backyard, but ended up finding outdoor ideas that made him dream even bigger. His project grew into an elaborate play structure, outdoor kitchen and vertical garden, all modeled after Pins. “I’m a very visual person. I need to SEE something, and then I can put my own spin on it.” Now his family spends most nights enjoying meals outdoors and entertaining friends on weekends, but Mac’s not done yet. “As soon as I finish something, I’m ready for my next project.”


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Inspired on Pinterest A new way to get around in the world
“I found something for my daughter that I never would’ve imagined myself. Pinterest has shown us that nothing is impossible.”
Kim and Brad Edmonton Canada
Currently saving to: Home Decor, Beauty and Tattoos
After Kim and Brad’s daughter was diagnosed with a tumor that left her paralyzed, they turned to Pinterest for help. “I went to Pinterest first because I was really lost. I didn’t even know where to begin, but when I searched “baby” and “wheelchair”, a picture of a modified infant seat showed up” says Kim. “It was something I never would’ve imagined myself. All of a sudden, I felt better. Like, we can do this.” Baby Evelyn’s been on a roll ever since.


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Inspired on interest A personal transformation “Of all the platforms I use, Pinterest is the most useful to my whole life. It’s where I go for inspiration on any subject.” London United Kingdom Currently saving to: Monochrome Menswear, Fragrance Wish List and I Love Coffee Jay used Pinterest to reinvent himself after losing 80 pounds. Beyond saving healthy recipes, workout ideas and quotes to stay motivated, Jay created a whole new style for himself. His boards led him to invest in an entirely new wardrobe and even experiment with suits and hats. “Pinterest is more than just good ideas—it’s given me the confidence to try out styles I never thought I could pull off.”


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Our Advertising Products and Capabilities

Pinners’ desire to discover something they love and make it part of their life is aligned with the motivations of our advertisers. Products and services often help bring dreams to life. Pinterest can help businesses reach a Pinner from the moment he starts thinking about what he wants his living room to look like to the moment when he is about to purchase a couch at his price point. We’ve understood this alignment since our founding, but over the last few years we’ve begun to translate it into an ad product suite that drives value for our users and advertisers simultaneously.

We offer both brand and performance ads, with performance representing approximately two thirds of our revenue for the year ended December 31, 2018.

Promoted Pins

Our standard ad format is the Promoted Pin. Each Promoted Pin contains either a single image, a carousel of images or video. Because Pinners travel down the entire purchasing funnel on Pinterest, the Promoted Pin is used flexibly by different advertisers to meet different objectives, including awareness, consideration and sales. Which objectives are met depends on how Pinners engage with the Promoted Pin as they progress from inspiration to action.

 

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Promoted Pins look like standard Pins and are displayed based on your activity and interests Swipe up or tap to visit the advertiser's site On the advertiser's site you can learn more and potentially transact

 

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Awareness Objective. Promoted Pins appear in the home feed and on search results pages. They echo the visual style of organic Pins and are fully integrated into the design. A Pinner sees Promoted Pins as he scrolls through his home feed and search results, looking for inspiration and ideas.

 

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Promoted video Pins can be either standard or max width in the feed Swipe up or tap to shop the items you see in the Pin Save an ad to your board-just like standard Pins

 

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Consideration and Sales Objectives. When a Pinner clicks on a Promoted Pin, he sees an intermediate screen that gives him a closer view of the ad creative as well as the option to save the ad to a board. He will also be able to swipe up or click to see the advertiser’s online presence, where he can pursue deeper consideration (by exploring available products and services or signing-up for memberships) and potentially transact.

 

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Promoted carousel Pins allow advertisers to share multiple ad creative in one Pin Simply swipe up to see more

 

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Advertising System

Ad Auction

As of December 31, 2018, all advertisers on Pinterest buy ads through an auction-based system. Our ad auction allows us to serve ads to Pinners at relevant moments while optimizing business outcomes for advertisers. Our auction system selects the best ad for each available ad impression, based on the likelihood of a desired action occurring and how much that action is worth to advertisers. The likelihood of the action occurring depends on a variety of factors, such as targeting relevance and landing page quality. Today, our advertisers choose between three different bid types, including CPC, CPM and cost per action, and are typically billed on either a CPC or CPM basis.

