Snap (SNAP) 27 Apr 232023 Q1 Earnings call transcript

Good afternoon, everyone; and welcome to Snap Inc.’s First Quarter 2023 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 first quarter 2023 earnings conference call. Evan Operating Executive Chief Officer; are Jerry and Financial today Chief Hunter, and us Spiegel, Officer Chief Co-Founder; Officer. With Derek Andersen, to slides, to today’s presentation. refer our Relations at Please Investor press letter, investor investor.snap.com release, and investor website find

forward-looking these call are which we to no forward-looking of statements, includes assumptions materially from update based may obligation Actual and results This differ our our those as statements, conference on today. expressed disclosures. in make

results as about to please our information For risks particularly factors section Risk XX-K, forward-looking press cause actual in described Form materially that statements, titled differ more Factors. refer release may from we well in the to recent the issued most today, as

the note as be Please the amortization release. understand metrics and as figures, Today’s today’s and press when any two that they in of today’s call and of related include Reconciliations can discussed with will GAAP filings will depreciation found our our Please both discuss and the we on charges. well all call. non-GAAP stock-based non-recurring SEC we expense to calculate exclude between taxes, payroll how compensation to measures. refer

like Evan. over the turn With call I’d that, to to

joining us. an everyone, thank all community, reality. began growth augmented you Hi, focus and the year revenue and with on our We for intense accelerating our growing leading in

content engagement services. our million users and QX in with are while new active to reaching daily community continues to deepen XXX grow, Our and we building working features platform innovative

built My box. new core with and chat Our QX, Internet distinguished And our this focus has platform offering family we other friends of platforms. AI-powered AI, on introduction communication from in the our between visual on

ability available around Map recommendations we friends, add AR the launched lenses. our to more offer with and made world Summit, the place My new of My Partner and At features, to AI suggest conversation to including relevant Snap a Snapchatters AI a range from the Annual Snap

Snapchatter for see we opportunities application the AI across about our how excited more we at look the as innovation, are We experience. enhance especially further can

working this the opportunity to increased revenue forecast partners. help to of and investment the platform in We to QX, we of to entering accelerate million growth, shared quarter. drive generated $XXX are We X% our advertising which our revenue make for improvements advertising our return was an range significant are year-over-year, increase we on using within

demand more disrupted expected, drive by made changes our click-through was in QX the we to platform ad conversions. As to

We the are share the that our are future for these growth. for disruptive delivering us enable stronger our competitive ad return ad on foundation environment. in we highly short-term, believe optimistic are improvements over time increase our in partners this While to that laying changes platform wallet will advertising of spend

pre-release more exclusive and made We that Snapchat+, our features, revenue our than diversifying progress offers subscribers. subscription million which experimental now three has service through

returns We platform Services helps SaaS our and first applications sales offering are reduce called drive reality launch augmented to own which the excited about Suite, use with our of retailers on websites. AR and Shopping their Enterprise

our leadership our using believe AR strong Services AR growth Enterprise to who important in foundation for advertising. we more solution a build strategic are technology revenue deliver initiative, provides an our technology for Diversifying already holistic and businesses is a and

million by free flow quarter, our this profitability challenging QX. we of EBITDA cash million generating Despite sustainable to adjusted make achieving the and operating environment on in $X to progress path $XXX continue of

has an to operating the our environment diversifying focus deepening last our and our leading growth transition summer the this in of we that reality. succeed reflect business with an As revenue and engagement, we accelerating been in an community our platform and intensely made enter transforming competitive macroeconomic landscape. growing QX, policy We changes business on environment began more by shaped we reprioritization to and and progress challenging on have augmented

As QX we that set pleased and our cost last took decisive structure, reduction of to targets reduce of we share the we to year. we reprioritization, in achieved are actions a part the cost

new engineering, Americas. across teams, Mohan product our APAC. sales COO and leading three regional EMEA, Ronan EMEA, brought Rob have in Americas, structure, which Wilk, hire, the our our and With Harris With leading unified presidents APAC leading and Ajit we the newest

engineering We have advertising also brought progress with product accelerate our leaders platform. in and several new to

have to has coordination invest structure and in further these our identified of improved we across opportunities this prioritization As each teams, business. clear

uncovered for we make for and content investments targeted go-to-market ML systems us identified improve recommendation that we've believe to will example, opportunities growth. investments to For help areas incremental have our ads, accelerate and in infrastructure we to revenue

