Good afternoon, everyone, and welcome to Snap Inc.’s Second Quarter 2021 Earnings Conference Call. At this time, participants are in a listen-only mode. After the prepared remarks, there will be a question-and-answer session. [Operator Instructions] This call will be recorded. Thank you very much. Betsy Frank, Senior Director of Investor Relations, you may begin.

Thank you, and good afternoon, everyone. Welcome to Snap’s second quarter 2021 earnings conference call. With us today are Evan Spiegel, Chief Executive Officer and Co-Founder, Jeremi Gorman, Chief Business Officer; and Derek Andersen, Chief Financial Officer. Please refer to our investor relations website at investor.snap.com to find today’s press release, slides, a copy of our prepared remarks, and our updated investor presentation. This conference call includes forward-looking statements which are based on our assumptions as of today. Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today, as well as risks described in our most recent Form 10-Q, particularly in the section titled Risk Factors. Today’s call will include both GAAP and non-GAAP measures. Reconciliations between the two can be found in today’s press release. Please note that when we discuss all of our expense figures they will exclude stock-based compensation and related payroll taxes as well as depreciation and amortization and non-recurring charges. Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today’s call. With that, I’d like to turn the call over to Evan.

Thank you all for joining us today. Our second quarter results reflect the broad-based strength of our business and the hard work of our team as we execute to serve our community and partners. This quarter we grew both revenue and daily active users at the highest rates we have achieved in the last four years. Daily active users grew 23% year-over-year to 293 million, and we more than doubled revenue year-over-year to $982 million, generating $117 million in adjusted EBITDA. Adjusted EBITDA improved by $213 million compared to last year, marking our third adjusted EBITDA profitable quarter in the last 12 months as we continue to demonstrate the leverage in our business as we scale. At our annual Partner Summit in May, we introduced new product innovations for our community and partners, including the next generation of Spectacles augmented reality glasses that overlay computing on the world, and we are excited by the tremendous opportunity for our business in 2021 and beyond. We made significant progress with our augmented reality platform this quarter. More than 200 million Snapchatters engage with AR every day on average, and over 200,000 creators use Lens Studio to build AR Lenses for our community. We are focused on learning from our large and engaged community of Snapchatters and creators, which allows us to continually improve our AR Lenses and the tools we provide to create them in Lens Studio. This quarter, our Cartoon 3D Style Lens, which uses machine learning to turn people into a 3D-animated cartoon in real-time, highlighted the power of Lenses to go viral both inside and outside of Snapchat. In the first week of release, it generated 2.8 billion impressions on Snapchat alone. We rolled out Lens Studio 4.0 at our Partner Summit, with new features like visual classification, multiperson…

Thanks, Evan. We’re pleased with our results this quarter and believe our business is well-positioned for the future. In Q2, we generated total revenue of $982 million, an increase of 116% year-over-year, reflecting the momentum in our advertising business and the hard work of our team serving our partners and helping them generate return on their investment. We benefited from a favourable operating environment and continued success with both direct response and large brand advertisers, and we continue to leverage our performant ad products to grow our advertiser base globally. We are fully focused on making progress against our revenue and ARPU opportunities, which we believe will be driven by three key priorities. First, driving ROI through measurement, ranking, and optimization, second, investing in our sales and marketing functions by continuing to train, hire and build for scale and third, building innovative ad experiences around video and augmented reality, with a focus on shopping and commerce. Our commitment to these three priorities, along with our unique reach and large, engaged community, allows us to drive performance at scale for businesses around the world. We believe all advertisers optimize for driving ROI and measuring performance. We have accelerated our efforts to drive ROI for our advertising partners via lower-funnel bidding capabilities, which allow advertisers to optimize for the objectives they are trying to achieve, and our innovative ad units, which are tailored for the most sophisticated performance advertisers. For example, Booking.com employed a strategy that used Dynamic Ads to reach new customers on Snapchat. By utilizing our Dynamic Ad solution for travel, they were able to dynamically pull images directly from their product catalog that displayed relevant and visually appealing destination photos and features. This helped Booking.com unlock an incremental audience within the United States, which resulted in a positive incremental…

