Good afternoon, everyone, and welcome to Snap Inc.'s Third Quarter 2024 Earnings Conference Call. At this time, 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 third 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, earnings slides and investor letter. This conference call includes forward-looking statements, which are based on our assumptions 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. In Q3, we continued to make progress on our core priorities of growing our community and improving depth of engagement, driving top-line revenue growth and diversifying our revenue sources and building toward our long-term vision for augmented reality. Daily active users reached 443 million in Q3, an increase of 37 million year-over-year. We continue to deepen engagement with our content platform with a number of content viewers and total time spent watching content growing year-over-year. The progress we have made with our direct response advertising business and the growth of our Snapchat+ subscription business contributed to total revenue increasing 15% year-over-year to $1.37 billion. We continue to make meaningful progress with our lower-funnel DR business as total active advertisers more than doubled year-over-year in Q3. In an effort to grow our lower-funnel DR business faster, we are innovating on our advertising products, investing in machine learning and evolving the way we go to market to better serve our advertising partners. We hosted our Annual Snap Partner Summit in Q3, bringing together partners, creators and lens developers to introduce a number of new initiatives. We announced a new and simplified version of Snapchat that we believe will further our initiative to grow our community and deepen engagement. We also announced two new ad placements, Sponsored Snaps and Promoted Places, that will provide incremental reach to our advertising partners as they engage with Snapchatters across our service. To further our vision for augmented reality computing, we launched the fifth generation of Spectacles, our AR glasses powered by Snap OS, and introduced a series of generative AI innovations for our AR developer platform. Developers are already building amazing lenses, and we can't wait to see the new experiences they create for our community. We…

Thanks, Evan. In Q3, total revenue was $1.37 billion, up 15% year-over-year and 11% quarter-over-quarter. Advertising revenue was $1.25 billion, up 10% year-over-year, driven primarily by growth from DR advertising revenue, which increased 16% year-over-year. DR ad revenue growth was driven by continued strong demand for our 7-0 pixel purchase optimization that was up more than 160% year-over-year, as well as a growing contribution from App Purchase optimization. Brand-oriented advertising revenue was down 1% year-over-year as we continued to see weak demand from certain consumer discretionary verticals, including technology, entertainment and retail. We continue to make progress toward diversifying our revenue sources with other revenue more than doubling year-over-year to reach $123 million in Q3. Other revenue includes all non-advertising revenue, the majority of which is Snapchat+ subscription revenue, and Snapchat+ subscribers more than doubled year-over-year to exceed 12 million in Q3. In Q3, North America revenue grew 9% 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. Europe revenue grew 24% year-over-year, as continued progress on our DR ad platform fully offset the impact of more challenging prior year comparisons. Rest of World revenue grew 32% year-over-year, driven by the continued progress with our DR ad platform. Global impression volume grew approximately 19% year-over-year, driven in large part by expanded advertising delivery within Spotlight and Creator Stories. Total eCPMs were down approximately 7% year-over-year as inventory growth exceeded advertising demand growth in Q3. Adjusted cost of revenue was $637 million in Q3, up 16% year-over-year. Infrastructure costs were the largest driver of the year-over-year increase, due in large part to the ramp in ML and AI investments over the past year. Infrastructure cost per DAU was $0.84 in Q3, which is up from…

Thank you. We will now begin the Q&A session. [Operator Instructions] Our first question today comes from Dan Salmon with New Street Research. Your line is now open.

Okay. Great. Good afternoon, everyone. Evan, you highlighted the potential risk of Simple Snapchat transition in your comments. Derek walked through the sort of timing of testing. Both mentioned over a dozen markets and mentioned that you're being cautious on how you move testing into higher monetizing markets. So, the high level makes a lot of sense. Could you maybe take us a layer deeper on how you and the team are monitoring and managing that risk on a regular basis, including how you're ensuring you don't see a monetization headwind from the changes? Thanks.

Thanks, Dan. We're definitely excited about the long-term opportunity for Simple Snapchat. And that's especially with new and less engaged users where we've seen some of the biggest increases in content engagement, but we definitely have a lot of work to do to iterate and test before we begin a broader rollout. So that will include things like better understanding the shifts in inventory and potential impacts to monetization. For example, we'll be working to move more of the story ad delivery into interstitial placements rather than tile-based ads in the current Discover feed. So, certainly changes of scale have the potential to be disruptive, which is why we're taking this test-and-learn approach. And ultimately, we really want our community and our partners to benefit from these changes.

Our next question comes from Rich Greenfield with LightShed Partners. Your line is now open. Rich, your line is now open.

Sorry about that. Just want to follow-up on Simple Snapchat. When you said you started to roll it out in some major markets this quarter, have you done that in the US, UK, France, Germany, like some of your big ad markets? The reason I ask is, obviously, the product looks great. It's driving engagement, but I think what we're all trying to understand is, are you willing to take some near-term disruption revenue wise next year to rollout the superior product, or will you wait until it's a revenue-neutral shift to wait to roll it out? Like, we're just trying to understand what will happen to make you roll it out more broadly if that makes sense?