Targeting

Ad targeting helps businesses reach the millions of people who come to Pinterest to find or shop for products and services.

Advertisers can target their messages to specific demographics (locations, languages, gender, age), device types, audiences (such as existing customers or Pinners who recently engaged with their content) and interests or keywords. Advertisers can also choose whether they want ads to show in Pinners’ search surfaces, home feed or both.

Because ads are content on Pinterest, ad relevance is powered by the same principles that drive organic recommendations. We are building ad products that will allow advertisers to target ads based on a particular consumer’s known aesthetic preferences and style. Eventually we expect to be able to leverage the Pinterest taste graph to match ad creative to a Pinner’s individual taste and interests. Even now, people using Pinterest are more likely to say Pinterest ads feel personalized to them than ads from other platforms, according to a Talk Shoppe survey.

Measurement

Measuring the effectiveness of digital spend is a high priority for our advertisers. Our measurement solutions are aligned to help advertisers recognize the value of an investment on our platform across a variety of objectives. We enable our advertisers to meet their awareness, consideration and conversion objectives with a number of first-party tools to measure campaign effectiveness. We also have leading third-party measurement partners to validate Pinterest’s performance and measure advertiser results.

 

   

Awareness. Advertisers focused on awareness objectives typically aim to capture new customers and keep established brands and existing products top-of-mind. Success against these objectives is measured by increased product awareness, ad recall and purchase intent. We leverage brand lift studies enabled by our own tools and through a third-party partnership to help advertisers achieve their awareness objectives. For example, in a Millward Brown study from the first quarter of 2016 to the fourth quarter of 2018 of over 300 campaigns across verticals on Pinterest, there was a 29% lift in Pin awareness, meaning the number of people that recalled seeing the Pinterest ad, compared to a control group.

 

   

Consideration. Advertisers who pursue mid-funnel consideration objectives want to maximize online, in-app and offline activities that often lead to conversions. Our consideration-focused advertising solutions drive online and offline traffic as well as specific website actions and app installs. Advertisers evaluate our success driving online traffic and website actions using the Pinterest Tag, our first-party tool that advertisers add to their websites to attribute various user actions against their Pinterest campaigns. We partner with third parties to provide mobile in-app measurement and offline foot traffic measurement.

 

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Sales. For conversion-focused advertisers who want to increase online and in-store sales, we have a variety of online and offline measurement solutions. These include first-party solutions like the Pinterest Tag, order ID reporting and online conversion lift, as well as third-party solutions like multi-touch attribution, sales lift and marketing mix modeling. Pinterest delivered $2 in profit for every $1 spent by an advertiser, according to a 2017 study from Analytic Partners that evaluated five campaigns across CPG and Retail.

In addition to the specific objective measurement solutions outlined above, we also partner with other industry providers to measure ad viewability and for campaign reporting.

Our Go-to-Market Approach

The Pinterest platform enables a diverse group of advertisers to achieve a wide range of objectives. We offer advertisers what we believe is a unique combination of an inspiring environment, an attractive audience and full-funnel solutions. We serve these advertisers in customized ways across their size, product needs and measurement objectives. We initially built our business with large CPG and retail advertisers in the United States who typically have large marketing budgets and had the greatest affinity for our core use cases at that time. We then scaled our sales force to support these advertisers and grew their spend with us over time while broadening the mix of advertisers across verticals. As these advertisers scaled their investment on our platform, we have increased our focus on building the product and measurement tools required to serve mid-market and unmanaged advertisers. Recently, we have also begun to focus on expanding our international advertiser base. Advertisers who spent on our platform during the year ended December 31, 2017 increased their spend by 29% during the year ended December 31, 2018.

