Pinterest, Inc. (NYSE:PINS) Morgan Stanley Technology, Media & Telecom Conference March 6, 2024 10:15 AM ET

Company Participants

Bill Ready - Chief Executive Officer

Unidentified Analyst

[Abrupt start] -- blue light to become white.

Bill Ready

Oh, all right, bright.

Unidentified Analyst

There we are.

Bill Ready

Now, I'm awake.

Unidentified Analyst

Yes. The slow way of waking up, right?

Bill Ready

Yes.

Unidentified Analyst

All right. Good morning, happy Wednesday morning of the 2024 Morgan Stanley TMT Conference where we're thrilled today to have Bill Ready, the CEO of Pinterest with us.

Bill Ready

Thanks for having me.

Unidentified Analyst

Welcome. Welcome back. Good to see you as always. The real way to wake up is from some disclosures. So, we'll get started there.

Bill Ready

All right.

Unidentified Analyst

Important disclosures, including the Morgan Stanley Research disclosures are available at the Morgan Stanley Web site www.morganstanley.com/researchdisclosures. They're also available at the desk. Some of the statements that Pinterest will make today may be considered forward-looking. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Any forward-looking statements that Pinterest makes are based on assumptions as of today, and Pinterest undertakes no obligation to update them. Please refer to Pinterest's Form 10-K for a discussion of the risk factors that may impact actual results.

So, you're coming upon two years-ish in the job. There's been a lot going on at the company in the last two years, and even in the last six, seven months with analysts --

Bill Ready

Yes.

Unidentified Analyst

-- and kind of developed since then. So, maybe let's talk about that.

Question-and-Answer Session

Operator

Q - Unidentified Analyst

So, if we say take me from when you started to the Analyst Day, and the Analyst Day to now, and how are your priorities and what you're focused on most has changed to sort of drive engagement and monetization in the platform's potential?

Bill Ready

Yes, great. Well, so, middle of my seventh quarter, right now will be two years end of June. And couple years ago, as you looked at Pinterest, users were declining, revenue had gone to sort of mid single-digits-ish, and margins had compressed significantly. And there were people asking about like, "Hey, is Pinterest going to survive in a TikTok-driven world, right?" And those were the questions. And some of you will say like, "So, Bill, what are you doing?" And while some folks saw that, what I've saw was that Pinterest had a very unique use case, a tremendous amount of commercial intent that been really untapped, and could be very different kind of ad platform than what it has been previously.

And if you look at where we were versus where we are, you've seen us accelerating on revenue through the ad downturn, we're the only -- only the public platforms that grew consistently through the downturn. You saw us accelerate in the back-half of last year, back to double-digit growth on revenue, as you can see implied from our Q1 guide, and we see further acceleration as we come into this year on the revenue side. But that has really stemmed from really getting it right with our users. You look at the user acceleration, so from declining users to accelerating user growth, with our basket of engagement metrics growing faster than users.

So, even as we've accelerated growth of users, we've deepened the engagement per user, which is often times really hard to do as you expand users, especially into a product because normally you get your most engaged users first, and each successive cohort is a little less engaged. Well, we have deepened the engagement per user. In fact, our most recent user cohorts, as we shared in our Investor Day, roughly twice as engaged as prior cohorts have been. So, we're finding our best product market fit in years. And at the core of that has been great execution on AI, using that to drive big improvements in relevancy, and big improvements in actionability on the platform, which have been sort of the Achilles heel of the platform previously.

And so, that's what driven up the user growth, user engagement, and married that well with the revenue side of the business which has shifted from, primarily an upper-funnel brand ads company two years ago, to now roughly two-third of our revenue is lower funnel. That's a massive shift in the business, and that's a -- from my background, a much larger, more attractive part of the ad business to be in. So, we've made a big shift in that. So, all that is really great progress. And then, just the executional discipline of the company, the operational rigor, we went from contracting margins to, last year, we promised 200 basis points of margin improvement; we ended up delivering 660 basis points of margin improvement. So, like to under-promise and over-deliver on those things.

So, yes, I think we're getting a good, solid track record on those, and so, you then said, "Well, that's sort of two years ago to today -- Investor Day to today."

