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ITEM 7. 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 Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, including risks and uncertainties regarding the duration, scope and impact of the COVID-19 pandemic. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” and “Note About Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 is presented below. A discussion regarding our financial condition and results of operations for year ended December 31, 2019 compared to the year ended December 31, 2018 is included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Overview of 2020 Results

Our key financial and operating results as of and for the year ended December 31, 2020 are as follows:

•Revenue was $1,692.7 million, an increase of 48% compared to 2019.

•Monthly active users ("MAUs") were 459 million, an increase of 37% compared to December 31, 2019.

•Share-based compensation expense was $321.0 million, a decrease of $1,056.8 million compared to 2019.

•Total costs and expenses were $1,835.2 million.

•Loss from operations was $(142.5) million.

•Net loss was $(128.3) million.

•Adjusted EBITDA was $305.0 million.

•Cash, cash equivalents and marketable securities were $1,760.3 million.

•Headcount was 2,545.

Update on the COVID-19 Pandemic

The COVID-19 pandemic, which resulted in authorities implementing preventative measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, limitations on business activity, quarantines and shelter-in-place orders continues to have an impact globally. After a sharp deceleration in revenue growth in mid-March as advertisers responded to the onset of the COVID-19 pandemic, our revenue growth began recovering in the second quarter of 2020 before accelerating sharply in July 2020 and remaining strong through the end of 2020. Advertiser demand was broad based as businesses have increasingly adapted to the COVID-19 environment. An increase in the number of advertisements and a recovery in advertiser demand supported our revenue growth. In addition, people who began using Pinterest during the COVID-19 pandemic continued to have high levels of engagement in the fourth quarter of 2020. In fact, users in the COVID-19 pandemic cohort have had higher retention and higher engagement (defined as impressions, closeups and saves) than a cohort of new users during the same period in 2019.

Since the impact of the COVID-19 pandemic on our results of operations and overall financial performance remains unprecedented and highly unpredictable, our past results may not be indicative of our future performance. Given the uncertainty, we are unable to predict the extent and duration of the impact of the COVID-19 pandemic on advertiser demand, Pinner engagement, and our business, operations and financial results. To the extent the pandemic continues to disrupt economic activity globally we, like other businesses, would not be immune as it could adversely affect our business, operations and financial results. See "Risk Factors" and "Note About Forward-Looking Statements” for additional details.

We continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, advertisers, Pinners, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our employees, advertisers, Pinners, suppliers, vendors or other partners, or on our financial results.

Trends in User Metrics

Monthly Active Users. We define a monthly active user as an authenticated Pinterest user who visits our website, opens our mobile application or interacts with Pinterest through one of our browser or site extensions, such as the Save button,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 of 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)

Note: 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 an authenticated Pinterest user who visits our website, opens our mobile application or interacts with Pinterest through one of our browser or site extensions, such as the Save button, 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, 2020, the proportion of WAUs to MAUs was 56%.

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 focus on localizing content in international markets. We expect our international user growth to continue to outpace U.S. user growth in the near term. The impact of the COVID-19 pandemic on user growth remains difficult to measure and predict, and we are unable to predict the extent to which new or existing users will maintain their engagement once the pandemic has subsided.

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)

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 and 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 period divided by average 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

For the year ended December 31, 2020, global ARPU was $4.26, which represents an increase of 12% compared to the year ended December 31, 2019. For the year ended December 31, 2020, U.S. ARPU was $15.34 and international ARPU was $0.88, which represent increases of 27% and 62%, respectively, compared to the year ended December 31, 2019.

We use MAUs and ARPU to assess the growth and health of our overall business and believe that these metrics best reflect our ability to attract, retain, engage and monetize our users, and thereby drive revenue.

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.

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, changes in terms of online application stores 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 long-term 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 helping advertisers of all sizes succeed on Pinterest 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. Our investments in tools are focused on helping 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 advertisers, our ability and decision to serve contextually relevant advertisements, the amount of advertising spend, an advertiser’s objectives, ad performance and 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. We plan to continue making significant investments in research and development and may develop products for Pinners that cannot be monetized immediately, if ever.

Investment in Talent. Our business relies on our ability to attract and retain talent. As of December 31, 2020, we had 2,545 full-time employees, an increase of 15% compared to December 31, 2019. For information, see "Talent Management and Development" in section Item 1. Business, which is incorporated herein by reference.

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. We must compete effectively for users and advertisers in order to grow our business and increase our revenue. For more information, see "Our Competition" in section Item 1. Business and Item 1A. Risk Factors, which are incorporated herein by reference.

Seasonality. We experience seasonality in user growth, engagement and monetization on our platform. Historically, we have had lower engagement in the second calendar quarter, though we did not experience typical seasonal trends and saw an increase in active user growth in the second quarter of 2020 due to shelter-in-place orders related to the COVID-19 pandemic. Industry advertising spend tends to be strongest in the fourth quarter, and we observe a similar pattern in our historical advertising revenue. Significant user and monetization growth has partially offset these trends in historical periods, and thus we expect the impact of seasonality to be more pronounced in the future.

Share-Based Compensation. We began granting restricted stock units ("RSUs") in March 2015. We measure RSUs based on the fair market value of our common stock on the grant date.