Large Advertisers

Our large advertisers include many of the largest companies in the world. They have sophisticated marketing needs, mature teams and large ad budgets. They expect white-glove service from advertising platforms and often work with agencies and other marketing partners. We serve these large advertisers through a field sales team organized by vertical with industry leads that develop end-to-end expertise and alignment across marketing, measurement and insights. Large advertisers’ objectives and the required measurement solutions span across the entire purchasing funnel, including awareness, consideration and conversion.

When we began our monetization efforts, we focused on large CPG companies and retailers. As we have demonstrated the value Pinterest can deliver to these large advertisers, this has led to expanded budget share and (for multi-brand advertisers) engagement across more of their sister brands. We believe we can win a larger share of wallet from these advertisers while growing the diversity of advertisers in additional large spend verticals.

Mid-Market Advertisers

Advertisers in this segment include mid-market advertisers, certain SMBs and emerging business models such as Digitally Native Vertical Brands that sell their products and services directly to consumers. While some of these advertisers also focus on objectives across the full purchase funnel, most advertisers in this segment rely primarily on digital advertising and are focused on online sales and conversion metrics. They typically have smaller marketing teams and a dynamic ad spend allocation strategy, and are sensitive to how quickly they can design, scale and shift their ads to platforms where they see the best return.

 

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We help these companies achieve their objectives through relationships with our mid-market sales team, tools to help them easily create beautiful Pinterest ads and various self-serve campaign scaling and measurement tools. While we leverage our in-house vertical expertise, we serve these accounts primarily through a lifecycle approach. Certain sales representatives focus on new advertisers, while others focus on retaining and educating existing advertisers.

While we have covered mid-market advertisers for some time, we have only recently built the product and measurement solutions to better serve this segment. Our continuing efforts are focused on building more self-serve tools that will help these advertisers with ad creation, campaign scaling and measurement.

Unmanaged

Unmanaged advertisers are often SMBs that use our self-serve Ad Manager tool to buy ads directly or through marketing partners. Our unmanaged advertisers’ objective is typically to grow in-store or online sales. We built Pinterest business profiles for these advertisers to have an entry point to our platform and a means of distributing branded organic and advertising content. Our self-serve tools help these advertisers expand their reach and understand the usefulness of their ads to Pinners. We will continue to build the technology required for this segment and strengthen our marketing efforts to reach these advertisers.

International Advertisers

We are in the early stages of our international ad business. As we continue to deliver localized and relevant content to global Pinners, we will also scale our monetization efforts internationally. Our international strategy targets engagement across advertiser scale and vertical focus. We are forging new and expanding existing relationships with large and mid-market advertisers to target key international markets. We have been deliberate about our international expansion, choosing to enter markets where we have localized content as well as strong advertiser demand and monetization potential. We also offer our self-serve tools to international advertisers.

 

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Meet businesses inspired on Pinterest


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Inspired on Pinterest A surge in sales “Pinterest ads consistently exceed our performance benchmarks and make a superior impact on sales.” Target Target uses Pinterest to inspire shoppers with new products and drive purchases online and in stores. “We’ve used Promoted Pins since they first launched, and the results have been impressive” says Kristi Argyilan, SVP of Marketing. Most recently, they saw 10x their return on ad spend over the holiday period in 2018, nearly 3x their total yearly goal. “Pinterest aligns directly with our purpose, our shared customer base and key categories. An important pillar of our partnership is innovation, especially around visual discovery and data to better serve our customers.” Pinterest has also directly influenced the shopping experience: Target was the first brand to launch collections created by top style and design Pinners.


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Inspired on Pinterest Over 140 million people on Pinterest engage in home cleaning, home maintenance, home decor and related interests each month Procter & Gamble owns leading brands in household and personal care, including the Swiffer line of sweeper and duster products. They rely on Pinterest not only for audience reach, but also for relevance. People on Pinterest are looking for creative home ideas, with over 140 million of them engaging in home cleaning, home maintenance, home decor and related interests each month. Swiffer connects with customers by showcasing their products alongside tips like how to dust hard to reach places, cleaning up pet hair, and how to make hardwood floors shine.