Thanks, Jeremi. Our Q2 financial results reflect our priorities of growing our community, making focused investments in the future of our business, and scaling our operations efficiently in order to drive towards profitability and positive free cash flow. As Evan mentioned earlier, our community grew to 293 million daily active users in Q2, an increase of 55 million or 23% year-over-year. The growth in our community continues to be broad based, with year-over-year and sequential growth on both iOS and Android platforms. In North America, DAU grew by 5 million or 6% year-over-year to reach 95 million. In Europe, DAU grew by 7 million or 10% year-over-year to reach 78 million. In Rest of World, DAU grew by 43 million or 55% year-over-year to reach 120 million. The continued robust growth in Rest of World reflects the benefit of our ongoing investments in local content, local language support, marketing partnerships, and the popularity of augmented reality Lenses created by our global community. Total revenue for Q2 was $982 million, an increase of 116% year-over-year as we lapped the quarter in the prior year where the pandemic most significantly impacted advertising demand. We benefited from an improved operating environment in Q2 and strong momentum with our advertising products and partners. In addition, the iOS platform policy changes that we anticipated could disrupt advertising demand in Q2 of this year did not materialize as expected in Q2 as the changes were rolled out later and adoption occurred at a slower than expected pace. In North America, revenue grew 129% year-over-year in Q2, while ARPU grew 116% year-over-year as we continue to benefit from the significant investments we made in our sales teams and sales support in the prior year. In Europe, revenue grew 94% year-over-year in Q2, while ARPU grew 76% year-over-year.…

That concludes the prepared remarks for today’s earnings call and we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Doug Anmuth with JPMorgan. Please go ahead.

Thanks for taking the question. A question for Jeremi, average eCPM was up more than 120% year-over-year related to higher demand and ROI and then also product in geo mix shift. And I realize eCPM is an output for Snap and not a pure indicator of the prices that advertisers are paying, but we’ve also heard a lot about price inflation across the online ad market. So just wanted to get your views on whether you think there are any risks around price inflation and how you think about sustainability going forward.

Sure. Doug, it’s Derek speaking. I can take that one on the eCPM question. You’re right. We pivoted from eCPM in Q2, they were up 122% year-over-year, and we do think of eCPM at least in part is now put metric at this stage in our growth. And we expect that it could fluctuate as our business evolves over time. With that said, in Q2, in particular, we did see rising eCPM is driven by several factors. One of them is just the rapid rise in their overall advertising demand we’ve experienced, which was up 116% year-over-year successfully. Mix shift towards higher eCPM products is also a factor here such as dynamic ads, the revenue from which doubled sequentially in Q2. And then we do see mixed shift across some regions with North America growing at a relatively higher rate as well. Overtime, however, there are several competing forces, many of which we have influence over that can put downward pressure on eCPM, including, one is the growth in our overall community. And we’ve seen this accelerated in recent quarters with global DAU reaching 23% growth year-over-year in the most recent quarter. Second, there’s the potential to expand our inventory opportunity by expanding commoditization of highly engaged areas within our application. Example, this includes the camera and given that our app opens to the camera, our audience creates billions of snaps per day. The inventory potential of the camera is already immense. So we’re investing heavily in our capabilities to capture that opportunity. As you can see with our recent product announcements and acquisitions and so on, Spotlight is another example and it remains early days for this new platform, but where engagement has grown rapidly, and we’re excited about the potential for spotlight to expand our ARPU opportunity over time. And the math is another really good similar sort of example, of an entirely new revenue opportunity with very attractive levels of engagement and the opportunity to serve as an on-ramp for a new audience of advertising partners over time. Last but not least, we’d been investing really heavily in our ad products and optimization capabilities in order to deliver our goal based outcomes for advertisers, such as Pixel verified purchases as efficiently as possible, which allows us to expand our inventory opportunity. And then, look, lastly, I hope all of that would give you a little bit of a framework of how we’re thinking about this evolving over time as these dynamics play out. So hopefully that gives you a little more context. Thank you.

