Good afternoon, everyone, and welcome to Snap Incorporated’s Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. I would now like to turn the call over to David Ometer, Head of Investor Relations.

Thank you and good afternoon, everyone. Welcome to Snap’s second quarter 2024 earnings conference call. With us today are Evan Spiegel, Chief Executive Officer and Co-Founder; and Derek Andersen, Chief Financial Officer. Please refer to our Investor Relations' website at investor.snap.com to find today’s press release, slides, Investor Letter, and 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 these forward-looking statements, please refer to the press release we issued today, as well as risks described in our most recent Form 10-K or 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 certain other items. 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.

Hi, everyone, and thank you for joining our call. Q2 marked an important milestone for Snap as we reached more than 850 million monthly active users and 432 million daily active users on the path to our goal of 1 billion monthly active users. Our focus on visual communication between friends and family is a strategic advantage that has enabled us to serve more than 75% of 13 to 34-year-olds in over 25 countries. As Snapchat has grown, our community has grown with us, and approximately 80% of Snapchatters are above the age of 18. We also continue to broaden and deepen engagement with our content platform in Q2, with global content viewers growing 12% year-over-year, and global time spent watching content growing 25% year-over-year. The growth of our community, the progress we have made with our direct response advertising business, and the success of our Snapchat Plus subscription business that now reaches more than 11 million subscribers, all contributed to revenue growth of 16% year-over-year, despite the impact of a weaker brand advertising environment for certain consumer discretionary verticals. We are pleased with the ongoing progress made in our DR business as well as well as the continued rapid growth in the total number of active advertisers which more than doubled year-over-year in Q2. We believe this progress validates our strategy of focusing on growing our community and engagement, investing in our Direct Response advertising products, and diversifying our revenue growth with our subscription offering. The actions we have taken to optimize our cost structure have cleared a path to meaningful Adjusted EBITDA profitability and positive free cash flow. In Q2, the combination of topline progress and expense discipline translated to $55 million of Adjusted EBITDA and sets us up well for continued improvement in operating leverage as the…

Thanks Evan and good afternoon everyone. Total revenue was $1.24 billion in Q2, up 16% year-over-year, while advertising revenue was $1.13 billion, up 10% year-over-year. DR advertising revenue increased 16% year-over-year driven by a combination of total active advertisers more than doubling year-over-year, continued progress with our 7-0 Pixel Purchase Optimization, and early contributions from the product improvements delivered for app-based advertisers. Brand-oriented advertising revenue declined 1% year-over-year, driven by particularly weak demand from certain consumer discretionary verticals including retail, technology, and entertainment, as well as the timing impact of holidays shifting out of Q2 in the current year. We continued to make progress toward diversifying our revenue sources, with Other Revenue up 151% year-over-year to reach $105 million in Q2. Other Revenue includes all non-advertising revenue, the majority of which is Snapchat+ subscription revenue and Snapchat+ reached the 11 million subscriber milestone in Q2. In Q2, North America revenue grew 12% year-over-year, with the relatively lower rate of growth in this region due to the impact of weaker brand-oriented demand being relatively concentrated in North America. DR was a bright spot in North America in Q2, driven in part by strong growth from our small and medium-size customer segment. In an effort to accelerate our growth in the Americas, we made changes in Q2 to optimize our go-to-market organization in North America to better support clients where we see the best product market fit and greatest opportunity for our business going forward. Europe revenue grew 26% year-over-year, as continued progress on our DR ad platform, and a relatively more stable demand environment for Brand oriented advertising solutions, fully offset the impact of more challenging prior year comparisons. Rest of World revenue grew at 20% year-over-year, driven by the continued progress of our DR ad platform, while the deceleration versus…

Thank you. [Operator Instructions] Our first question today comes from Ken Gawrelski with Wells Fargo. Your line is now open.