progress the of have believe that our platform, we revenue. the with we our the acceleration topline to work in we reprioritize leadership cost of built, our structure, we we balance ad experienced now have and team invest have our Given to sheet, strength responsibly the done well-positioned the made are

to made drive our right lot see large track work that done, still be and realize opportunity enable changes is to to us community, innovation long-term have there of our we will ahead. investments of growth business believe growing the the While a for and we focus and record we the make

session. And you. with we begin Thank that, will Q&A our

you. Thank

from Shmulik the session. is will with begin first We Bernstein. The instructions] line now question the Mark question-and-answer of [Operator

You proceed. may

Mark of questions, Jenny we Shmulik. if behalf may. Hi, on this is Two

confident made revenue do expect out build to when that you've should still the hurt out is And the it? How Firstly, run. benefit see in investment DR be was markers And always you looking there? the are for? to short you what to we going

Thank on overall. how and that spent creator from contributing heard you time spend? share we've much how is short-form secondly, stories total you. to then time could color spotlight Any video lifted just appear And

Yes.

across also work ton leaders each advertising across new months business, Operating appointing strong regions. a monetization taking hiring Chief Just back, we a engineering we've organizational a changes our our of nine leaders and last with of made We've Jerry lot course, as as of and revenue step done to well. improve of product starting over the Officer our three the hired

Jerry all And strategy. leaders together, really these great experience reporting been helped into our obviously, it's And get the bring has on to bringing everyone so really aligned that to organization.

we've safe the using the a platform. previously. making of like focused which recovery of really integrations privacy improving A on at lot signal work early So, length Cappy, been progress lot discussed was for we've example,

done who a the against that to really third-party a the first-party help also also XX between the for to We've click and objective. really rolled metrics with is improve Post Snapchatters gap easier and for which we new out purchase work is offering want on close the important bid lot of for made reporting, trust. which platform to ads, convert in -- advertisers And quarter, then advertiser experience pixel

quarter the that our the But against that to the those really and retraining most click-based made models clicks. in we change formats the was biggest interactions across ad of advertising was transition then the disruptive our overall different

So the lot ad interactions our confusing prior Snapchat. community to to were interact these for on different changes, which ads like made with formats, content a across stories Spotlight more different, and

vertical to the open use then But So and a and content for use then a example, a open ad. Spotlight, the to to next tap a in vertical to move stories, people horizontal the the navigate to swipe to people piece ad. story swipe next on of swipe

our experience. us have with based then, quick so content a these which our has now to models moved of unifying closer And Spotlight, interactions changes have with and we ad interactions. overall course, lot these we across been ads, And against retraining stories new

diversity bigger growth. more active to So advertiser think which laid our us number the long-term some cloud maybe growing and our more of rate higher is green changes and which up I input accelerating investment ad advertisers, But of experimentation of system. for improve early there which leads more ramping super advertisers, and more models, an data are why course, the all shoots in of these our groundwork to the to in importantly, platform, is retention infrastructure ranking with of to like have we're invest important important running on

We're question now million reaching Spotlight. users time your progress is Spotlight, think active on XXX we're I with monthly we're Time So excited Spotlight year-over-year. XXX% about was the making second up spent. spend super on

for exciting really So that's growth a area our business.

is Greenfield Partners. question from with LightShed Rich next Our

given the You sure not back I vending is chewing feel like have Hi. seen guess it look machines, AR week, vital infrastructure the the Thanks scale a why not in gum, luxury. investments meta to their pressure why pretty investment. AR position. advertising. reversing question. luxury off-site metaverse things of at I talked for walking of I question Obviously, I and investments? the partnerships, better that scaling you've you last investments got sort until like the that creator your AR has of got guess, financial feels you're couple. machines sort a I on I'm taking like Coke and and aren't saw when engagement in back or like you about