Our next question comes from Brian Nowak with Morgan Stanley. Please go ahead.

Great. Thanks for taking my questions. I have two. First one, just on the strength of the ad business in 2Q and then with the 3Q guide, love to sort of peel back for any more detail on the product level drivers of the ad business, what is sort of seeing the most incremental momentum between lenses and AR versus stories versus discover versus anything else that I’m missing? That’d be super helpful. Then the second one, Evan, just on an AR shopping, talk to us about sort of you where you think you’ve made the most progress there. And then in your mind, what are sort of some of the key hurdles and friction points you need to overcome from an execution perspective to really realize that opportunity?

Brian, thanks so much for the question. We’re really happy actually with the products across the board and the adoption. So as Derek spoke to, we’ve seen a robust increase in just overall demands of our innovative ad formats and improve self-service model, which has very much enabled us to scale demand globally. And to be specific about your question and the products that we released over the last three years that continue to see strong growth, it’s really in dynamic ads, down-funnel GBB as examples, being Pixel Purchase and ad purchase, commercials and shows and games, and then in self-service AR as well. So again, kind of runs the gamut there, but additionally, we continue to invest in ads, measurement and optimization, which is the most important thing for us because it helps us derive outcomes more efficiently and increase yield, but also increase performance for our advertisers. This particular flywheel is why we’re so excited about our future potential across all of these products as we scale our advertising business. And I will let Evan take the second part.

Brian, Thanks for the question. We’re super excited about AR shopping. In particular, we’re focused on apparel and accessories. It’s obviously a huge spending category for young people, but more importantly, it’s a real opportunity for us to differentiate. So if you think about the in-store experience in a changing room, that’s not particularly pleasant and at home trying to shop online and find the right size and scroll through thousands of little tiles, models were in clothing. None of those feel personal and none of them really capture the experience of trying something on, which is so important for consideration with apparel and accessories. So AR can really solve this problem in an interesting way. There are some places where I think from a product perspective, we have solved the technical challenge. So trying on a pair of shoes or a watch, sunglasses, those are all areas where today we see really great results for retailers and that’s where we’re focused on scaling. So helping people create and manage their 3D models and make sure that they can easily turn them into lenses. And then there are other problems that we’re still working on solving. So for example, trying on a T-shirt and making sure the cost looks really realistic and drapes over your shoulders in the right way, that’s much more complicated to do from a technical perspective and we’re making good progress there, but it’s not perfect yet. So I’d say, what we’ve tried to do is focus on the areas where we’ve got a great technical solution and the product works and delivers results. And of course, brands we’re seeing success with the lenses that they’re creating. And then we’re making much longer-term investments with things like fit analytics to find the right fit and the right size with all of our efforts around clothing try-on. And we released some really great new features in Lens Studio 4.0 recently that that helped get us part of the way there. But it may take a little longer for full on apparel trial. But nevertheless, we think AR is going to play a really important role. There’s lots of stuff we can do to scale today, and you may have seen some of our efforts to make our beauty AR Lenses more scalable. So that we can ingest someone’s entire catalog of beauty skews and help people try them on really easily through Lens web builder, so a lot of efforts to reduce friction and make it easier to scale, and then a lot of really exciting technical and product opportunities for the future.

Our next question comes from Richard Greenfield with LightShed Partners. Please go ahead.

Thanks for taking the questions. I’ve got a few. First and it’ll be quick. There’s a huge advertiser demand for Spotlight, which sort of replicates the TikTok and Facebook reels sort of user mechanic. What’s holding you back from starting advertising within the feed, especially when ads are already being created in similar sort of form factors on other sites to? Story Studio, I know you announced that at the partner summit. It hasn’t launched yet. Curious, I guess, for Evans specifically, how do you think it’s going to change the quality of the content on Snap and maybe even since it can be used for any app, how do you think it sort of leads to the use of Snap content across the broader mobile web? And then just the last piece for Jeremi specifically, curious what are the key building blocks you need ad product-wise to drive small and medium businesses to advertise in much larger numbers? Like what should we be looking for in terms of where your ad products or tech stack that needs to be done to really ramp those numbers? Thanks.