Thank you very much. Good afternoon. To help us out with maybe some of the volatility you've seen in advertising results over the last several quarters. Could you just talk a little bit about the advertising performance within the quarter, maybe how the months progressed in the June quarter? And then maybe I'll -- the third quarter has started off. And maybe just to add to that, could you talk a little bit about the impacts of the Olympics? I know you've put out releases about your NBC relationship with the Olympics and some of the content related to that. Could you talk about contributions from the Olympics in 3Q and then potentially political in the U.S. in the second half? Thank you.

Ken, it's Derek speaking. Thanks for the question. I think at a high level, it might make sense to talk about how revenue growth has progressed through the course of Q2 in the context of brand and DR separately. I think one of the things that we're seeing with the DR business is that it is incredibly resilient, and it's been growing at a pretty strong clip. And it's also fairly stable. So to put a little bit finer point on that, direct response revenue advertising was up 16% year-over-year in Q2. And that's roughly in line with the 17% that we observed in Q1 despite a tougher comp going into Q2. So what you're seeing is a business there that is very much based on performance. And so if you're looking under the hood of that business, we're seeing really good momentum on our 70 pixel purchase optimizations. And then as we move into the current quarter, that's performing alongside some of the newer advertising solutions we've delivered for app-based advertisers. I think Evan mentioned earlier in the prepared remarks that we've been scaling up our 70 optimization to App Install and app purchases in the quarter after some of the testing that showed really good results. And we're seeing advertisers benefit from that now. And then we've shared some case studies also in the letter to that effect. We also began testing value optimization in Q2, and we see some really good results from that in the early going, which is promising. And then you've also got the ongoing momentum of really strong CAP adoption. That was up 300% year-over-year which is, of course, an improved -- a driver of improved performance. So taken together, that's contributing to a business on the DR side that's highly performing and…

Our next question comes from Dan Salmon with New Street Research. Your line is now open.

Hi, good afternoon everyone. I have a 2-part question. So the total advertiser count more than doubled this quarter. That's a little different than the 85% growth in SMB advertisers you talked about last quarter, but presumably, SMBs are still a big driver of that. So the first part is, can you speak to the drivers of advertiser growth count? I imagine improvements in the DR ad performance are part of that, but are there any of the partner programs, reseller agreements or anything else that you'd highlight that are really helping drive that growth. And then the second part is on your ad product road map and whether or not this growth in the total advertiser count has you rethinking any elements of the road map. And in particular, whether it starts to make sense to look at developing more AI-based automated ad buying products like those we're seeing generate a lot of value for SMBs on other platforms. I'd just be curious to hear your updated thoughts on whether that makes sense yet. Thanks.

Thanks, Dan. I think just at a high level, we're incredibly excited by what we're seeing with small and medium-sized advertisers. I think our SMC business overall is probably the most important driver of long-term revenue growth for us over the coming years. So to really see that progress there has been really exciting. From a road map and automation perspective, automation is vitally important for these advertisers and it can really reduce the friction in terms of getting started and then ultimately growing spend on Snap. I think if you look at some of the enhancements we've made for SMC advertisers, we're getting better at inferring SMC advertiser objectives when they sign up for an account on Snapchat and then we direct those customers to preconfigured campaign setups. And that can be really helpful for getting folks started. We also offer tools like codeless signal set up, for example, that are very useful. I do think there's more we can do on automation, especially in terms of creative optimization as well as budget optimization. We have some improvements coming there. I think -- more specifically, we're thinking ahead to the holiday season. So as I look at e-commerce, SMC advertisers, we're really focused on things like product selection, leveraging on and off platform, privacy-safe signals, doing more work to drive in session conversions with some major model updates we've been working on. And then overall streamlining the checkout experience, which we think is really important for driving more of those in-section conversions. Those in-section conversions are some of the most incremental conversions. They're really valuable to SMC advertisers. I think in terms of the top of funnel for the SMC business, 1 of the big drivers there has been Snap Promote, which allows advertisers to get started in app. We reached over 850 million users on a monthly basis. And so I think we've just been really excited to see that their passion for our service and their usage of our service has also, I think, encouraged them to try out Snapchat for growing their business with our advertising tools. So I do think the Snapchat community overall will be a great source of growth for our SMC business, and we're very focused on growing that both in the near term, but more importantly, as a real long-term driver of our growth.