Unidentified Analyst

Yes.

Bill Ready

What I would say is that what we laid out at Investor Day, we talked about our three to five-year view of what revenue and margins could be. We talked about the sort of multiple ways to win and the multiple levers there. What I would say from Investor Day to today, and again you see it implied in our guidance, we see really great progress toward that plan. That plan is very much playing out as we intended across each of those key levers that we talked about. And we see real progress on each of those. So, we feel really great about where the business is headed. And, obviously, there's tons more execution to go. There's -- as much as it's been transformative, the last couple years, it's a great start, not a finish.

And there's tons more untapped potential, right. When I talked about the untapped commercial intent in the platform, as much progress as we have made, we are still really just getting going with that, right? We've talked about how shopping as a first vertical that we're focused on. We've talked about other emerging vertical like travels, and autos, and financial services, and all these things. So, in due time, there's a lot more we can do to just drive better and better expansion of adjacent use cases with users. So, we're really focused on nailing shopping first. But that depth of engagement per user, you see that really, really working well.

So, again, if I had to pick one highlight out of all that stuff, the fundamental question was can you really make the product relevant for users, and can you stand apart in a world of everybody running to short-form video, TikTok, and Instagram, and YouTube Shorts, and all these things. And what I saw was not that we need to go fight on that battlefield, that we just had a totally different business to build. And that's why you see us re-accelerating with users. And one last thing on just how good the product market fit is, I have seen a few folks comment on this. It is exceedingly rare to see an app age down. Normally it's, okay, your user base ages, and then, oh, somebody else comes in and captures the next generation, and you sort of age out or age up. We've aged down, right?

Gen Z is now more than 40% of the users on our platform, our largest fast-growing demographic. So, just, again if there's one highlight it's around just what we've done to make this a great product for our users that is distinct and separate from what's happening elsewhere in the ecosystem, and there's a ton more of that to go.

Unidentified Analyst

Got it, okay. There's a lot to unpack there. So, maybe let me go back to the Analyst Day where you actually laid out, I thought, pretty broad menu of areas you were focused on in execution for the user side, both relevancy, ways to drive engagement, and then all the ad tools, from the API, direct links, deep links, et cetera. Maybe now, here we are six or seven months after the Analyst Day. Talk to us about areas that have gone better than expected on that list of execution points? And areas that have perhaps proven to be more challenging from a micro level perspective on those?

Bill Ready

Well, what I would say, again, each of those levers of growth that we talked about, we see really strong progress against each of those. So, we talked about users a bunch. On the ad side, we're driving through an adoption curve to lower funnel. And while we've had great progress on that, I talked about, now, roughly two-thirds of our revenue comes from lower funnel versus the business being almost entirely brand-ads driven a couple of years ago. It's still the case we're early in that adoption curve. I shared this stat on the last earnings call, that at the start of last year, so our lower funnel tools were brand new. At the start of last year, we had 2% of our customers and our revenue coming from -- that they had at least three of our lower funnel tools.

By Investor Day, that was 13%. By this last earnings call, we reported out that it was 23%. So, you can see really significant progress on that adoption curve, like, well, we still have a lot more of that adoption curve to go. We also shared previously, that our advertisers that have adopted our conversation API and our privacy-safe measurement as a cohort tend to be 30%-plus growers. Those that have not yet adopted tend to be mid single-digit decliners. And that's sort of a -- we're swapping out the engine on the plane mid-flight, but what we're swapping to, we see that pattern holding consistently, and every time we get that adoption we flip them into significant growers. So, that's been really good.

The other thing I'd say in terms of highlights on the what's going really well, and just increases our conviction as we look forward, is that we're shifting the budgets. Which budget do we get from the advertisers, right? And a couple years ago, we mostly sat in sort of experimental budgets, and social budgets, that we're not just awareness but -- or tend to be sort of capped, and are the first things you cut if you're an advertiser under pressure. Well, we're now moving into performance budgets, and we're doing really well there. In fact, when we look at our potential, you'd say, "Oh, well, Pinterest is 1% of the overall market, and can you be relevant at 1%?"