Hey, Rich, thanks for the great question. Yes. As you pointed out, we really pioneered that vertical video format with stories and of course now use that format in Spotlight. And so it’s something that I think will transition to monetization really easily. And of course leverage our full ad stack and all of the optimizations and measurement capabilities that we offer today. We’ve done some small testing with advertising in Spotlight, so that we’re ready when we want to turn on. But for now, we’re just really focused on the core experience. There’s so much opportunity there. We’ve got a great roadmap of improvements. And we just don’t want the team to get distracted frankly with monetization at this point, when there’s so much upside in the core user experience and core user engagement. So we’ve chosen to focus on the product experience for now and then over time we’ll think about monetization, but we’re testing and learning, so we’re ready when the time comes. And then when it comes to Story Studio, I’m so glad you asked this question. It’s something we’re really excited about. If you think about the core Snapchat camera, we’re always optimizing around communication. So we wanted to work really, really quickly. And oftentimes that means we don’t offer some of the more sophisticated creative tools that you might want to use when you’re making the perfect video and maybe you want to spend 20 minutes really perfecting the transitions and the text overlays and the audio and things like that. And so what we wanted to do is create a separate application, Story Studio to really focus on some of those more fine grain editing use cases to help people make really beautiful videos. And we think they’re going to use them in a bunch of different ways after they create them, of course, contributing them to the Spotlight or even to make stories for discover. So we don’t know what folks will make yet, but it is a really great opportunity for trust to invest in great creative tools. And over time, we may invent new creative tools in Story Studio and bring them over to Snapchat. So it’s a great new way to experiment with video editing and we’re really excited to get it out there.

Hi, Rich. Thanks for the great questions as always. I will take the small, medium business question. So specifically as it pertains to small and medium businesses, I think one of the things that can kind of get completed is that talking about local or is that talking about e-commerce and app install, et cetera. So I’ll give you an answer kind of in two parts there. But the first is really the small and medium businesses as it pertains to app install and e-commerce, so digitally native businesses to be specific. We believe that we already have a lot of the tools focused on measurement ROI that flywheel, that we’ve talked about in the last question, in terms of optimization and ensuring that people get results when they use things like our goal based bidding strategies. And those products are already in place, but we believe that we have a significant opportunity with a smaller growing companies in a particular space. And then looking longer term, we believe that the Snap Map and public profiles for businesses will be really key features to unlock growth in the local SMB space different than that e-comm and the app install businesses, but we’re still really, really early on in this particular journey. The good news is though that Snapchatters are starting to interact with local businesses organically on the service. So as we improve the utility of those core services, we’re going to be investing in more local specific advertising products, but we’re not there yet. So that’s what you should be looking for.

Our next question comes from Ross Sandler with Barclays. Please go ahead.

Hey, guys. Evan, just a question on engagement. You noted that time spent watching content is up overall, but it’s down for user stories. So is that from less mobility or is that being cannibalized by the Spotlight engagement? And do you think you can grow both areas in tandem or should we expect that dynamic to continue?

Hey, Ross, thanks for the question. I think the best way to think about Spotlight’s not going to be purely incremental, but so far what we’ve seen is that it’s largely incremental. And the reason why we think that is because Spotlight and Discover, in our stories products are really different purposes. So what we’re seeing as a Spotlight is a great way to discover new content to find creators you’ve never heard of before or even someone who just submitted a really funny snap that they created. And then Stories is a much more high intent product. So people make friends and want to see exactly what their friends are up to or they’ve subscribed to their favorite publishers. And so what we’re really interested in over time is actually the relationship between the two. So people might discover new influencers, new creators and Spotlight add them and then go view them on Discover. So I think you’re right, it’s not going to be purely incremental, but so far it has been largely incremental. And we’re really excited about the long-term opportunity for us to evolve the relationship between the two. So Spotlight is really opened up a whole new canvas for us to explore this way of distributing content and actually help people find things, frankly, are pretty hard to find today on the Stories page.