Our next question today comes from Doug Anmuth with JPMorgan. Your line is now open.

Yes, hi, this is Katy [ph] on for Doug. First, I just want to touch on the brand business. Again, I know you mentioned it's been more volatile versus DR is more resilient. So can you just talk about how much visibility you typically have over the brand side and what you can do to maybe improve the stickiness of spending on Snap within brand overall? And then second, on the engagement side of the platform, that's obviously been an important focus area. You talked about rolling out some product improvement inter-quarter. Some had positive effects on engagement in North America, some more negative. So can you just talk about the puts and takes there and just to give a little bit more color. Thanks.

Yes. Thanks, Katy. I think as we look at the brand business, the most important thing is really driving performance for advertisers. And -- our solutions are very performant, whether advertisers are measuring performance with our first-party tools or with MM or MTA, results and I think more recently with some of our conversion lift solutions. So we continue to help advertisers really measure what matters most to them. And I think one of the most important things, especially as we look at brand spend in the back half is the relationship between brand spend and lower funnel performance. And I think some of the most sophisticated advertisers are really leveraging full funnel solutions because building that brand awareness is really important in terms of improving overall conversion rates on the lower funnel. So I think as we get into the back half of the year, really working with our advertising partners to make sure they're leveraging our full funnel offering and our performance brand solutions will be really important. And then I think in terms of the progress we're making on content engagement, especially in North America, the team has had a bit of a split focus over the past couple of quarters, we've been building out a whole new back-end ranking stack that combines stories and Spotlight. We think that's a better experience for our community because it combines both types of content that they really love. Spotlight has been a real bright spot for us in terms of growth and engagement and so have creator stories. And then, of course, as always, a friend stories. People love to see what their friends are up to. So being able to combine all those content types rather than requiring our community to go to different places to get those different types of content, I think we'll be very positive for the content experience on Snapchat. But maintaining our existing production content stack while building a whole new combined stack has been a bit of a challenge and what the team's focus. And I think that contributed to a little bit of the choppiness we saw through the quarter. But ultimately, as we look at North America engagement overall, both North America, DAU and content time spend were both up quarter-over-quarter. So directionally positive as we really work to make progress there.

Our next question comes from Rich Greenfield with Lightshed Partners. Your line is now open.

Hi. I got a couple of questions. One, I just wanted to follow up on DR. You talked about DR advertisers and API integrations making meaningful progress over the course of the quarter and obviously, year-over-year, yet, Derek, I think you talked to a slowdown in the ad revenue tied to DR from Q1 to Q2. I guess the question everyone who's listening to this call was wondering is like given all the progress you've made and how much focus you put. Why is DR not exploding? Like why is it growing mid-teens? Why isn't it scaling dramatically? And tied to that is just how much of a headwind is brand advertising in the Q3 guide? And then just a follow-up for Evan. On the whole conversation you were having on the last question about the integration of the app what is actually causing -- when you talk about sort of the changes are pressuring time spent, what's actually happening? And what you're learning as you make this integration is the goal still to get to a single unified like you open up the app and its content. Is that still the plan? And how soon could we see that from what you've been testing overseas? When could we see that in the U.S.?