RSUs granted under our 2009 Plan are subject to both a service condition, which is typically satisfied over four years, and a performance condition, which was deemed satisfied upon the pricing of our IPO. We did not record any share-based compensation expense for our RSUs prior to our IPO because the performance condition had not yet been satisfied. Upon pricing our IPO, we recorded cumulative share-based compensation expense using the accelerated attribution method for those RSUs granted under our 2009 Plan for which the service condition had been satisfied at that date. We will record the remaining unrecognized share-based compensation expense over the remainder of the requisite service period.

RSUs and restricted stock awards ("RSAs") granted under our 2019 Omnibus Incentive Plan (the "2019 Plan") are subject only to a service condition, which is typically satisfied over four years. We record share-based compensation expense for these RSUs and RSAs on a straight-line basis over the requisite service period.

As of December 31, 2020, we had $742.7 million of unrecognized share-based compensation expense, which we expect to recognize over a weighted-average period of 3.0 years.

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 ads 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, views an ad contracted on a cost per thousand impressions ("CPM") basis or views a video ad contracted on a cost per view ("CPV") 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.

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, 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 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 for discrete items.

Adjusted EBITDA. 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, provision for income taxes and, for the third quarter of 2020, a one-time payment for the termination of a future lease contract. See “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,

Costs and expenses (1):

Interest expense and other income (expense), net (635) (2,137) (995)

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

Year Ended December 31,

(2)See “Selected Financial 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,

Costs and expenses:

General and administrative 20 31 10

Loss from operations (8) (122) (10)

Interest income 1 3 2

Interest expense and other income (expense), net — — —

Loss before provision for income taxes (8) (119) (8)

Provision for income taxes — — —

Net loss (8) % (119) % (8) %

Years Ended December 31, 2020 and 2019

Revenue

Year Ended December 31,

(in thousands)

Revenue for the year ended December 31, 2020 increased by $549.9 million compared to the year ended December 31, 2019. Revenue growth was driven by a 12% increase in ARPU supported by a 37% increase in MAUs. These resulted in a 27% increase in the number of advertisements served and a 17% increase in the price of advertisements.

For the year ended December 31, 2020 compared to the year ended December 31, 2019, revenue based on our estimate of the geographic location of our users increased by 39% in the United States to $1,424.5 million driven by a 27% increase in U.S. ARPU supported by an 11% increase in U.S. MAUs. International revenue increased by 129% to $268.2 million driven by a 62% increase in international ARPU supported by a 46% increase in international MAUs.

Cost of Revenue

Year Ended December 31,

(in thousands)

Percentage of revenue 27 % 31 %

Cost of revenue for the year ended December 31, 2020 increased by $90.5 million compared to the year ended December 31, 2019. The increase was primarily due to higher absolute hosting costs due to user growth offset by a $23.9 million decrease in share-based compensation expense due to our IPO in 2019.

Research and Development

Year Ended December 31,

(in thousands)

Percentage of revenue 36 % 106 %

Research and development for the year ended December 31, 2020 decreased by $600.9 million compared to the year ended December 31, 2019. The decrease was primarily due to a $648.5 million decrease in share-based compensation expense due to our IPO in 2019 offset by a 17% increase in average headcount, which drove higher personnel expenses, as well as higher consulting expenses.

Sales and Marketing

Year Ended December 31,

(in thousands)

Percentage of revenue 26 % 54 %

Sales and marketing for the year ended December 31, 2020 decreased by $168.8 million compared to the year ended December 31, 2019. The decrease was primarily due to a $203.7 million decrease in share-based compensation expense due to our IPO in 2019 and lower marketing expenses, offset by a 22% increase in average headcount, which drove higher personnel expenses.

General and Administrative

Year Ended December 31,

(in thousands)

Percentage of revenue 20 % 31 %

General and administrative for the year ended December 31, 2020 decreased by $17.3 million compared to the year ended December 31, 2019. The decrease was primarily due to a $180.7 million decrease in share-based compensation expense due to our IPO in 2019, offset by a one-time payment of $89.5 million for the termination of a future lease contract, a $22.5 million settlement with our former Chief Operating Officer, an increase in outside advisor and legal-related expenses, and a 14% increase in average headcount, which drove higher personnel expenses.

Other Income

Year Ended December 31,

(in thousands)

Interest expense and other income (expense) (635) (2,137) 70 %

Other income for the year ended December 31, 2020 decreased by $12.5 million compared to the year ended December 31, 2019. The decrease was primarily due to lower returns on our marketable securities as a result of lower interest rates.

Provision for Income Taxes

Year Ended December 31,

(in thousands)

Provision for income taxes was primarily due to profits generated by our foreign subsidiaries.

Net Loss and Adjusted EBITDA

Year Ended December 31,

(in thousands)

Net loss for the year ended December 31, 2020 was $(128.3) million, as compared to $(1,361.4) million for the year ended December 31, 2019. Adjusted EBITDA was $305.0 million for the year ended December 31, 2020, as compared to $16.7 million for the year ended December 31, 2019, due to the factors described above. See “Selected Financial 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.

Quarterly Results of Operations Data

The following tables set forth our unaudited quarterly consolidated results of operations for each of the eight quarters in the period ended December 31, 2020. 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 in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Our historical operating data may not be indicative of our future performance.