Well, if you look at the largest most sophisticated advertisers, particularly within retail and shopping, where we've talked about that's where we've had the most progress. And if you can make them happy, you can make anybody happy. In those places, we're seeing that we're getting north of 5% for several of them. We're getting north of 5% of total ad budget. And then, if you decompose that to the performance in digital side of the budget, that would mean that we're getting well into double digits on that. And so, are we demonstrating that we can be a real player in performance? I think we have made a very clear case for that. And now we have to just keep driving through the adoption curve.

So, that's on the what's going well. On the, "Hey, what's a challenge?" The adoption curve is real work, right? It's, we -- I said we went from 2%, to 13%, to 23%. Well, we want to get to 100%, but there is real wood to chop there, right? That the industry is going through a big shift to privacy-safe measurement. Advertisers are overwhelmed. A lot of them don't control their own tech stack. And they've got to -- they're scrambling to figure out, "What does a cookie-less world mean to me, and what do I do, and everybody's coming to me with different stuff. And what should I implement first?" And so, that's a lot of execution. And so, we are laser-focused on that. And you see us -- you've seen us make great progress on it, but we continue to be very focused.

Unidentified Analyst

Got it, okay. Let me ask about that execution and the macro backdrop that you're executing in. One of the -- one of your larger competitors has been really increasing the amount of impressions across short-form video, and they have a lot of advertisers plugged in. There are other smaller platforms also coming along to advertisers saying, "Test our API. Test our API." How do those two dynamics, at a macro level, impact your go-to-market, and how quickly advertisers scale? And what is sort of the key pitch you make to the advertisers who have not adopted the API as to why they ought to choose you versus others?

Bill Ready

Yes, I mean, the very clear reality if you are an advertiser, there are two platforms. They are going to make up the vast majority of your budget. So, if you are an advertiser, of course, you are going to go adopt latest tools from Google and Meta first, right? There are going to make up the dominant portion of your ad budget. And so, the case that we're making is while, of course, you are going to do those first, we should absolutely be the very next in line. And the case we make for that is basically, like, look at the largest most sophisticated advertisers and look at the ads running on our platform. You know those advertisers don't run ads in places that they don't see performance, right? When you talk about the Amazons or Walmarts and Wayfairs and Targets of the world, if you are not delivering performance, they are not doing to advertise with you. While anybody who is using our product can see if you are doing anything with commercial intent, you are going to seeing really great products and ads from those largest most sophisticated advertisers. Well, those are sort of the lead buffalos that the herd follows. And when we can say, oh, here's the kind of performance you can get. And by the way, we talked about direct links where our earlier tools required the advertiser to do work.

Like, mobile deep linking, the advertiser had to go do work to implement. Our conversion APIs had to do work to implement. We said, oh, with direct links we will look at that without them having to do any work. And Q4 this year, we shared this at the earnings call, we doubled the number of clicks we sent to advertisers year on year. Now there is a separation between value creation and value capture. That's value creation. So, now when our reps were walking in, they are saying, okay, you may not have implemented our five or six measurement yet. You may not be seeing this yet. But we doubled the traffic we sent to you year on year. Don't you want to see that? Don't you want to lean into that? That is one hell of a foot in the door for a sales pitch. At the same, there are also saying like, oh, well, I got to make sure I solved for the 80% of my budget that goes through two platforms first.

And then, we are coming behind as we still have to work through that. That's why this whole adoption program manage through. But, when you can walk in the door and say, we doubled the number of clicks we sent you with the same money. And, we are able to drive performance for the largest most sophisticated advertisers, the ones that are the winners in retail. Don't you want to play there too? And by the way, we are only talking about 1% of your budget. We can perform at 5% plus of your total budget. And, we are doing that with some of these largest most sophisticated players. That's really great with those advertisers. But, there is still a lot of execution to do too.

Unidentified Analyst

Okay, it's helpful. Let me ask you a couple about engagement. You talked earlier about sort of some of the strength of engagement and metrics that you are seeing even beyond reported user growth. So, let's just focus a little bit on U.S. and Canada where I think the U.S. and Canada users sort of grew 1% or 2% most recently. Is that a relevant metric when you sort of think about KPIs that matter? And if it's not, what are sort of -- what's another engagement metric that that you are focused on just to ensure you can get enough potential engagement to monetize with advertizing?