Hey Richard, thanks for the question. I think just diving in a little bit on the Q3 guide and how to think about the projections for ad revenue and DR revenue specifically, I think it's important to just remember that there was a 9-point percentage point acceleration in overall revenue in the prior year from Q2 to Q3. And it was actually a slightly faster than that acceleration for the Direct Response business. So I think to put it in a little bit more finer context, at sort of the midpoint of our guidance range for the coming quarter, we'd be overcoming almost all of that 9-point acceleration in the prior year. So we'd essentially be nearly keeping pace. And at the high end of our range, we'd be fully keeping pace with that acceleration for the prior year. And just to put a finer point on that, I want to sort of reiterate that guide implies an 8% to 11% quarter-over-quarter improvement in the overall business, which I think if you look historically across periods, is a very good result for Q3. And then to maybe even look at it another way is to think about it on a 2-year stack where the guide for Q3 implies 18% to 22% for Q3, and that's up from 12% in Q1 and 11% for Q2 of this year. So I think it's really tough to characterize that guide in Q3 is representing a business that's not improving. And you've got a pretty solid road map on the DR side. But I'll turn it over to Evan to talk a little bit more about the other parts of your question.

Thanks, Rich, for the question. And we've definitely been working hard on the content experience. We know how important content is to our community and also in terms of just the way that they maintain their relationships by sharing content with one another. When we look at the content experience, as I mentioned, we really want to combine stories and spotlight, which are both beloved content types on Snapchat but are now located in two different tabs on the app. And that just makes content discovery just have a bit more friction. It also doesn't take advantage of the overall supply that we have across both stories and spotlight. And we know that combining that supply will help us provide more relevant content to folks based on their interest and will allow us to leverage signals across both of those content types. So if you think about the steps to get there, 1 is sort of a user interface change that combines both the stories and short video user interface, so that has been in testing. There's also the infrastructure piece of it to combine both content types and rank across both content types, which is nontrivial because the objective function has to work across the way that those different types of content are consumed. That's also in testing, where you'll see that first is actually in spotlight, where we've made progress, for example, adding publisher stories and have been testing that combined the content experience. And of course, we'll have a bunch more to share at the upcoming Snap Partner Summit, which is on September 17. Hope to see you there.

Our next question comes from Mark Mahaney with Evercore. Your line is now open.

This is Dan [ph] Peterson on for Mark. Focusing on the brand advertiser demand, how have the verticals that you called out that were soft in Q2 trended quarter-to-date? Have they gotten worse, the same, better, and any granularity you can give on a vertical level would be helpful. Thanks.

Hey there, thanks for the question. I think probably the most important thing to sort of zoom in on when we're talking about how we're beginning into the new quarter and what's assumed in the guide is probably a little bit of what I touched on earlier on the assumption essentially in the -- the revenue guide that the growth that we're going to see in Q3, will continue to be driven predominantly by the direct response business and the ongoing momentum we've got there as well as the continued momentum of the Snapchat+ business. So there's not an assumption built into that guide that we're going to see significantly improved or really significant turnaround in the brand performance in the quarter. Obviously, we're working hard on that. We've been delivering some innovations for customers there with some stuff we announced at new fronts and other things we've talked about in a letter there. So I would sort of think of it that way. What we're really focused on here, and I think you've heard us talk about this and deliver on it consistently over the last 18 months is the investments we're putting into product and go-to-market around DR and a really keen focus around delivering ad products and optimizations that deliver performance results for advertisers that they can scale on and having go-to-market operations that are wrapped around those solutions and deliver to customers, we have strong product market fit from. I think you're going to see us continue to lean into the momentum we're seeing in the small and medium-sized customer front and some of the optimized campaign setups that we're delivering there continuing to lean into Snap Promote, continuing to deliver performance results for those folks as well. So building on what have been our strategic priorities for the last 18 to 24 months and building on the results that we saw in the most recent quarter around our DR and Snapchat+ verticals. So hopefully that helps a little.

Our next question comes from [Indiscernible] with Bank of America. Your line is now open.

Hi, thanks for taking my question. Could you provide some insights into the current stage of spotlight monetization and how you are expected to grow over the next few quarters? And in the long run, how big can the surface become related to your current scale and potential time frame for that. Thank you.