Our next question comes from Mark Mahaney with Evercore ISI. Please go ahead.

Thanks. I’ll throw a couple of questions two, please. One on Spotlight. Your level of investment in continuing to incentivize content. Do you expect to keep that at roughly the same level or do you think you’ve reached enough critical mass, where you don’t need to incentivize content? Secondly, could you talk a little bit about monetization of Maps and where you are versus the path and layout some expectations please for that? And then maybe third, the high-level question for you, Evan, which is, do you think about augmented reality and virtual reality also as a potentially new compute platform over the next five to 10 years? And you’ve talked about this in the past, but just your updated thinking on how much of a new “compute platform” that could be. And the extent to which you think that we will just fundamentally change or at least a significant segment of the population will fundamentally change how they interact, because of AR and VR. Do you think about it as complimentary or supplementary or the – actually replace – substantially replacing current interactions? Thanks a lot.

Hey, there, Mark. It’s Derek, I’ll take the first part of your question on Spotlight, then I’ll turn it over to Evan on the other parts of your question. On spotlight in particular, one, we’re continuing to improve the experience for our community and for our creators. For viewers, we’re adding new features like the training page while improving personalization and ranking in order to show the right content to the right people based on their engagement interests. And for creators, we are making it easier to create compelling content using creator tools and our camera, and we launched Creative Kit for Spotlight so the creators can easily create and submit videos to Spotlight from applications like Voisey and so on. We’re really excited about the momentum we’re seeing on Spotlight, submissions have tripled sequentially. We’re also seeing positive engagement trends with 49% sequential increase in DAU. We’re also seeing time spent growing rapidly with daily time spent per user on Spotlight in the U.S. growing more than 60% in the last quarter. On the creator front in the level of investment, we remain dedicated to rewarding our community for what they contribute to Spotlight. We have evolved the creator fund in the most recent quarter in order to continue to reward top creators, while also seeding new content categories. And we’re pleased with what we’re seeing in the results of that so far, we made over the last quarter is we’ve observed all time highs in daily submissions to Spotlight after making these changes. We’re still very early on in this journey though, we’re excited about our ongoing work with Spotlight to help our community discover new content and new creators, while also supporting our global creator community. On the monetization side of that, it’s very early and we don’t feel pressure to do that at this time. But hopefully that gives you a little bit of a sense of where we are on Spotlight and our commitment to investing in that product over time. I’ll turn it over to Evan to handle the next parts of your question there.

Hey, Mark. Thanks for the questions. Two things, I love talking about. With Maps, we’re really focused on the product opportunity and just continuing to evolve the platform. We see this as a huge long-term opportunity. And so it’s just critical that we remain focused on delivering value to the people that use our Map. It started out with answering basic questions, like, what are my friends up to. Where are they? Or are they on their way home yet? And now has evolved to really show people what’s happening around them, and of course, most recently with our Map layers really to even find events nearby or restaurant recommendations. And so what we’re going to focus on now is expanding that functionality to more partners, making the Map, much, much richer in terms of its content and then doing an even better job personalizing. So over time, of course, we’re going to have to filter through all the possible layers that you could engage with on the Snap Map and really find the relevant concerts or restaurants, or local parks that maybe are most interesting or important for you. So the big focus right now is, is continuing to evolve people’s relationships with the places around them. We’ve also released some really cool products that will allow people to favorite places or find ones that are popular with their friends. And so we’re just focused on growing that engagement. And then, of course over time, we think we can provide a lot of organic value to local businesses, help show them, who their customers are, how frequently they visit, help them understand foot traffic trends. And of course, eventually help them market to reach their local customer. So that’s definitely an exciting opportunity for us, but it’s really important…

Our next question comes from Mark Shmulik with Bernstein. Please go ahead.

Yes. Thanks for taking the question. One follow-up if I may around e-commerce. And so, lots of deals and efforts taking place on that front, we’ve heard around the business profiles, AR try-ons, et cetera. There’s obviously a lot of different ways for brands and sellers to reach their customers that are being tested within Snapchat. But is there anything you could share about how Snapchatters are engaging and shopping with that content and potentially what the roadmap could look like towards perhaps like a more permanent e-store within the application? Thank you.