So do your think you what balance sort to do business about -- you reaccelerate sort the core future. how need investing of of you in how versus

forecast is think, revenue I but Evan you've declines to you high to return the in growth? of of least got team. -- QX. investor you the here robust in big your on just guess, be internal big confidence two, gives I of then at based quarter just can sort a challenge And question, that What you Because obviously, and confidence – another picture now obviously, going is

it's going I'm to bit. Evan speaking. expand I'm then end little going a Derek start Rich, to at kick and Hey, the to to it here,

back at EBITDA balancing as to I and Investor flow think – and I think adjusted generation you time recent structure, investments and our well. over the we to remain as the cost our free over cash on Day, we committed of our growth discussed profitability time step

a we cash a our remove structure in and two took $XXX to free cost and the flow, As path profitability structure part of significantly, growth. to significant adjusted commitment, set the course to goal to quarters rates QX that and a EBITDA in order at year positive of over last of last million create action cash reduced from reprioritize we of our even cost

in the as cleared X% revenue $XXX deliver that $XXX goal. than we in more for EBITDA decline million we In profitability cash adjusted And million the we year, us realized QX to year-over-year. of actually reductions. QX in in letter, effort in cash noted path And exceeded cost and million flow free our this despite structure $XXX the

while over our sustained path So that ARPU delivering in flow achieve accelerating to generation for profitability opportunity. our outcomes the growth that those top made a top better difficult cash and believe line such lies line. capturing free pleased and We time we're to best quarter our

are platform, all investments to accelerate investments the intent to to new develop we're So my for ad line. example, the making as the to engagement input laser-focused deepen infrastructure in and user support AI content ML a helping investments ML top on interest our understanding the monetizable and

in growth see been noted, investments drive which last Creator the smaller program, deepening are we're pleased Similarly, the in and in this making quarters. really monetizable significant to stories scale you we've were inventory two impression over the engagement, much

on correct, cash flow in profitability put will EBITDA accretive generation and adjusted these you're growth critical from expected the near substantially there these we So are to gross and time. over input be believe downward to investments and margins a over But investments free collectively time pressure term. sustain

mark as other In our of growth resuming cash we is not to sustained is see free for flow. what to financial internal part a generation instead of path discipline our and QX shift words, and in forecast the intended

over done to we manage investments think our And drive very then we've already we made are growth then over a such the that months. sheet cost fortunate really last make that to structure, And that of near six of strong responsible in in to a the a time I terms work the build way. can reductions longer we these term our significant period investments in balance prioritizing

just the over over is frame. to think productive reasonable the performance that measure extent to going persist the we're simply time they're in turn and only of cost thing these it they're structure that last I if carefully to to going any investments our Evan

Thanks, for question. the so much

most thing is think, a engagement. their the then we And that which We active have just messaging on as pace, with community I compelling think and is, energizes to users. the think, XXX million continue our people innovate to monthly a MAI, experience look opportunity, reach strength our the at over really Snapchat. that of I us we at now really longer-term rapid really extension I recently

have look we ad to mentioned, accelerate lot and now it's to at and of us ability investments I our revenue really you we I think important think in have going -- more speaking, Derek tactically if that the be influx strong confidence of the really are on to quickly moving platform that side the ad that a we're and that to improvements making, why leaders the confidence here. growth make gives which the

broadly course, realize of and about our just our more more we've been So opportunity excited our serve their I really think and, looking of to at to, community the engagement, the business. long-term potential community never

The is from Guggenheim. Michael next with Please question Morris proceed.

couple guess, AI I'd share with the engagement be from your you would so early Appreciate first, base of was if user distribution. the be on to takes since it. can as out you've AI. it My more I it's what it A any week realize only a the been but seen or product. curious broadly, I questions a pertains little from interested

to the of asked time advertisers Can platforms. on their functionality you that competition own in keep the on of the kind role very space AI previously, some you. the having and details of that clearly share then maybe, Thank driving engagement you to frame more working engagement, available creative. the question hard And the just on second, and was on of what larger the functions to of but kind this view company with different helping with broader are of how maybe expand players

of Yes, course.

So the business. several AI core use about talk I'll way we just little that across pieces bit our of maybe a

messaging, So the content/ads. of are, I then major sort reality areas think and three of course, augmented

in of including And content engagement ranking time, really I us. models. And and and AI continue And there, growth to so invest driver Spotlight, the content to new in us submissions, for and more of long to bigger system used course, spent lot for for and been think for core of with very explore going in a there growth It's ads. we've we allows inputs for have terms have the the a we we're need and our succeed of lot example, spotlight course, the we of to ranking. which time a audience