Three Months Ended

(in thousands, except per share amounts)

Costs and expenses (2):

(1)Upon pricing our IPO, the performance condition for RSUs granted under our 2009 Plan was deemed satisfied, and we recorded cumulative share-based compensation expense for those RSUs for which the service condition had been satisfied at that date. For the three months ended June 30, 2019, we recorded total share-based compensation expense of $1,134.6 million.

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

Three Months Ended

*Share-based compensation expense was negative for the three months ended June 30, 2020 due to the reversal of previously recognized share-based compensation expense related to unvested RSUs forfeited by our former Chief Operating Officer.

(3)In August 2020, we entered into an agreement to terminate a future lease contract which involved a one-time payment of $89.5 million.

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

Three Months Ended

Reconciliation of Net Income (Loss) to Adjusted EBITDA

Termination of future lease contract — 89,500 — — — — — —

The following table sets forth the components of our unaudited quarterly consolidated statements of operations (as a percentage of revenue):

Three Months Ended

Costs and expenses:

Interest expense and other income (expense), net — — — (1) — — — —

Provision for (benefit from) income taxes — — — — — — — —

Liquidity and Capital Resources

We have historically financed our operations primarily through 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, 2020, we had $1,760.3 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, 2020, $82.1 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 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 are in compliance with all covenants and there were no amounts outstanding under this facility as of December 31, 2020.

On April 23, 2019, we closed our IPO in which we issued and sold 75,000,000 shares of Class A common stock at $19.00 per share. We received net proceeds of $1,368.0 million after deducting underwriting discounts and commissions and before deducting offering costs of $9.8 million. We utilized a portion of the net proceeds from this offering to pay approximately $302.7 million to satisfy the tax withholding and remittance obligations related to the settlement of RSUs.

On April 29, 2019, we issued and sold an additional 11,250,000 shares of Class A common stock at $19.00 per share pursuant to the underwriters’ option to purchase additional shares. We received additional net proceeds of $205.2 million after deducting underwriting discounts and commissions.

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 continue to monitor the effects of the COVID-19 pandemic on our working capital needs and may require additional capital resources in the future. In addition, the COVID-19 pandemic has caused disruption in the capital markets. It could make financing more difficult and/or expensive, and we may not be able to obtain such financing on terms acceptable to us or at all.

For the years ended December 31, 2020, 2019 and 2018, our net cash flows were as follows (in thousands):

Year Ended December 31,

Net cash provided by (used in):

Operating Activities

Cash flows from operating activities consist of our net loss adjusted for certain non-cash reconciling items, such as share-based compensation expense, depreciation and amortization, and changes in our operating assets and liabilities. Net cash provided by operating activities increased by $28.2 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a decrease in our net loss after adjusting for non-cash reconciling items offset by an increase in accounts receivable.

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 cash in short-duration marketable securities, sales and maturities of which we use to fund our ongoing working capital requirements. Net cash used in investing activities decreased by $538.9 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to increased proceeds from maturities of marketable securities.

Financing Activities

Cash flows from financing activities consist of net proceeds from our IPO, tax withholdings on release of RSUs and proceeds from the exercise of stock options. Net cash provided by financing activities decreased by $1,108.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the net proceeds related to our IPO in 2019 offset by a decrease in tax withholdings on release of RSUs.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2020.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of December 31, 2020 (in thousands):

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. In August 2020, we entered into an agreement to terminate the lease which involved a one-time payment of $89.5 million. As a result of the termination, we eliminated potential future total minimum lease payments of approximately $440.0 million.

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.

Some of our estimates may require increased judgment due to the significant volatility, uncertainty and economic disruption of the COVID-19 pandemic. We continue to monitor the effects of the COVID-19 pandemic, and our estimates and judgments may change materially as new events occur or additional information becomes available to us.

Refer to Note 1 to our consolidated financial statements for further information on our other significant accounting policies.

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, views an ad contracted on a CPM basis or views a video ad contracted on a CPV basis. We typically bill customers on a CPC, CPM or CPV 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, and revenue is recognized only after satisfying our contractual performance obligations. 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, impression or view, 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.

Leases and 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 at inception 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 for recent accounting pronouncements.

Item 7a. 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.

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 years ended December 31, 2020, 2019 and 2018.

Interest Rate Risk

As of December 31, 2020, we held cash, cash equivalents and marketable securities of $1,760.3 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 have decreased the market value of our cash equivalents and marketable securities by $7.6 million and $5.8 million as of December 31, 2020 and 2019, respectively.

Item 8. Financial Statements and Supplementary Data

PINTEREST, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm 69

Consolidated Balance Sheets 72

Consolidated Statements of Operations 73

Consolidated Statements of Comprehensive Loss 74

Consolidated Statements of Cash Flows 76

Notes to Consolidated Financial Statements 77

The supplementary financial information required by this Item 8, is included in Part II, Item 7 under the caption "Quarterly Results of Operations Data," which is incorporated herein by reference.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Pinterest, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Pinterest, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 4, 2021, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

San Francisco, California

February 4, 2021

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Pinterest, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Pinterest, Inc.’sinternal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the COSO criteria). In our opinion, Pinterest, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss , redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 4, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

San Francisco, California

February 4, 2021

PINTEREST, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

December 31,

ASSETS

Current assets:

Prepaid expenses and other current assets 33,502 37,522

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accrued expenses and other current liabilities 155,340 141,823

Commitments and contingencies

Stockholders’ equity:

Accumulated other comprehensive income 2,480 647

The accompanying notes are an integral part of these consolidated financial statements.