Bill Ready

Yes. Yes, it's a great question. So, I try to be pretty consistent. Try to keep a safety ratio of 1. So, going back to like my first earnings call, I said particularly in our mature markets, we are not going chase MAUs of anti metric. We are seeing in our mature markets mostly users we need to see, like, if we are approaching a 100 million MAU in U.S. and Canada, those are most of the shoppers. There are some other ones you want get. We want to get Gen Z things like that. But, we said -- I said then in our mature markets, it's really about depth of engagement per user. We are only getting -- we got to get from episodic usage to much more recurring usage in those mature markets. And so, if you look at what we have been doing, we have across our user base, we just put up our best user growth quarters since the height of the pandemic when people were locked in their homes and couldn't go anywhere.

So, we are finding our best product markets say in years. I talked about how we have aged down with Gen Z now being our largest fastest growing demographic. But, what you often see -- and I have seen this many, many times in the course of like maturing products that I have built and been a part of, is that those later cohorts are you get your power users first. Later cohorts are sort of like peripheral users. And so, it actually erodes -- typically, it erodes engagement per user because you are getting more fringed users. We have consistently shown that there is user growth, MAU growth. Our mobile app has grown faster than MAUs which means more people coming to us directly. So, we are less SEO dependent. More than 80% of our users and revenue come directly to our app.

Our basket of engagement metrics grows faster than users. And our ad impressions grow faster than engagement. And that one by the way, I have talked about how when the users in a commercial context and they have commercial intent ads can be great content for the user. We are proving that out because even as we have taken ad impression up significantly faster than user growth, engagements are actually deepening. That demonstrates that we are making the ads great content satisfying that commercial intent. And so, back to your question on MAU growth like, yes, we just put up our user growth quarter since the height of the pandemic. Our product market fit is the best that's been in many, many years, and as I shared at our Investor Day those new cohorts roughly twice as engaged. But the engagement per user and the fact that the ad impressions are able to scale significantly while engagement is deepening, those are the things that are the most exciting to me by far.

Unidentified Analyst

Got it. Okay. And is part of that engagement per user -- maybe talk to us about sort of what are the behaviors people are doing more of now than they were two years ago? And how prominent is search? How do we talk about search use and then the eventual monetization of that?

Bill Ready

Yes, great question. So, a couple of years ago one of the question was like, hey, people browse a lot of stuff on Pinterest. Are they going to do anything? Like while part of was like what I saw from the outside is like they haven't been given the option. In fact, it was amazing sort of given that metaphor before like Pinterest has solved digital window shopping. But, all the stores were closed. And so, the one part of that was like, oh, are they going to like go in the stores if you open the doors? The other side was like how good was the window shopping? Well, so damn good that people keep coming back even all the stores are closed. As we have opened the stores, we doubled the number of clicks we sent to advertisers year-on-year. Our shopping ads continue to grow at 50% plus year-on-year.

And so, that question of will users take action on Pinterest? We have answered that emphatically. And as I said, we are still relatively early in our journey on that. But, we have answered the question pretty emphatically. So, in terms of what actions -- in that basket engagement, what are the actions that we see versus a couple of years ago? Couple of years ago, the platform was optimizing for views. And not optimizing as much for other actions like clicks, conversion. And then, another one I give is curation which I think was a severely underappreciated super power of Pinterest. Like from the outside looking in I saw that was like, oh, my God, like that is some of the richest signal in the market. In my past role we didn't have that because what was the user planning to do.

Mostly shopping journeys are multi-day, multi-week, multi-month depending on the complexity of the purchase. And getting that signal not just like what somebody clicked on, but what were they planning to do days, weeks, and months before they did it. Those are magic moments for the advertiser where like the user has clear intent, but hasn't decided what to buy. Like oh, my gosh, I got the perfect for an advertiser. So, as we leaned into that curation behavior, not only is that really great for how we can engage with advertisers, it's super rich signal that feeds into our relevancy. So, coming back to your question on search, so on search we talked about this probably quite a bit that there's sort of three primary surfaces in our app.