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Albertsons Albertsons is one of the biggest U.S. grocery chains, with brands including Pavilions, Safeway, Vons, Jewel-Osco, Shaw’s and Acme. More than 95 million people come to Pinterest looking for recipe, food, drink and related ideas each month, and Pinterest households spend 5% more on groceries than the average household.1 That makes Pinterest the right place for Albertsons to show up. “With interest targeting on Pinterest, we’re able to reach our best customers including foodies, party planners, parents and millennials,” says Sean Barrett, SVP of Marketing & Advertising. Albertsons runs campaigns all year, featuring simple, seasonal recipes that drive sales. They saw a 15.5x incremental ROAS on their holiday entertaining campaign, and a 16.9x incremental ROAS on their campaign for summer BBQs. 1 based on an analysis by Oracle of transactions in 2016 Inspiredon Pinterest Reaching morecooks in the kitchen “Pinterest is the right platform forus because itgenerates reallyimpressivesales.”


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“On Pinterest we’re reaching customers in discovery mode, rather than the normal disruptive ad experience. That’s had a positive growth impact.” Rothy’s Rothy’s isn’t your average shoe company—they design and manufacture stylish, sustainable women’s shoes made from recycled plastic water bottles. Pinterest is an essential part of diversifying their marketing efforts and reaching new target customers. “Pinterest is a great growth lever for us,” says Matt Gehring, VP of Growth. “Ads on Pinterest are unique because they’re content that people actually want to see, rather than being an interruption.” Even before they started running ads, Rothy’s was able to build up a strong organic presence that created product buzz on Pinterest. Inspired on Pinterest Ads to discover, not disrupt


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“Pinterest has helped us pay our rent! We use it to sell our baking kits to people across the country who are a spassionate aboutpieasweare.” Pie Provisions Lauren and Cody Bolden started Pie Provisions back in 2014 by selling their homemade pies at farmers markets. As their business took off, they expanded into pie ingredient kits for people to bake at home on their own. They turned to Pinterest to grow their reach and drive sales, capturing the strong built-in food audience eager for new baking ideas. “Pinterest is a lifeline to our business,” says Lauren. Their first Promoted Pin, a sweet cream and peach preserve slab pie, led to a 600% spike in website traffic. “Pie lovers who don’t even know that they’re looking for us can discover us on Pinterest.” Inspiredon Pinterest Moreeyes on their pies Perfect PIE KIT


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Perfect PIE KIT


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“Pinterest drives results for us. We’ve been able to attract new high-value customers at a lower cost.” Hubble Online contact lens provider Hubble set out on a mission to make contacts more affordable and convenient. When it came time to grow sales and reach new customers for their subscription service, they turned to Pinterest. Knowing that their target audience uses Pinterest to discover new ideas and services, Hubble created a successful Promoted Pin campaign and achieved impressive results. According to CEO and co-founder Jesse Horwitz, “With Pinterest, we’re able to reduce our costs for new prospects and deliver higher-value customers than other marketing channels.” Inspiredon Pinterest Catching the eye of a new audience


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A BADMOMS CHRISTMAS
CELEBRATE THE HOLIDAYS LIKE A MOTHER NOVEMBER


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Inspired on Pinterest More moms at the movies “Using creative tactics on Pinterest, we’re seeing more moviegoers show up at theaters to see our films on opening weekend.”
STX Entertainment STX Entertainment is a fast-growing company creating content for a global audience across platforms. After their movie Bad Moms became a runaway hit, they wanted to set the sequel, A Bad Moms Christmas, up for box-office success. “It had to earn attention with women during the holidays, and we knew Pinterest was a portal of receptivity,” says Amy Elkins, EVP of Media and Marketing Innovation. After seeing ads on Pinterest, women over 35 were 22% more likely to select A Bad Moms Christmas as their first choice to see in theaters. The campaign ultimately exceeded its goal of reaching +90% of moms on Pinterest.

 


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Marketing

To date, we have been able to grow our global user base with relatively low marketing costs. User acquisition has been driven by the strength of our global brand and the utility of our service as well as by unpaid search engine traffic. We have started to test additional marketing efforts including paid marketing campaigns focused on user and advertiser acquisition efforts.