I continue think, we're side. our and momentum going ad So to the on content

really new engagement augmented of AR into future In a we And provide reality, the play compelling lenses that augmented lens then, important of to think interface AI have reality, our lot look is like spectacles longer-term the a AI we really future. role driven example, of for we've at for as things intersection and much a more going user the seen ML-driven SAP. in experiences, for

a research for area that's big So us.

side, platform. And to friends really we're enjoy strength communicating really Snapchat, we're day then the messaging with about on AI. excited talking people it all to AI, addition and conversational because And that on really our plays as My to family messaging in a long finding

despite with We're the you community really the really engagement the pleased managing the have But fast we're our rollout to we're we're So carefully the with bumping share really get to far. rollout. experience is out it with entire yet, against. don't and up excited being make and specific thoughtful deliberate stats to so just any we've been that sure to constraints some but capacity of

Walmsley Next with Lloyd is question UBS. from

Two, Thanks. I can. if

you to inning follow from First, can Anything of share that in growth? that what the opportunity with see for kind you more kind just and how My for this how rolling of of drive on is a versus do providing simply just faster driving last and getting for Thanks. on the one, wanted And Like, AI, models that early that right up the engagement? you that rank you are second advertisers, advertising leverage last DR out much importance of I signal training shift in guys question guys can like, click like monetization? kind educating more guys? then data do to how on terms you you the to meaningful of you

I'll Thanks and take for that first it I'll to question. for Lloyd. Hi This the Evan over and Jerry is question, that hand second.

evolution model we made making through pretty the less improvements shipping a some think quality we're to the of and are some For making we're the conversions. we big these in us, be are mean, letter, increasing improving We on but measurement, and always and and volume behind changes, we and I changes future disruptive. We're progress. And impacts and in still the to that progress through changes to engagements we more are that pipe working but investing quality also the observability platform. incremental UI the platform, areas, on that went as the engagement steady that three the we expect major going and across where the be conversions mentioned DR going

work through with both. training with and finding these to worked On from there's then the really get them we've success get through a working versus is we're is place that we've models the still with were the importance ROI. them advertisers where this to a finding manager ROI educating now. few We learned that transition positive they get advertisers What larger positive to of to a to change actually

AI, community My of really drive In folks right the lot are and now for a focus value primary AI. terms who using My to our on of is trying experience

see Of recommend and and we're or places improve course, My can get signal to folks AI definitely be really relevance now recommend the of content lenses. working used intent hard AR can We're something engagement course, experiences, on. that's we excited there. of to

I our are team like upcoming doing the things sponsored have at some funds to think new experimentation will presentation. We more including links, early around and share monetization,

Anmuth from is The next with JPMorgan. Doug question

on the Katie This taking Hey. for is for question. Doug. Thanks

monthly deeper to wanted believe that month-over-month. called up was out into revenue of feeding. March some I the you dive Just XX%

quarter, Ukraine you're if just in And lapping year a into demand so comps uptick function Thanks. for with ago. then easier Russia is if So curious of and a I'm just continue seeing of real the any the more that improvement of potentially far. April curious that seeing or you're course

to maybe and our speaking. I'll QX. just for forecast QX and Hey, one. it sense think internal I back talk take that step then about we're makes Derek for what journey into seeing And the

It's have well, year macro where level the environment to side, a to stabilized. stabilized were, On ago. example, we appears much the macro for weaker a at compared

disruptive. policy the platform our some by as to tough advertisers QX letter, our the to are success competitive impacted while changes platform well. environment We specifically, these continue and new advertisers In prior the were to as changes. finding while made in we we some shared already have be levels, changes And recovered under and ad

top are our number and making There be QX. a have headwind recovered, our way we as a of continues small advertisers into this that start not to to demand

we're we're many diverse are, of many take pleased the growing it from overall time So of base a with while smaller and seeing advertisers, will progress line. smaller drive cases, to this off there the our for advertisers top more in base,

as enter studies initial there QX the their concerned could Lift a In that cause the changes disruption we impact QX a spending delayed basis. on measurement of some they we And that as are in addition, basis. advertisers this delayed then are we who in experience on provide rely in on QX are signals more made

our forecast ad as therefore, QX, improving our well investments making to accelerate as internal the challenges progress for Our we're platform. these towards reflects

progress business. Importantly, in seeing we are the sequential

we we onset line in noted we XXXX in and impacted I the XX%. that observed XXXX, letter, month-over-month war know although with example, XXXX seasonality was well what in month-over-month And ahead roughly saw in the of March, in Ukraine. in this As was for of the by was growth the was