There is home feed search and related items. And it splits roughly a third of third of third across those. But, you could think of search and related items both as elements of search because related items are sort of a variation of a digital search. You found an item, then, we will having more things like this. And so, it's a visual form of searching. And I shared previously that we had leaned into large language models, next-generation AI capabilities that we were seeing models a 100 times larger. As we are now training them on these intense signals, we are getting much better relevancy, so I had shared previously approximately 10 percentage point lift in relevancy. But, there is a compounding effect of these things. Not only does the AI keep advancing, we are spinning the flywheel faster and faster. As we lean into those curation behaviors and train our models on those curation behaviors and train our models on those curation behaviors, we just keep getting better and better and better at relevancy. I will give you a tangible example of this. Our latest foundational models on computer vision that we are using for some of our biggest category like home goods and some of our core shopping use cases, we saw a 25% lift in the relevancy from those latest models. And it's again, the AI keeps getting better, but the AI is only as good as the signal of how much it's acting. And that's where from the outside in when I was coming in, I was like, oh my gosh, this curation behavior is just like amazingly rich signal that Pinterest wasn't taking advantage of.

Well, not only are we like feeding that into the models, it makes the relevancy better and we're designing the product to capture more of that curation. So, that flywheel just keeps spinning more and more and more. And that is giving us to the question on search, we are seeing that users are searching more on the platform as a result. We also talked about guided search. Investor Day, we previewed it a bit. We talked about it on the last call and guided searches we are a visual search and discovery platform.

One of the things that happens so often with search is that people don't have the words to express the thing they're looking for, right? If they had the words to express it, like you get this like really long. You even hear this with gen AI, like there are prompt engineers. Like, oh, well, if you need a prompt engineer, like that's for the average person, it's like this is sort of the core issue. Like they don't have the words to describe the thing they're looking for. Well, guided search is a way of enhancing with generative AI, further enhancing how people would explore a topic where they might not even know that, oh, well, that beach house I was designing or the theme for a beach house is actually like Cape Dutch/Moroccan. Like, I didn't even know that. I just saw a picture and I thought it looked cool.

Unidentified Analyst

Right.

Bill Ready

And with guided search, we start to give people the language for that and help them refine in on these things. But as we have been rolling out our own guided search experience, we're seeing that, that paired with relevancy, users are searching more and more on the platforms. We feel really good about the progress there, which again, just aligns with we're very distinct and separate from like entertainment-based social media that has users in a lean back entertainment mode. We have users in a lean forward, intent-based mode. And as we're doing those things, we're getting more and more of that repeat usage of the depth of engagement that I was talking about.

Unidentified Analyst

Got it. Okay. Let me ask another one on gen AI. I'm going to sort of pair it with margins. I know you now start to pay attention, you talked about the margin guide and the margins you've delivered so far low 30s, adjusted EBITDA margins. There were 37%, 24% and 37% in the last two quarters. You've done a very good job on the margin side. What are examples where you can use or already are using generative AI internally to drive more efficiency? And how does that sort of impact your expectations around hiring the next couple of years and the overall OpEx investment?

Bill Ready

Yes, great question. So, AI is absolutely a core competency for us, right? And we've talked about that in terms of what we're doing in the product and just tremendous yield there, as I was just describing. We are looking at efficiency as well, though. I think one of the biggest highlights, and I think this really stands in stark contrast with a lot of others, that the question in many other places like, oh my gosh, isn't this generative AI margin headwind for you, right? And so there's two parts. One, we're aligning generative AI with use cases that really pay out well.

So, we may spend more on a GPU than a CPU, but when we can go drive up ad relevancy and shift from impressions to conversions, the conversion paid out of multiple of the impression we're just aligning the use of the GPUs and the generative AI capabilities with high ROI use cases. And we can do that because we have real commercial intent from our users versus if we were doing like huge view time on video, you have to have a lot of view time to get to one impression and you need a hell of a lot of impressions to get to one conversion. And so, just there's some natural efficiency in the platform.