Our Commitment to Pinners

Everything we do starts with the question—How will this help Pinners?

We actively work to create a welcoming environment for Pinners of all backgrounds, which is why we create policies against certain types of content and take action on accounts, boards and Pins when we become aware of violations of our policies. While other platforms may create policies to prioritize free speech, we are focused on maintaining an empowering environment on Pinterest based on three principles:

 

   

Transparency. We work to make our policies transparent, understandable and easy to find at policy.pinterest.com, just a few clicks away on both our website and our users’ mobile profiles. We provide visual examples and explanations to accompany our terms of use. We believe that this transparency assists Pinners in making more informed decisions about their activities on Pinterest.

 

   

Enforcement. We enforce our policies to limit Pinners’ exposure to sensitive content in a variety of ways. We have a reporting infrastructure to allow users to quickly and easily report content that violates our policies. We also deploy a variety of detection mechanisms, including machine learning technology and other automated tools, that help us independently identify certain sensitive or prohibited content to remove, suppress or forward the content for human review. As we work to develop these tools, content is reviewed by trained specialists around the world to improve our technology.

 

   

Accountability. We are committed to continually improving our procedural safeguards to maintain and promote user trust. We work alongside advocacy organizations to better understand the nature and sources of certain types of content and our opportunities for improvement. Additionally, we cooperate with law enforcement in compliance with applicable laws and regulations.

Our Technology Innovation

With billions of human-curated ideas, we believe we have one of the largest image-rich data sets ever assembled. This lets us analyze trends, understand intent and predict consumer behavior. And, we are just scratching the surface of what is possible. Looking ahead, we are excited about new technical challenges, including fine-grained image recognition, object-to-object visual search and large-scale visual search infrastructure.

We believe we are able to attract some of the industry’s top engineering talent who are drawn to Pinterest for many reasons, including our large human-curated data set. Our research and development efforts bring together top researchers, scientists and engineers from around the world to tackle challenging problems in machine learning and artificial intelligence, image recognition, user modeling, recommendation systems and data science to develop the best product and advertising technology with the scale to reach hundreds of millions of users.

 

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Our Competition

We primarily compete with consumer internet companies that are either tools (search, ecommerce) or media (newsfeeds, video, social networks). We compete with larger, more established companies such as Amazon, Facebook (including Instagram), Google, Snap and Twitter. Many of these companies have significantly greater financial and human resources. We also face competition from smaller companies in one or more high-value verticals, including Allrecipes, Houzz and Tastemade, that offer users engaging content and commerce opportunities through similar technology or products to ours. We remain focused on emerging competition as well. We face competition across almost every aspect of our business, particularly users and engagement, advertising and talent.

Users and Engagement

We compete to attract, engage and retain users and their time and attention. Because our products and those of our competitors are typically free, we compete based on our brand, product experience, quality, utility and ease of use of our products.

Advertising

We compete for advertising revenue across a variety of formats. We believe our ability to compete effectively depends on the effectiveness of our service in reaching users early in the decision-making process, amplifying advertisers’ messages and delivering compelling returns on investment. This is driven by a number of factors, including our reach, relevance and engagement, as well as our brand and advertising products, delivery and measurement capabilities and other offerings.

Talent

We compete to attract and retain highly talented individuals, particularly people with expertise in computer vision, artificial intelligence and machine learning. We believe we compete for these potential employees by providing a work environment that offers the opportunity to work on challenging, cutting-edge and inspirational products. We also compete by providing competitive compensation packages that we believe will enable us to attract and retain talent. We had 1,797 employees as of December 31, 2018.

We intend to continue to invest in research and development to improve our products for Pinners and advertisers and to grow our active user base in order to address the competitive challenges in our industry. For additional information, see “Risk Factors—Risks Related to the Company and our Industry—If we are unable to compete effectively for users, our business, revenue and financial results could be harmed” and “Risk Factors—Risks Related to the Company and our Industry—If we are unable to compete effectively for advertisers, our business, revenue and financial results could be harmed.”