midpoint navigate of further X% expectation we'll for progress the for sequential addition, In changes. the demonstration as at quarter-over-quarter the business forecast we internal more that calls is our which see growth, our

of of we gives bit and the to an we you topography So understanding how hopefully, a quarter. saw little QX in the expect that into transition that what of new

from is the question MoffettNathanson. Nathanson with of next Michael The line

really Thanks. the nice few Thank margin you, Derek. in a years. One gross is done past driving you've job

near that me in there's factors the may dimension a letter, out you year. just you levels, yet for make a us. what to the As to number of bottom a small that of And mentioned think advertisers And what's last you gross situation? answer about couple in to not is give where Can term you some Thanks. out issue? who of tough improve laid alleviates have margins that spending it headwind causing sense this prior returned then that

Sure.

on starting So margins. the gross

any rate revenue going the line time, period over of things challenging significantly to in rate so are of growth the one top and that’s to in especially obviously, infrastructure and relative particular, gross think investments that here, our is line top I long growth by be on. margins impacted revenue

it expectations with around say would starts line. top revenue I on So the

we What where the some model where we do gross on you side and cost is, an out have. investing to of and tried to help revenue are might here give though of sensitize margins understanding magnitude you

one really of largest So, infrastructure is big per revenue component cost DAU. component, of specifically, cost the

in shared in likely for the of we specifically that the largest We that's at is $X.XX rise looking significant ad of performance that designed base really and that's of the $X.XX to current. to optimization drive The we And portion the ML we're letter platform. reflective investments the sequentially to saw of infrastructure. expected that $X.XX off

smaller well. in and to and directly the of directly understanding into contributing top to of line the again And AI, better A the significant, of investment course, in the drives My form And is intent. minority that is monetizable then a line is of depth in which engagement ML to user investments content smaller content as on share still platform. but attributable that, drive top minority interest portion of

a over in the that QX. So, over saw quarter. little we And what's course million and come benefit and terms then cost two happening a last cost, annualized we've QX of I $XX of fixed on an out into taken over quarters, content $XX aspects in of think, million margins, of gross that's of the revenue other

program the so, over offsetting rev the creator quarters. cost been share And of last the of that's couple

this fixed see the year, there. on great pressure continue success those half continued cost put start year of new of we in that bit program, will those of to back a reduction, with to assuming little story investments creator back in hopefully margins half the the that lap and As sorry, success

share based therefore, But that scales and program is monetization. with importantly, rev

So about hopefully, to happening an will how over ability time. and gives of sense gross that of a that of sort move with revenue bit a you little what's margins think with

in advertisers seeing I advertisers what the prior you've on terms think of the top who over we're well then And under quarter, got exceptionally paradigm. performed

As design Jerry sophisticated changes out sophisticated recover and in who quickly. and design, number equally the environment, prior well under are tweaking the ad ad going made to something as models laid we earlier, of a new those to to that's are new interaction not folks to and unit, particularly as their and a to platform become to perform going that's take time happen

But hard modeling to with of into contribute the our recovery. investments to performance those we're signal to ML and and with and that development them that working we're again and pouring are partners help all intended infrastructure

how a that's So, hopefully, you for sense evolving. gives that

with question comes Champion Piper from Tom Sandler. last Our

clients about afternoon. your relevant verticals good where with the could curious Thank how build working it's strength and pockets kind Derek, Hi, and talk weaker you're if by advertising of and tools you. you to vertical? just of

Sure.

work under few about think we've support mean doing seen to that new step little that a ad can on in of of might we're strength one. the the but probably some changes? in been of the I to Jerry continuation talking verticals you for bit verticals a talk more about same specific I we've I ask quarters, some a actually,

as advertisers to collecting working that we're them and yeah, with customers works signals. Cappy making for. customers largely, and that performance directly product information as I team force with orienting the we're on with tooling sure actually also well that looking these find sales build We're and helps work the both they're mean, that our

doing -- customer some positive very post changes. ROAS get these so And customers, these some some to and we're gotten signals by seen where to we've stronger a from customer, that we've of positive

We also have other their of directly improve with we're customers working to a ROAS. bunch

Inc.'s Call. attending Earnings our session Conference well session. Snap First concludes Thank XXXX as Quarter for as you question-and-answer This today's

disconnect. now may You