But then, back to the internal side of it, yes we're seeing that we've talked about some of this, that as we look at coding use cases and things like that, we're seeing that for a lot of the drudgery of coding writing your unit tests and your documentation and all these things, like it can be really helpful for that. And it can perform really well for early coders to help them get more productive more quickly. And so, we're seeing really nice efficiency there, but it's almost across every function of our business that we're seeing really good benefit across that we have more than 50% of our engineers are using Copilot type tools for their coding, right? And we're seeing real productivity improvement. But in terms of what it means for hiring just as on the infrastructure side our margin expansion infrastructure was a real highlight in that, that we actually reduced infra-spend.

Unidentified Analyst

Right.

Bill Ready

Even as we increased usage, increased our revenue, we reduced infrastructure spend. And we think there's some more juice left in that orange as well. But we grew headcount at 1%. And I actually clamped down on headcount pretty much as soon as I came into business. And that was before it was in vogue on headcount, pretty much as soon as I came into business before everybody was sort of focused on efficiency coming in, I'd seen like, oh, wow, Morgan's really eroded, like we're going to get really focused on how we drive operational rigor in the business. And back to say, do ratio of one in those early calls, I said, a big believer in theory of constraints, that you don't, oftentimes, you don't need more engineers doesn't necessarily equal a better outcome.

And so, even as we've held headcount to 1% growth, we're finding our best product market fit in years, we've accelerated product velocity, because we've been much more focused on what matters most to users. And as we focus and channel that energy to the right things, we're getting great yield. And people are excited, because, oh, yes, people like to build, they like to build stuff that people use. And they want to build things that have an impact, versus like shipping a lot of features Pinterest had become a bit of a feature factory, where's like, oh, there's all these features like, well that's nice, but if they don't have impact, like it's not just from an investor perspective, you'd say, well, that's not that impactful. If you're the person building it, you don't want to build stuff that goes unused, you want to build stuff that has impact. And so, there's another sort of flywheel around that as well, that even as we've held, had really good discipline on headcount people are saying like, they're building stuff that matters. And the velocity has increased, and the product market fit has increased. And so, that's been a real highlight for us.

Unidentified Analyst

Got it. Okay.

Bill Ready

That sounds pretty efficient on the engineering side. And then, the sales side, we have the third-party partnerships I want to talk to you about. So, first, before we sort of get into the specifics of Amazon versus the Google partnership, one of the most common questions that myself and my team continue to get from investors is how to think about the contribution from the third-party partnerships in that multi-year guidance you laid out at Analyst Day. So, maybe just remind us what is built into that mid-to-high teens growth and sort of the potential for upside to it vis-a-vis third-party partnerships?

Yes. So, I've been very consistent on this as well to say that we think about third-party partnerships as a way to round out gaps in our auction. And by the way, we're not unique in that, right, even the largest platforms, right? When you think about past life for me, even the largest platforms in the world use third-party to round out gaps in the auction, now as a smaller platform, we had bigger gaps in the auction.

Unidentified Analyst

Right.

Bill Ready

And so when we talk about improving that actionability, that was our first focus is less -- is we want to go drive more relevant ads. You'd better have the right demand and it better be good shoppable content. So, that was our focus is how do we bring in third-party demand that can really round out those gaps in the auction? But it's important to remember, it's going into one auction. And so, one of the reasons that we consistently said we're not going to break that out separately because it's going into one auction. It's not like it's some totally different product line or something like that. It's all going into one auction. And in the same way that we wouldn't break out one retailer, it's one auction. And we're seeing, we said this on the earnings call and it's consistent with the timeline I laid out from the very beginning, that I said from the beginning that it was the first time that we were opening up to third-party demand.

It was going to take us multiple quarters to do that. That's pretty meaningful work to do that, particularly when you focus on relevance, right? You're just trying to do display ads that aren't relevant to the user, like that's easy, but it's not great for the user. We're actually doing ads that help engagement versus take away from it. We said that that'd be multi-quarter and that we'd start to have more meaningful contribution in early '24. Well, that's exactly what we said on our call, that we are now seeing as we get in, as we're coming to Q1, it is a more meaningful contributor, but we're not breaking it out separate. But we see it as a meaningful contributor. It's not dominating our growth. I've heard the question come in another form of like, oh, well, does it basically make you a publisher versus an ad platform?