PINTEREST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Year Ended December 31,

Costs and expenses:

Interest expense and other income (expense), net (635) (2,137) (995)

The accompanying notes are an integral part of these consolidated financial statements.

PINTEREST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Year Ended December 31,

Other comprehensive income (loss), net of taxes:

Change in foreign currency translation adjustment 163 11 (212)

The accompanying notes are an integral part of these consolidated financial statements.

PINTEREST, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except per share amounts)

Shares Amount Shares Amount

Other comprehensive loss — — — — — (655) — (655)

Release of restricted stock units — — 28,084 1 — — — 1

Other comprehensive income — — — — — 2,068 — 2,068

Release of restricted stock units — — 19,890 — — — — —

Issuance of restricted stock awards, net — — 2,279 — — — — —

Other comprehensive income — — — — — 1,833 — 1,833

The accompanying notes are an integral part of these consolidated financial statements.

PINTEREST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Operating activities

Changes in assets and liabilities:

Net cash provided by (used in) operating activities 28,826 657 (60,369)

Investing activities

Other investing activities 316 — (500)

Financing activities

Fees paid for revolving credit facility — — (2,552)

Net increase in cash, cash equivalents, and restricted cash 1,168 542,453 51,321

Supplemental cash flow information

The accompanying notes are an integral part of these consolidated financial statements.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Description of Business and Summary of Significant Accounting Policies

Description of Business

Pinterest was incorporated in Delaware in 2008 and is headquartered in San Francisco, California. Pinterest is a visual discovery engine that people around the globe use to find the inspiration to create a life they love. We generate revenue by delivering ads on our website and mobile application.

Basis of Presentation and Consolidation

We prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). The consolidated financial statements include the accounts of Pinterest, Inc. and its wholly owned subsidiaries. We have eliminated all intercompany balances and transactions.

Reclassifications

We have reclassified certain amounts in prior periods to conform with current presentation.

Initial Public Offering

On April 23, 2019, we closed our initial public offering ("IPO") in which we issued and sold 75,000,000 shares of Class A common stock at $19.00 per share. We received net proceeds of $1,368.0 million after deducting underwriting discounts and commissions and before deducting offering costs of $9.8 million. Immediately prior to the completion of our IPO, all shares of our outstanding redeemable convertible preferred stock and redeemable convertible preferred stock warrants converted into 308,621,636 shares of Class B common stock on a one-for-one basis, and immediately thereafter but still prior to the completion of our IPO, all of our outstanding common stock were reclassified into 456,213,756 shares of Class B common stock on a one-for-one basis.

Upon pricing our IPO, the performance condition for restricted stock units ("RSUs") granted under our 2009 Stock Plan (the "2009 Plan") was deemed satisfied, and we recorded cumulative share-based compensation expense for those RSUs for which the service condition had been satisfied at that date. For the years ended December 31, 2020, 2019 and 2018, we recorded total share-based compensation expense of $321.0 million, $1,377.8 million and $14.9 million, respectively.

Use of Estimates

Preparing our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect amounts reported in the consolidated financial statements and accompanying notes. We base these estimates and judgments on historical experience and various other assumptions that we consider reasonable. GAAP requires us to make estimates and assumptions in several areas, including the fair values of financial instruments, assets acquired and liabilities assumed through business combinations, common stock prior to our IPO, share-based awards, and contingencies as well as the collectability of our accounts receivable, the useful lives of our intangible assets and property and equipment, the incremental borrowing rate we use to determine our operating lease liabilities, and revenue recognition, among others. Actual results could differ materially from these estimates and judgments.

Segments

We operate as a single operating segment. Our chief operating decision maker is our Chief Executive Officer ("CEO"), who reviews financial information presented on a consolidated basis, accompanied by disaggregated information

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

about our revenue, for purposes of making operating decisions, assessing financial performance and allocating resources.

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 cost per click (“CPC”) basis, views an ad contracted on a cost per thousand impressions (“CPM”) basis or views a video ad contracted on a cost per view ("CPV") basis. We typically bill customers on a CPC, CPM or CPV basis, and our payment terms vary by customer type and location. The term between billing and payment due dates is not significant.

We record sales commissions in sales and marketing expense as incurred because we would amortize these over a period of less than one year.

Deferred revenue was not material as of December 31, 2020 and 2019.

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.

Share-Based Compensation

We measure RSUs and RSAs based on the fair market value of our common stock on the grant date, and we account for forfeitures as they occur.

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. We recognize taxes on Global Intangible Low-Taxed Income ("GILTI") as a current period expense when incurred.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising Expenses

We record advertising expenses as incurred and include these in sales and marketing in the consolidated statements of operations. Advertising expenses were $30.3 million, $55.0 million and $19.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Marketable Securities

We invest in highly liquid corporate debt securities, U.S. treasury securities, asset-backed securities, U.S. government agency securities, money market funds and certificates of deposit. We classify marketable investments with stated maturities of ninety days or less from the date of purchase as cash equivalents and those with stated maturities greater than ninety days from the date of purchase as marketable securities.