Yes, sure. Thanks for the question. This is Jeremi, appreciate it. As Evan mentioned, we really think that the shift towards e-commerce is a long-term secular trend, and we know that AR can play a really pivotal role in improving the e-commerce experience for shoppers that’s beneficial to both the retailer and the customer. We’ve talked a little bit about this in past calls, but when you take a look at the trends that accelerated during lockdowns, it was really an interesting period of time because we had a lot of people in the Snapchat community that are fully engaged in AR, 200 million people engaging in AR every single day. And brands really needed to find a replacement for malls and for showrooms and these kinds of things, which accelerated the trends in AR. We don’t look at it as necessarily one specific destination on Snapchat where people can go and experience AR or brands can have a presence, but rather the AR shopping and its entirety is a huge focus for us. But we’re also looking at commerce and shopping is the type of experience that can be threaded throughout the service. So not like a specific destination, although of course, that will be available on public profiles as well. But we’ve experimented with shopping, to be a screen shop, native commerce for publishers and creators and discover, and even scan to shop with our Amazon partnership that we launched a few years ago. We work with advertisers all the time, spend a lot of time with them, and they consistently tell us that Snapchat and talking with their best friends comes up as a really important part of the shopping experience. When you think of kind of the evergreen question that’s been going on for years, does this look good on me? Imagine how much more effective that is in AR without having to buy something or return it later. And we’re going to look to leverage those close friends, that type of sentiment as we leave shopping experiences throughout the Snapchat service in just a really natural and engaging way.

Our last question comes from Justin Post with Bank of America. Please go ahead.

Great. Thank you. A couple of questions. First, what were the key drivers of revenue upside versus your expectations? Obviously, a very good quarter were there any unusual positive impacts in May or June or actually even a benefit to Snap, a shift in spend because of IDFA. And then secondly, just maybe you could provide a little bit more details on what you’re thinking around IDFA. Is it actually affecting, targeting? And how do you think about some of the workarounds you’re seeing or you’re implementing so far? Thank you.

Yes. Sure. Thank you for the question. So I think when we’re kind of talking specifically about what drove the success, this is my favorite question. So I’m excited that you asked that. Thank you. It was really broad-based across all of our sectors as well as our regions. So when we look at different areas of success, when you take vertical by vertical by vertical, we had a lot of success in areas where we’ve seen that type of acceleration during lockdowns, like streaming for instance. But then as the world started to reopen a bit, we also started to see success in areas like retail and restaurants, and a little bit of life back into the travel sector, which has been nice and exciting as well. I will let Derek talk to anything specific that was kind of made June related if he’d like, but I can also take the IDFA question. I think the important thing about IDFA is to really understand that the solutions are not yet fully finalized. Everyone is still evolving, Apple, the entire industry is still evolving. And we’ve said this before, and I just want to reiterate that we genuinely support Apple’s approach. We’ve always believed that advertising should respect customer’s privacy and it’s core at Snap than the product set. This amazing team has built for the last almost 10 years now and we’ve been working really hard to make this transition smooth for our advertising partners, as well as our businesses. So where we are in the cycle right now is that we’ve rolled out full support of SKAdNetwork 3.0, which we know will aid or what we believe will aid an attribution for advertisers. And we’ve also implemented Apple’s API. In addition, we launched Advanced Conversions in Ad Manager. So advertisers can measure their campaigns with our privacy conscious measurement stack. And then, I think one of the things that we are – whether we’re observing here is that our opt-in rates have been above what is sort of widely reported in both the press as well as with the analyst community. So that’s been good, but it remains so early in these iOS changes. And there’s no question that it will be a change for the industry in and of itself. But I think we prepared the best that we can. The product teams and engineering teams have been working really closely with all of our partners and our sales teams to make sure that this transition for our advertisers is as smooth as possible.

This concludes our question-and-answer session as well as Snap, Inc. second quarter 2021 earnings conference call. Thank you for attending today’s session. You may now disconnect.