Well, in no way do we expect that like 3P is going to dominate our platform. It's filling in gaps in the platform, right? And even as we had larger gaps than others, it's not dominating our growth. It's a meaningful contributor, but it's not dominating. And even as we are now expanding the aperture because I also said from the beginning that we would have multiple partners because we have different gaps in the auction. The first thing to address was shop ability. Amazon's been a fantastic partner on 1P and 3P around bringing great shoppable content into the platform. By the way, other large retailers have been fantastic as well. Walmart, Target, others, Wayfair, are bringing great shoppable content into the platform. And now we see more and more retailers piling in. That's been great. We announced the partnership with Google focused on international where we have roughly 80% of our users outside the U.S., but we have roughly 80% of our users outside the U.S., but 20%-ish of our revenue.

For larger platforms, you'd see roughly 50-50 in terms of U.S. versus international on revenue. And so, Google's got fantastic reach in those international markets that were previously unmonetized for us. And so, that's another gap in the auction. We're working with them on that. But we fully expect that first party continues to be the largest driver in our business. And third-party helps to round out gaps. We also talked about in our sales approach that we'll be first party in the largest markets, U.S. and international. And we are that today. We're working with resellers.

There's another multi-pronged approach. So, first party in the largest, most mature markets, resellers that help us get into sort of the next stage of markets. And then, 3P is a nice enhancement to that as well. So, you see us continue to execute on that multi-pronged strategy. And across each of those, we're making great progress. But in no way do we expect that our future is just that of a publisher and not somebody that is predominantly selling ads directly. Absolutely, that is what we will do predominantly. But these third-party partnerships are meaningful contributors and bring really great ad demand into the platform that not only contributes to revenue, but actually contributes to user engagement as it helps us solve actionability.

Unidentified Analyst

Yes. Okay. As we're -- as I know, we and investors will continue to do a lot of ad checks and agency checks about these third-party partnerships. There's always a lot of math thrown around about how big they can be. And sometimes I worry the math is candidly just too simple. And this is the point of incrementality and sort of the auction density. So, if you're looking at it externally, what are the hurdles that we should be mindful of that are going to make or break how much incremental revenue you can get from these partnerships? Just so that there isn't this, oh, ARPU is this and you can take ARPU up. Like, what are the key executional hurdles that are going to make or break Amazon and Google being bigger or smaller?

Bill Ready

Well, I mean, one of the biggest ones is a relevant ad demand, right, and so I've talked about that previously that we're seeing good relevant ad demand with the Amazon partnership. Google, we're just getting going, but obviously they've got fantastic reach across those unmonetized markets for us. So, we have good expectations of what we can do there. And so, I think that's the biggest one at the same time. These things require tuning, right? And so it takes a while to tune, and they will -- we'll be tuning and scaling in perpetuity, right? So sometimes you get the question like, hey, when are you done tuning? Well, never.

Like, I said the same thing in my old job too. No, you're constantly tuning. But I think we are a long way from having seen the ceiling on these. Like, we are still early innings on it, but we have more than proven out the theory of the case. And so, that tuning and scaling, consistent with what we said, we're right on track with what we said in the implementation. We're seeing 3P now becoming more meaningful contributor to our growth. It's not dominating our growth, but it's a meaningful contributor. And as we continue to tune and ramp with Amazon, bring Google in on international, and we're not done, right? We'll have other types of gaps that we'll fill in as well. We'll continue those things as we go forward. I got this question a lot previously, like, hey, are you doing something bespoke or are you building it for multiple? I was like, no, we're building to ingest multiple. Like, we've proven that out, but we feel good about the progress there.

Unidentified Analyst

And the Google international point, is there any sort of plumbing or strategic reason as to why Google is not in the U.S. yet? Or is this sort of a question of when, not whether? Why international? Why not --

Bill Ready

There's no structural reason we can't do that. There's nothing that precludes us from doing that. We're just focused on like, okay, what's our next biggest gap to fill in, right? A year ago, biggest gap was solving actionability and shop ability on the platform. Well, Amazon has a fantastic shopping and buying experience and really great shoppable ad demand. And so, that was absolutely the right place to start.