We classify our marketable securities as available-for-sale investments in our current assets because they are available for use to support current operations. We carry our marketable investments at fair value and record unrealized gains or losses, net of taxes, in accumulated other comprehensive income (loss) in stockholders’ equity (deficit). We determine realized gains and losses on the sale of marketable investments using a specific identification method and record these and any expected credit losses in interest expense and other income (expense), net.

Restricted Cash

Our restricted cash primarily consists of certificates of deposit underlying secured letters of credit issued in connection with our operating leases. Restrictions typically lapse at the end of the lease term, and we classify restricted cash as current or non-current based on the remaining term of the restriction.

Fair Value Measurements

We account for certain assets and liabilities at fair value, which is the amount we believe market participants would receive to sell an asset or pay to transfer a liability in an orderly transaction. We categorize these assets and liabilities into the three levels below based on the degree to which the inputs we use to measure their fair values are observable in active markets. We use the most observable inputs available to us when measuring fair value.

•Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets

•Level 2: Observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, or inputs that are derived principally from or corroborated by observable market data or other means

•Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities

Accounts Receivable, Net of Allowances

We record accounts receivable at the original invoiced amount. We maintain an allowance for credit losses for any receivables we may be unable to collect. We estimate uncollectible receivables based on our receivables’ age, our customers’ credit quality and current economic conditions, among other factors that may affect our customers’ ability to pay. We also maintain an allowance for sales credits, which we determine based on historical credits issued to customers. We include the allowances for credit losses and sales credits in accounts receivable, net in the consolidated balance sheets.

Property and Equipment

We carry property and equipment at cost less accumulated depreciation and calculate depreciation using the straight-line method over our assets’ estimated useful lives, which are generally:

Property and Equipment Useful Life

Computer and network equipment 3 years

Furniture and fixtures 4 years

Leasehold improvements Lesser of estimated useful life or remaining lease term

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases and Operating Lease Incremental Borrowing Rate

For short-term leases, we record rent expense in our consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

Business Combinations

We include the results of operations of businesses that we acquire in our consolidated financial statements beginning on their respective acquisition dates. We allocate the fair value of the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values. When the fair value of the purchase consideration exceeds the fair values of the identifiable assets and liabilities acquired, we record the excess as goodwill.

Long-Lived Assets, Including Goodwill and Intangible Assets

We record definite-lived intangible assets at fair value less accumulated amortization. We calculate amortization using the straight-line method over the assets’ estimated useful lives of up to ten years.

We review our property and equipment and intangible assets for impairment whenever events or circumstances indicate that an asset’s carrying value may not be recoverable. We measure recoverability by comparing an asset’s carrying value to the future undiscounted cash flows that we expect it to generate. If this test indicates that the asset’s carrying value is not recoverable, we record an impairment charge to reduce the asset’s carrying value to its fair value. We did not record material property and equipment or intangible asset impairments during the periods presented.

We review goodwill for impairment at least annually or more frequently if current circumstances or events indicate that the fair value of our single reporting unit may be less than its carrying value. We did not record any goodwill impairment during the periods presented.

Website Development Costs

We capitalize costs to develop our website and mobile application when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. Due to the iterative process by which we perform upgrades and the relatively short duration of our development projects, development costs meeting our capitalization criteria were not material during the periods presented.

Loss Contingencies

We are involved in various lawsuits, claims and proceedings that arise in the ordinary course of business. We record a liability for these when we believe it is probable that we have incurred a loss and can reasonably estimate the loss. We regularly evaluate current information to determine whether we should adjust a recorded liability or record a new one.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency

The functional currency of our international subsidiaries is generally their local currency. We translate these subsidiaries’ financial statements into U.S. dollars using month-end exchange rates for assets and liabilities and average exchange rates for revenue and costs and expenses. We record translation gains and losses in accumulated other comprehensive income (loss) in stockholders’ equity (deficit). We record foreign exchange gains and losses in interest expense and other income (expense), net. Our net foreign exchange gains and losses were not material for the periods presented.

Concentration of Business Risk

We have an agreement with Amazon Web Services (“AWS”) to provide 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 are currently required to maintain a substantial majority of our monthly usage of certain compute, storage, data transfer and other services on AWS. 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.

Concentration of Credit Risk

Financial instruments that may potentially expose us to concentrations of credit risk primarily consist of cash, cash equivalents, marketable securities and restricted cash. Our investment policy is meant to preserve capital and maintain liquidity. The policy limits our marketable investments to investment-grade securities and limits our credit exposure by limiting our concentration in any one corporate issuer or sector and by establishing a minimum credit rating for marketable investments we purchase. Although we deposit cash and marketable investments with multiple financial institutions, our deposits may exceed insurable limits.

No customer accounted for more than 10% of our revenue for the years ended December 31, 2020 and December 31, 2018. One customer accounted for 10% of our revenue for the year ended December 31, 2019.