Thanks, Rich. Yeah, we're still early in the journey on understanding the monetization dynamics and some of those inventory shifts and how that could impact revenue. We certainly want to take the time to work through those sorts of changes and make sure advertisers and our partners, for example, are prepared for those sorts of changes. So, all that to say I think it's pretty early right now. And while we are excited about some of the engagement shifts we've seen with new and less engaged users, we're going to take our time to really understand the monetization dynamics and work through some of those changes. So, our goal is really to take our community and our partners along for that journey and so we're going to keep testing and learning here and potentially even explore something like a phased rollout, for example, over an extended period of time.

Our next question comes from Justin Post with Bank of America. Your line is now open.

Great. Thank you. Just wanted to ask about Sponsored Snaps and Promoted Places. I know you mentioned you're pretty excited about the long-term opportunity. Can you help us just understand the usage those services get and how you're thinking about inserting ads and how that could look for you in the very long term? Thank you.

Thanks, Justin. Yeah, we're really excited about these two new ad placements that will really be leveraging the foundation we built for performance advertising over the past couple of years with really the vision that Snap Ads can be fungible across many different placements across Snapchat that leverage the unique and differentiated ways that our community engages across our platform. I think in the case of Promoted Places, we've gotten some great early feedback. We've run some initial tests, although I think it's a bit too early to share the data there. But in general, we're just seeing a lot of businesses really focused on driving more people in-store into their retail locations to try and strengthen that customer relationship. I think many brands are feeling like they've been disintermediated with their digital relationship with customers. And so, being able to bring people into their retail establishments and really strengthen that relationship with their customers is something that's important to them. So, the feedback there has been great. And we have some Sponsored Snap tests forthcoming in the quarter. So, once we have some more data back there, we'll be eager to share that as well.

Our next question comes from Ken Gawrelski with Wells Fargo. Your line is now open.

Thank you. Appreciate it. Want to ask, when you think about the key objectives for the simplified app launch, when you think about the opportunities and engagement versus monetization, if you could kind of weigh the two and if there's one that kind of is more important than the other? And the second one is, how do you think of -- what will it take to get advertisers to spend more broadly, not only always on, which is more of a direct response or SME behavior, but also spend kind of give you a budget and allow you to allocate across the different products and services on Snap, which we've seen to be very successful at both Google and Meta? Thank you.

Yeah. Thanks, Ken. I think, as we look at the evolution with Simple Snapchat, our North Star has always been creating the best possible product experience for our community, and a product experience that they really love. I think there are some challenges today, as we've innovated over the years and created all these new ways to engage, with Snapchat, the app has become quite complex. And even basic things like watching Stories or watching Spotlight, that's something that people have to do in two different screens right now. And so, being able to unify the content experience I think is something that's going to be a really important step in the right direction for us. Same goes for content discovery, for example. I think today the tile-based content discovery is just not as effective as full-screen content discovery. And so, I think that's a big opportunity that will not only benefit folks using Snapchat, but also creators who are working really hard to reach our audience with really compelling content. So I think, in general, this North Star of our community and, of course, our partners like creators is really important to us. And then, what we found is that, that over the over the long term, tends to create more opportunity for advertising partners as well, as they're able to reach our audience through these different parts of our service. So, I think, the North Star is going to be the community engagement and then thinking about how we can best manage this transition so that our advertising partners and our content partners can benefit from it as well.

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

Hi. I'm [Louisa] (ph) speaking on behalf of Mark Shmulik. So, I have a question -- we have a question on Spotlight engagement. Is Spotlight viewership behavior outside of North America different? Can you provide some more color on that?

We've seen really strong growth in Spotlight engagement globally. I think North America, as we shared in the letter, we've essentially been offsetting some declines with the Stories content engagement, while we've seen growth in Spotlight. So, I think you're just seeing a bit of a mix shift there. But overall, the growth of Spotlight and the depth of engagement has been a big driver of content view time growth for us.

Our next question comes from James Heaney with Jefferies. Your line is now open.

Great. Thank you for taking the question. Can you talk about the results that you're seeing from the new app install product? And what needs to happen for app install clients to become a more meaningful driver of your top-line results? And then, just curious if you can comment on the revenue growth that you're seeing so far in Q4 that helped inform your 11% to 15% guide. Thank you.