We feel good about the progress there, more to go. But feel good about the progress on that front. Next biggest gap, 80% of our users outside the U.S., but only 20% of our revenue, a lot of these markets completely unmonetized. That's the next biggest gap. So, we're really focused on the Google partnership and solving that gap. But there's nothing that precludes us from only doing that. But I talked about earlier, like we've accelerated product velocity and product market fit through clarity, focus, good execution. We're going to have clarity and focus and good execution on these things. And then, over time, you can start to blend them even more. But for now, we're focused on what's our next biggest gap to go solve. And international clearly is a big one.

Unidentified Analyst

One of the interesting couple of slides you had at the Analyst Day, I thought was when you sort of you talked about the potential for even further automation in the advertising. Have you talked about the potential for even further automation in the advertising tools for advertisers? Google has PMAX, Meta has Advantage+. Those tools do seem to be quite effective. How far away are you from being able to really push those types of tools out to more advertisers to just make the whole process more automated?

Bill Ready

Yes, great question. So, we've made phenomenal progress on sort of AI-driven tools for advertisers. Most tangible example would be automated bidding is now 85% of our revenue, right? We've seen rapid adoption of that over the last couple of years. And we've been -- don't think, I was at Google when PMAX was being built, very close to that. And it eventually got a name, but there were lots of components of that, that you're sort of building up all the components and it's like, oh yes, now we can call this a suite.

And so, similarly, that's what we're doing as well. All the components of this, we've been building up and we're across most of the components. Each of them is maturing. Automated bidding, we're the furthest along. We're now going deeper into broader campaign management, things like that. As we go forward, you'll get into things like dynamic creative. We talked about that a bit at Investor Day. Those are some of the things that are sort of still out in front of us. But where we think there's really good opportunity, right? And where we think we can shine, like on the dynamic creative side, future state of the world for us. You and I both love coffee. I'm assuming. I hope you love coffee. You and I both love coffee. We both want a really nice Breville coffee maker. Well, but maybe you like Scandinavian minimalist design.

Unidentified Analyst

Right.

Bill Ready

I'm doing a Cape Dutch Moroccan themed beach house. Well, when you see the coffee maker, you see it in a Scandinavian minimalist design background. I see it in a Cape Dutch Moroccan theme beach house. Well, when you see the coffeemaker, you see it in a Scandinavian minimalist design background. I see it in a Cape Dutch Moroccan beach house and we both convert better on the same product because of that kind of dynamic creative. And so, those are the kinds of things that we can do in the future, not just because of the same gen AI that everybody else uses, but because we have really unique signal because that level of knowledge of like, what's your style versus my style, that's the kind of really unique signal that we get. We continue to build out the suite. We see really great yield from those things. And one last point I'll make on this is we continue to round out the suite. It's another example, just like compounding benefits, right?

I talked about how advertisers have at least three of our lower funnel tools. How we're growing that and how we've moved people from mid-single-digit decline as a 30% growers. Similarly on AI-driven tools for the advertisers, as they adopt more components of this, compounding benefit to that as well in terms of how they shift spin to us and those kinds of things. So, we feel good about the progress there. While we're not all the way to the place of a PMAX or Advantage+, you're comparing like, best in the industry. If you compare us to other sort of like mid-size advertisers, I think that's one of the things that goes underappreciated. Like, we have really distanced ourselves from the pack there, right? We get this question of, like, oh, is it the largest platforms than everybody else? Well, that's one way to look at it. There's the advantage of scale.

Another way to look at it is like, those with commercial intent and everybody else. I think us leaning into that in this curation behavior and the personalization of that is letting us really distance ourselves, not just from other mid-size players, but even from the largest players when we're competing for performance. I talked about the progress that we're making there like breaking into those performance budgets, getting north of 5% of total ad spend for these largest, most sophisticated advertisers, double-digit on their performance budgets. We are really proving our mettle there. And yes, the full automated suite, we continue to work on that and see great progress there too.

Unidentified Analyst

Great. Bill, thank you very much.

Bill Ready

Thank you.

Unidentified Analyst

I'm going to get a coffee. I prefer it at your beach house, but -- [multiple speakers]

Bill Ready

All right. Thank you.