Our accounts receivable are generally unsecured. We monitor our customers’ credit quality on an ongoing basis and maintain reserves for estimated credit losses. Bad debt expense was not material for the years ended December 31, 2020, 2019 and 2018.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets not held at fair value. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. We adopted ASU 2016-13 as of January 1, 2020, using the modified retrospective method, and while the effects of adoption on our consolidated financial statements were not material, we continue to monitor the effects of the COVID-19 pandemic on expected credit losses.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. We elected to early adopt ASU 2019-12 effective as of January 1, 2020, and the effects of adoption on our consolidated financial statements were not material.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Cash, Cash Equivalents and Marketable Securities

Cash, cash equivalents and marketable securities consist of the following (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Cash and cash equivalents:

Marketable securities:

Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Cash and cash equivalents:

Marketable securities:

Our allowance for credit losses for our marketable securities was not material as of December 31, 2020 and 2019. We continue to monitor the effects of the COVID-19 pandemic on expected credit losses.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of our marketable securities by contractual maturity is as follows (in thousands):

Due in one year or less $ 787,395

Due after one to five years 303,681

Net realized gains and losses from sales of available-for-sale securities were not material for any period presented.

3. Fair Value of Financial Instruments

The fair values of the financial instruments we measure at fair value on a recurring basis are as follows (in thousands):

Level 1 Level 2 Level 3 Total

Cash equivalents:

Marketable securities:

Non-U.S. government and supranational bonds — 15,950 — 15,950

Prepaid expenses and other current assets:

Certificates of deposit — 571 — 571

Restricted cash:

Certificates of deposit $ — $ 9,110 $ — $ 9,110

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Level 1 Level 2 Level 3 Total

Cash equivalents:

Marketable securities:

Prepaid expenses and other current assets:

Restricted cash:

We classify our marketable securities within Level 1 or Level 2 because we determine their fair values using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

4. Other Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

December 31,

Depreciation expense was $36.0 million, $26.3 million and $20.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consists of the following (in thousands):

December 31,

Accrued expenses and other current liabilities $ 155,340 $ 141,823

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Goodwill and Intangible Assets, Net

Goodwill was unchanged during the years ended December 31, 2020 and 2019.

Intangible assets, net consists of the following (in thousands):

Acquired technology and other intangibles 4,385 (4,385) — 1.5 years

Acquired technology and other intangibles 4,385 (4,381) 4 1.5 years

(1)Based on the weighted-average useful life established as of acquisition date.

Amortization expense was $1.0 million, $1.5 million and $0.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Estimated future amortization expense as of December 31, 2020, is as follows (in thousands):

Intangible Asset Amortization

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Commitments and Contingencies

As of December 31, 2020, our non-cancelable contractual commitments, consisting of operating leases, are as follows (in thousands):

Total Commitments

Operating Leases

Legal Matters

We are involved in various lawsuits, claims and proceedings that arise in the ordinary course of business, including those described below. While the results of legal matters are inherently uncertain, we do not believe there is a reasonable possibility that the ultimate resolution of these matters, either individually or in aggregate, will have a material adverse effect on our business, financial position, results of operations, or cash flows.

On November 23, 2020, Pinterest and our CEO and Chief Financial Officer were named as defendants in a putative securities class action filed in the U.S. District Court for the Northern District of California. The lawsuit alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and alleges that defendants made material false and misleading public statements about our revenue and user growth in 2019. The complaint seeks damages, litigation costs, and interest. We continue to evaluate these claims but do not believe this litigation will have a material impact on our financial position or results of operations.

In November and December 2020, certain or our executives and members of our board of directors were named as defendants in derivative lawsuits filed in the U.S. District Court for the Northern District of California. Pinterest was also named as a nominal defendant. The lawsuits purport to assert claims for breach of fiduciary duty in connection with allegations of gender and racial discrimination at Pinterest. In addition, the lawsuits purport to assert claims for waste, abuse of control, aiding and abetting breaches of fiduciary duties, unjust enrichment, and violations of Section 14(a) of the Exchange Act. The complaints seek declaratory and injunctive relief, corporate governance changes, monetary damages, interest, disgorgement, and fees and costs. We continue to evaluate these claims but do not believe this litigation will have a material impact on our financial position or results of operations.

Revolving Credit Facility

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our total borrowing capacity under the revolving credit facility is $500.0 million as of December 31, 2020. We have not issued any letters of credit against the revolving credit facility and are in compliance with all covenants under the revolving credit facility as of December 31, 2020.

Letters of Credit

We had $7.5 million and $25.5 million of secured letters of credit outstanding as of December 31, 2020 and 2019, respectively. These primarily relate to our office space leases and are fully collateralized by certificates of deposit which we record in prepaid expenses and other current assets or restricted cash in our consolidated balance sheets based on the term of the remaining restriction.

7. Leases

We have entered into various non-cancelable office space operating leases with original lease periods expiring between 2021 and 2033. These do not contain material variable rent payments, residual value guarantees, covenants or other restrictions. Operating lease costs for the years ended December 31, 2020, 2019 and 2018, are as follows (in thousands):

Year Ended December 31,

Lease cost:

The weighted-average remaining term of our operating leases was 8.1 years and 8.1 years, and the weighted-average discount rate used to measure the present value of our operating lease liabilities was 4.8% and 4.6% as of December 31, 2020 and 2019, respectively.

Maturities of our operating lease liabilities, which do not include short-term leases, as of December 31, 2020, are as follows (in thousands):

Operating Leases

Less imputed interest (46,976)

Total operating lease liabilities $ 182,954

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash payments included in the measurement of our operating lease liabilities were $54.3 million, $38.4 million and $26.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, we have not entered into any material leases that have not yet commenced.