Hey there, James. It's Derek speaking. Thanks for the question. On the app side, I think one of the things that we've seen as an ongoing trend is that we sort of walked new optimizations and products through the process of testing with initial existing clients on a limited basis, getting to a point where we can see really good results for those customers, and then expanding that and go to market, evangelizing those results and driving broader adoption, which tends to then lead to general availability and then eventually a bigger contribution to the actual revenue growth over time. So, if I look in particular over this year, in Q3, we saw app purchase optimization start to become a growing contributor to the top-line growth. So that's something that we launched much earlier in the year. It went through that testing phase and expansion in go to market and now is becoming a contributor, which is wonderful to see. If we think about app install and app purchase, those are things that we extended our 7-0 optimization framework to, and we've seen clear performance improvements for advertisers. We've shared some case studies there. But from a metrics point of view, for example, we've seen cost per install is down 24%, and cost per purchase is down 27%. So, those are really exciting results to see for our customers and then give us results that we can evangelize to others. So, I think the key here is to keep rolling out the adoption of those, expand the testing, evangelize those results in case studies to the customer verticals where we have really good product market fit and continue to drive that through the elevation, the execution in the go to market. If we look back further, the first optimization on…

Our next question comes from Shweta Khajuria with Wolfe Research. Your line is now open.

Thank you so much for taking my question. I guess, regarding top-line growth, so when you think about the trajectory of your revenue growth and excluding, I guess, Snapchat+ subscription, just the advertising growth, what gives you most confidence in your ability to deliver faster than overall digital ad market growth? I mean, you have a lot of product initiatives going on from CAPI integrations ongoing with app optimizations and then the announcements that you had during your Partner Summit, and that includes Simple Snapchat and Sponsored Snaps and Promoted Places, even if that takes a little bit longer, in your mind for monetization. So, could you help us think through how -- what gives you confidence as you think about maybe near to midterm in terms of ad revenue growth? Thank you.

Hey, there, it's Derek speaking. I think the answer here is multilayered. To start, I think over the long term, we are most focused on the execution of the direct response business and specifically the lower-funnel DR business in terms of rolling our product optimizations. And then, and on top of that, we're very focused on growing the small- and medium-sized customer segment and making sure that we build on the momentum there. So, if I talk through each one of those, I'd say there's a multilayered approach here, where we're executing against a number of different initiatives to be able to drive that sustained and higher rate of growth on that -- those components of the business. So specifically, first is the continued ongoing buildout of the ML and AI architecture at the company that feeds into our ability to have better personalization and recommendation of ads, getting the right ad in front of the right person. We continue to make progress on having more signals coming into the platform and harvesting more of the privacy safe signals that exist on the platform, getting more of that harnessed into much larger models and our ability to refresh those more frequently. Then, you can see the steady drumbeat of us delivering, rolling out, and then optimizing new goals for advertisers. We talked earlier about the really strong growth we're seeing with 7-0 Pixel Purchase, how we rolled that out and extended that framework to some of the app objectives and how that's starting to deliver growth. And then, go to market efforts, on all client sizes, to basically deliver those optimizations to folks where we have great product market fit. One of the muscles that we're really learning to build here is go to market on SMC, and there's a…

Our last question comes from Ross Sandler with Barclays. Your line is now open.

Great. Thanks for squeezing me in. Evan, a question on the Spectacle. So, the demo was pretty insane at the Partner Summit compared to once some of us have tried out prior versions of that product. So, I guess the question is, what level of investment and what pace or timing of when that could be a consumer product are you expecting? And then, related to that, now that we've seen what Meta is doing with Orion, how does that impact like both the investment level and the pace by which you're going to get that market to the consumer -- get the product to the consumer perhaps quicker than before or not? Just your thoughts on that would be great.

Thanks, Ross. Yeah, we're really excited about the progress we're making with Spectacles and it's been really exciting to share the fifth generation with so many of our partners and developers. I think right now we're just really focused on helping people build amazing lenses for Spectacles. I think one of the challenges that any new computing platform sort of faces is this chicken and egg problem of people really needing, in our case, new lens experiences to use when they first buy AR glasses. And so, by focusing on really seeding and supporting that developer ecosystem and making sure there are amazing lenses for people to use when they buy the consumer product, I think we're really focused on the key problem we need to solve in advance of widespread consumer adoption. So, we're going to stay focused there for now. It's been so exciting to see the amazing lenses people have already built in the weeks since launch. And we think there's just a huge opportunity to transform the way people use computing, grounded in the real world and together with their friends and leveraging natural interactions. And this is a vision we've been working towards for over a decade now. And so, we have some very unique assets to leverage like Lens Studio, which helps people build these really complex AR experiences and then run them in a really performant way on Lens Core that powers not just the Snapchat application, but also our Spectacles glasses. So, that alongside all of our investments in hardware and the progress we've made, just makes me really excited about where we are now and, of course, the potential to get this into customers' hands. So, we're going to stay focused on our strategy and keep executing. We're really excited to share, more with you soon.

Thank you. This concludes our Q&A session as well as Snap Inc.'s third quarter 2024 earnings conference call. Thank you for attending today's session. You may now disconnect.