Intellectual Property

Our success is tied in part to our ability to protect our intellectual property and key technological innovations. We rely on a combination of federal, state and common-law rights in the United States and rights under the laws of other countries, as well as contractual restrictions, to protect our intellectual property and other proprietary rights. We rely on a combination of patents, copyrights, trademarks, trade secrets, domain names and other intellectual property rights to help protect our brand and proprietary technologies. In addition, we generally enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with

 

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other third parties, in order to limit access to, and disclosure and use of, our confidential information and proprietary technology and to preserve our rights thereto. However, our contractual provisions may not always be effective at preventing unauthorized parties from obtaining our intellectual property and proprietary technologies.

As of December 31, 2018, we had over 200 issued patents and patent applications in the United States and foreign countries relating to aspects of our actual or contemplated operations and technologies. There can be no assurance that each of our patent applications will result in the issuance of a patent. In addition, any resulting issued patents may have claims narrower than those in our patent applications. We also had over 500 registered trademarks and trademark applications in the United States and foreign countries as of December 31, 2018, including our “Pinterest” name, “Pin It” slogan and related logos. There can be no assurance that each of our trademark applications will result in the issuance of a trademark or that each resulting trademark registration will be able to be maintained. Additionally, our current and future patents, trademarks and other intellectual property or other proprietary rights may be contested, circumvented or found unenforceable or invalid.

We may not be able to obtain or maintain sufficient protection for or successfully enforce our intellectual property. Our existing and future patents, copyrights, trademarks, trade secrets, domain names and other intellectual property rights may not provide us with competitive advantages, distinguish our products from those of our competitors or prevent competitors from launching comparable products. We may also be dependent on third-party content, technology and intellectual property in connection with our business. Further, we may not be able to prevent third parties from infringing, diluting or otherwise misappropriating or violating our intellectual property rights, and we may face challenges to the validity or enforceability of our intellectual property rights. We are presently involved in a number of intellectual property lawsuits, and expect to continue to face allegations from third parties, including our competitors and “non-practicing entities,” that we have infringed or otherwise violated their intellectual property rights. Intellectual property disputes are common in our sector and, as we face increasing competition or grow our business, there is an ongoing risk that we may become involved in additional legal disputes involving intellectual property claims.

For additional information on risks relating to intellectual property, please see the sections titled “Risk Factors—Risks Related to the Company and our Industry—If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our business, revenue and financial results could be harmed,” “Risk Factors—Risks Related to the Company and our Industry—We could become involved in legal disputes involving intellectual property claims or other disputes that are expensive to support, and if resolved adversely, could harm our business, revenue and financial results” and “—Legal Proceedings.”

Government Regulation

We are subject to many U.S. federal and state and foreign laws and regulations that involve matters central to our business, including laws and regulations that involve data privacy and data protection, intellectual property (including copyright and patent laws), content regulation, rights of publicity, advertising, marketing, health and safety, competition, protection of minors, consumer protection, taxation, anti-bribery, anti-money laundering and corruption, economic or other trade prohibitions or sanctions or securities law compliance. Our business may also be affected by the adoption of any laws or regulations that adversely affect the growth, popularity or use of the internet, including laws governing internet neutrality, which could decrease the demand for our products or increase our cost of doing business. Further, current or future legislation or regulations in the United States and other jurisdictions, or new interpretations of existing laws and regulations, that could significantly restrict or impose conditions on our ability to collect, store, augment, analyze, use and share data or increase

 

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consumer notice or consent requirements before a company can utilize cookies or other tracking technologies. Many relevant laws and regulations are still evolving and may be interpreted, applied, created or amended in a manner that could harm our business, and new laws and regulations may be enacted, including in connection with the restriction or prohibition of certain content or business activities. The costs of complying with these laws and regulations are high and likely to increase in the future, particularly as the degree of regulation increases, our business grows and our geographic scope expands. Further, the impact of these laws and regulations may disproportionately affect our business in comparison to our peers in the technology sector that have greater resources. Any failure on our part to comply with these laws and regulations may subject us to significant liabilities or penalties, or otherwise adversely affect our business, financial condit