Thanks so much for the question. We've definitely been excited about the growth in spotlight time spend, the uptake of that service. And certainly, it's been a source of inventory growth for us. I think if I compare time spent on spotlight to other short video services, I think we have an enormous amount of headroom on Snapchat. That's part of the reason why we focus so much on this combined content experience, we know how much our community loves stories, and we really believe that a combined experience that combines the stories format with short-form video will be most compelling and easiest to use, especially in terms of content discovery. So the team has been working very hard on that. We continue to make progress in terms of model improvements. We've seen some great growth in terms of spotlight submissions and that's helping with overall content supply. One big area of focus for us in the coming months is really around model freshness and making sure that we are updating our models quickly enough to learn from engagement with new pieces of content so that we can serve the freshest possible original content to our community and not have to wait for days in some cases, for us to understand and leverage that signal. So a lot to do there, but certainly, I'm pleased with the growth so far and excited to get the combined content experience out to our community.

Our next question comes from Mark Shmulik with Bernstein. Your line is now open.

Hi, this is Jenny [ph] on behalf of Mark Shmulik. Thank you for taking our questions. We just have one, just given the launch of Snapchat's web product, is there any consideration to moving away from having the app open to the camera to perhaps something more like spotlight, that's more monetizable. Thank you.

Thank you so much for the question. Opening to the camera has always been a really important part of the Snapchat experience, especially because it keeps you grounded in the real world with your friends rather than distracting you with content created by other people. And that prompt to create and express yourself is something that's really important to the Snapchat product. It starts -- helps people start new conversations when they share a Snap or helps them share what they're seeing and experiencing with their friends if they add that snap to their story. And of course, it's an amazing top of funnel for our augmented reality platform where hundreds of millions of Snapchatters engage with lenses on a regular basis. So I think opening to the camera is really a unique part of the Snapchat experience and part of what really differentiates our service. And I think given the strength we've seen now, I think it's been almost, what, 13 years that we've been working on Snapchat, we continue to see new highs in terms of the number of unique Snap centers, which were up across hit record highs across all regions in the quarter. So I think the strength of the core product and that prompt to really express yourself and share with your close friends and family is something that's really unique to Snap and differentiates our service. I do think, though, and I don't want to run too much of the surprise with the Snap Partner Summit coming up. But there is an opportunity, I believe, to help simplify the Snapchat experience overall, and that's something we have been working towards, and we look forward to sharing more at the Summit.

Our last question comes from Eric Sheridan with Goldman Sachs. Your line is open.

Thanks so much. Maybe taking a step back and asking a bigger picture question, Evan. You talked a lot and you have a lot of detail on this call so far in terms of the journey you've been on sort of the evolution of the platform and product as you sort of look towards the back half of this year and was a value towards 2025, any updated skew in terms of your key investment priorities or things you think of is critical to execute on that positions the platform for elements of user growth, engagement or monetization with an eye to the medium to long term. Thanks very much.

Thanks so much for the question. I've certainly been spending a lot more of my time over the past year or so on the monetization side of the business. And I think just looking at the long-term strength of the business and our opportunity in augmented reality. I think a personal goal and maybe a broader growth for the business is really to have our revenue resilience match the engagement resilience we see on our platform with our community of 850 million people around the world. I think over the years, we've seen that, that engagement has really been durable, and we've been able to continue to grow service. I think as I look at the revenue side of things, what really excites me and a big area of focus and investment for us in the coming year will be the small and medium-sized customer segment. I think it really leverages the strength of our scale with our community and also our ability on the product and engineering side to drive results for advertisers. And ultimately, we really believe that, that will result in much more resilient revenue from a diversified customer base, and that's a sort of foundation we want to be building our business on for the long-term. So certainly a continued focus on the monetization side, especially with small, medium-sized customers and then making a lot of progress on foundationally on our machine learning models and our ability to drive performance.

Thank you. This concludes our Q&A session as well as Snap Inc.'s Second Quarter 2024 Earnings Conference Call. Thank you all for attending today's session. You may now disconnect.