8. Share-Based Compensation

Equity Incentive Plan

In June 2009, our board of directors adopted and approved our 2009 Plan, which provides for the issuance of stock options, RSAs and RSUs to qualified employees, directors and consultants. Stock options granted under our 2009 Stock Plan have a maximum life of 10 years and an exercise price not less than 100% of the fair market value of our common stock on the date of grant. RSUs granted under our 2009 Plan have a maximum life of seven years. No shares of our common stock were reserved for future issuance under our 2009 Plan as of December 31, 2020.

Our 2019 Plan became effective upon closing of our IPO and succeeds our 2009 Plan. Our 2019 Plan provides for the issuance of stock options, RSAs, RSUs and other equity- or cash-based awards to qualified employees, directors and consultants. Stock options granted under our 2019 Plan have a maximum life of 10 years and an exercise price not less than 100% of the fair market value of our common stock on the date of grant. 99,801,162 shares of our Class A common stock were reserved for future issuance under our 2019 Plan as of December 31, 2020.

The number of shares of our Class A common stock available for issuance under the 2019 Plan will be increased by the number of shares of our Class B common stock subject to awards outstanding under our 2009 Plan that would, but for the terms of the 2019 Plan, have returned to the share reserves of the 2009 Plan pursuant to the terms of such awards, including as the result of forfeiture, repurchase, expiration or retention by us in order to satisfy an award’s exercise price or tax withholding obligations. In addition, the number of shares of our Class A common stock reserved for issuance under our 2019 Plan will automatically increase on the first day of each fiscal year 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 the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by our board of directors.

Stock Option Activity

Stock option activity during the year ended December 31, 2020, was as follows (in thousands, except per share amounts):

Stock Options Outstanding

(in years)

(1)We calculate intrinsic value based on the difference between the exercise price of in-the-money-stock options and the fair value of our common stock as of the respective balance sheet date.

The total grant-date fair value of stock options vested during the years ended December 31, 2020, 2019 and 2018, was $3.3 million, $2.2 million and $18.6 million, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2020, 2019 and 2018, was $1,023.9 million, $425.1 million and $5.9 million, respectively.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Unit and Restricted Stock Award Activity

RSU and RSA activity during the year ended December 31, 2020, was as follows (in thousands, except per share amounts):

Restricted Stock Units Outstanding

Shares Weighted Average Grant Date Fair Value

Share-Based Compensation

Share-based compensation expense during the years ended December 31, 2020, 2019 and 2018, was as follows (in thousands):

Year Ended December 31,

As of December 31, 2020, we had $742.7 million of unrecognized share-based compensation expense, which we expect to recognize over a weighted-average period of 3.0 years.

9. Net Loss Per Share Attributable to Common Stockholders

We present net loss per share attributable to common stockholders using the two-class method required for multiple classes of common stock and participating securities. Holders of our Class A and Class B common stock have identical rights except with respect to voting, conversion and transfer rights and therefore share equally in our net losses. Prior to our IPO, we considered all series of our redeemable convertible preferred stock participating securities. We have not allocated net loss attributable to common stockholders to our redeemable convertible preferred stock because the holders of our redeemable convertible preferred stock are not contractually obligated to share in our losses.

We calculate basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders gives effect to all potential shares of common stock, including common stock issuable upon conversion of our redeemable convertible preferred stock and redeemable convertible preferred stock warrants, stock options, RSAs, RSUs and common stock warrants to the extent these are dilutive.

We calculated basic and diluted net loss per share attributable to common stockholders as follows (in thousands, except per share amounts):

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31,

Class A Class B Class A Class B Common

Numerator:

Denominator:

Basic net loss per share is the same as diluted net loss per share because we reported net losses for all periods presented. We excluded the following weighted-average potential shares of common stock from our calculation of diluted net loss per share attributable to common stockholders because these would be anti-dilutive (in thousands):

Year Ended December 31,

Unvested restricted stock units and restricted stock awards 63,603 69,800 68,795

Redeemable convertible preferred stock warrants — 77 158

Common stock warrants — — 96

10. Income Taxes

The components of loss before provision for income taxes are as follows (in thousands):

Year Ended December 31,

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Provision for income taxes consists of the following (in thousands):

Year Ended December 31,

Current:

Federal $ — $ — $ —

State 79 — —

Deferred:

Total deferred tax expense (benefit) 533 (1,145) (90)

The difference between income taxes computed at the statutory federal income tax rate and the provision for income taxes is attributable to the following (in thousands):

Year Ended December 31,

State income taxes, net of benefit 84 (77) 4

Legal settlement 2,290 — —

The primary difference between our effective tax rate and the federal statutory rate is the full valuation allowance we have established on our federal, state and foreign net operating losses and credits.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant components of our deferred tax assets and liabilities are as follows (in thousands):

December 31,

Deferred tax assets:

Deferred tax assets, net of valuation allowance 36,953 48,956

Deferred tax liabilities:

Net deferred tax assets $ 854 $ 696

In December 2019, we completed an intra-entity asset transfer of certain of our intellectual property rights to an Irish subsidiary where our international business is headquartered. The transfer resulted in a step-up in the tax basis of the transferred intellectual property rights and a correlated increase in foreign deferred tax assets.As of December 31, 2020, we believe it is more likely than not that these additional foreign deferred tax assets will not be realized and, therefore, are offset by a full valuation allowance.

Due to our history of losses we believe it is more likely than not that our U.S. and Irish deferred tax assets will not be realized as of December 31, 2020. Accordingly, we have established a full valuation allowance on our U.S. and Irish deferred tax assets. Our valuation allowance increased by $439.9 and $520.1 million during the years ended December 31, 2020 and 2019, respectively, primarily due to U.S. federal and state tax losses and credits incurred during the period.

As of December 31, 2020, we had federal, California and other state net operating loss carryforwards of $3,282.2 million, $405.6 million and $1214.9 million, respectively. If not utilized, these will begin to expire in 2028, 2028 and 2026, respectively. Utilization of our net operating loss carryforwards may be subject to annual limitations due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. Our net operating loss carryforwards could expire before utilization if subject to annual limitations. As of December 31, 2020, we had $37.9 million of Irish net operating loss carryforwards that can be carried forward indefinitely.

As of December 31, 2020, we had federal and California research and development credit carryforwards of $241.6 million and $181.7 million, respectively. If not utilized, our federal carryforwards will begin to expire in 2030. Our California carryforwards do not expire.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in gross unrecognized tax benefits were as follows (in thousands):

Gross Unrecognized Tax Benefits

Decreases for tax positions of prior years (50)

Increases for tax positions of current year 90,685

Increases for tax positions of prior years 886

Decreases for tax positions of prior years (37,250)

Increases for tax positions of current year 47,339

On June 7, 2019, a three-judge panel from the U.S. Court of Appeals for the Ninth Circuit overturned the U.S. Tax Court's decision in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations under Section 482 of the Internal Revenue Code that requires related parties in a cost-sharing arrangement to share expenses related to share-based compensation. As a result of this decision, our gross unrecognized tax benefits increased to reflect the impact of including share-based compensation in cost-sharing arrangements. On July 22, 2019, the taxpayer filed a petition for a rehearing before the full Ninth Circuit. and the request was denied on November 12, 2019. On February 10, 2020, the taxpayer filed a petition to appeal the decision to the Supreme Court and on June 22, 2020, the Supreme Court denied the petition. As a result of the Supreme Court’s action, our U.S. deferred tax asset related to net operating losses was reduced by $24.4 million and we no longer consider this to be an uncertain tax position. There is no impact on our effective tax rate for the year ended December 31, 2020, due to our full valuation allowance against our deferred tax assets.

Recognizing the $140.2 million of gross unrecognized tax benefits we had as of December 31, 2020 would not affect our effective tax rate as their recognition would be offset by the reversal of related deferred tax assets, which are subject to a full valuation allowance.We do not expect our gross unrecognized tax benefits to change significantly within the next 12 months. We recognize interest and penalties related to uncertain tax positions in provision for income taxes. Accrued interest and penalties are not material as of December 31, 2020 and 2019.

We are subject to taxation in the U.S. and various other state and foreign jurisdictions.As we have net operating loss carryforwards for U.S. federal and state jurisdictions, the statute of limitations is open for all tax years. For material foreign jurisdictions, the tax years open to examination include the years 2015 and forward. The Internal Revenue Service has started an examination of our U.S. consolidated federal income tax return for calendar year 2018. We believe that we have adequately reserved for any adjustments to the provision for income taxes or other tax items that may ultimately result from these examinations.

We have not recognized deferred taxes for the difference between the financial reporting basis and the tax basis of our investment in our foreign subsidiaries because we have the ability and intent to maintain our investments for the foreseeable future.

PINTEREST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Geographical Information

Revenue disaggregated by geography based on our customers’ billing addresses is as follows (in thousands):

Year Ended December 31,

(1)No individual country other than the United States exceeded 10% of our total revenue for any period presented.

Property and equipment, net and operating lease right-of-use assets by geography is as follows (in thousands):

December 31,

(1)No individual country other than the United States exceeded 10% of our total property and equipment, net and operating lease right-of-use assets for any period presented.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer (CEO) and chief financial officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our CEO and CFO have concluded that as of December 31, 2020, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC), and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has concluded that its internal control over financial reporting was effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report with respect to our internal control over financial reporting, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Further, while the majority of our employees are working remotely, we have not experienced any material impact in our internal control over financial reporting as a result of the COVID-19 pandemic. We continue to monitor for and assess any effects the COVID-19 pandemic may have on the design or operating effectiveness of our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference to the sections titled “Proposal 1 - Election of Directors” and “Other Matters” that will be included in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (SEC) within 120 days of December 31, 2020.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to the section titled “Proposal 3 – Advisory Non-Binding Vote on our Named Executive Officers' Compensation” that will be included in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2020.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to the section titled “Other Matters” that will be included in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2020.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to the sections titled “Proposal 1 – Election of Directors” and “Other Matters” that will be included in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2020.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated by reference to the sections titled “Proposal 2 – Ratification of Selection of Independent Auditor” that will be included in our Definitive Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of December 31, 2020.

PART IV

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed as part of this Annual Report on Form 10-K:

1.Consolidated Financial Statements

PINS US Equity

PINS · 10-K · period ended 2020-12-31

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules

PINS US Equity☆

PINS · 10-K · period ended 2020-12-31

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

Item 15. Exhibits, Financial Statement Schedules

PINS US Equity