Q4 2019 Earnings Call
earlier
Today, we made a slide presentation available that provides an overview of our user and financial metrics for the fourth quarter and full-year 2019, which can be found on our investor relations website at investor wage.
Now I will cover the Safe Harbor today's call is to provide you with information regarding our fourth-quarter and full-year 2019 performance in addition to our financial Outlook.
This conference call includes forward-looking statements any statement that refers to expectations projections guidance or other characterizations of future events, including Financial projections or after market conditions is a forward-looking statement based on assumptions 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 quarterly report on form 10-q for the quarter ended September 30th, 2019 home particularly in a section titled risk factors.
this
Maison can be found in our other filings with the SEC one available.
Our commentary today will also include non-gaap Financial measures and we believe that the use of these non-gaap Financial measures provides an additional tool for investors to use in evaluating ongoing operating results Trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with gaap reconciliation between a gaap and non-gaap metrics for our reported results can be found in our press release issued today a copy of which can be found on our investor relations website. Please note that when we discuss all of our expense figured they will exclude stock-based compensation and related payroll taxes as well as depreciation and amortization and non-recurring charges.
At times in our prepared remarks or in response to questions. We may offer additional metrics to provide greater insight into our business or our quarterly and annual results.
Additional detail maybe one time in nature and we may or may not provide an update in the future on these metrics. Please refer to our filings with the SEC to understand how we calculate our metrics off with that. I'd like to turn the call over to Evan. Hello everyone and thank you for joining our call 2019 was a transformative year for snap. We saw momentum across the board as we grew up in a t Excel rated or Revenue growth and made progress towards profitability and free cash flow. We continue the momentum we developed early in the year through the fourth quarter and we are excited about growing our business into twenty-twenty and Beyond.
Our community grew to 218 million daily active users in Q4. We accelerated year-over-year Revenue growth to 44% compared to 36% in Q4 of 2018. And we generated $42 million dollars of adjusted ebitda.
Throughout the course of 2019. We added Thirty 1 million daily active users largely driven by investments in our core product and improvements to our Android application our full-year adjusted ebitda improved by 65% year-over-year and we are working towards full year adjusted ebitda profitability in 2020.
the strength and
Momentum in our underlying business fundamentals gives us confidence in our long-term growth and profitability as we invest in growing our business for the future.
We've recently completed our 2020 strategic planning process and have aligned our teams and resources around our goals of supporting real friendships on Snapchat expanding our service to a broader Global Community wage thing in our AR and content platforms and scaling Revenue while achieving profitability in order to self fund our investments in the future. We have always believed that supporting real friendships and creating products to Thursday. Our community are core to building a long-term sustainable business on any given day. Most people have something to share with their family and close friends and using SnapChat allows them to communicate together in a way that is efficient and expressive. This means that our camera has become an important tool for maintaining relationships through Visual communication and storytelling creating a distinct competitive Advantage for our company supporting dead self-expression while harnessing the richness of visual communication gives us a broad and unique long-term opportunity that will serve us well into the future.
Beyond empowering new ways of community
Getting visually Snapchat allows our community to nurture close friendships, which plays a vital role in health and happiness the growth of our Snapchat Community underscores people's desire to communicate with one another through knowledge e that feels natural and similar to face-to-face friendships. We want to build technology for humans that is supportive of the ways. We have interacted for centuries long before the creation of the smartphone.
Our fourth-quarter engagement demonstrates the power of friendship and self-expression as our community came together to celebrate the holidays on Snapchat. We saw more than two hundred million snapchatters creating snaps on Christmas Eve and Christmas sending an average of nearly 30 snaps each. We are particularly excited to note that the number of people creating a snap with our camera every day is growing faster you over years than our overall growth meaning that existing and new members of our community continue to use our camera frequently to express themselves. We are encouraged by the way snapchatters worldwide has adopted visual communication and we are excited to empower even more creativity by making it faster and easier to express yourself on Snapchat.
As we work to grow our community around the world. We believe that the best.
To build a global business is to invest in products and Partnerships that are locally relevant and reflect local culture while reducing the barriers to using SnapChat visual communication is a high bandwidth activity that can be brought them in markets with limited and expensive cellular internet. We have now partnered with over 70 International carriers to help our community manage these costs and our ongoing investments in the efficiency of our service help cut Snapchats me check data usage in half in the past six months. We are also working with local Partners to provide content and our experiences that are tailored to the diverse cultures of our community and now offer hundreds of irrelevant International discovered channels the majority of which were launched in 2019 going forward. We will continue to invest in our team technology and Partnerships to fully realize our vast opportunities for growth around the world.
Our content and augmented reality platforms have continued to grow and provide value to our community and partners discover. Our curated content platform has grown year-over-year in both reach out of time spent especially as content viewership continues to transition from linear television to mobile. We have dramatically expanded our product and content offerings through Partnerships, including our snap original shows. Well our investments up to this point have been selected and measured these original shows are already being watched by more than half of the population. This makes our original shows ranging early hits like the dead girls detective agency now in its fourth season two new franchises, like our recently launched versus the world docu-series some of the largest premium ad-supported titles for this audience.
as we continue to increase our investments in originals and other premium content offerings we are
And to see discover evolved into a top destination for mobile content consumption with the number of people that watch more than fifteen minutes of Premium discover content every day growing by nearly 50% year-over-year.
We have also worked hard to provide value to our community through our camera with augmented reality this year. We are focusing our efforts on expanding both the variety of one's experiences available to our community and the value that augmented reality is able to deliver Beyond entertainment and self-expression. For example are growing length Studio platform is dramatically increasing the number of our experiences available to our community which in turn is coming more engagement on Snapchat on New Year's Eve alone more than two hundred million snapchatters engage with augmented reality over thirteen billion times up over 50% from the prior-year Len Studio contributed meaningfully to this increase with more than 20% of the lenses sent on New Year's Eve built and submitted by our community compared to just 5% the year before we've also made it much easier to find an experiment with different experiences on Snapchat using lens Explorer in Q4 2019. Five times as many people went to lens Explorer to search and browse our experiences Thursday.
day when compared to Q4 2018
With more than 10% of our community using lens Explorer every day on average. We are all so excited to be working with Partners to expand the value of our camera. Shazam has helped snapchatters identify over $5 billion songs, using our camera and we are adding new partners like photomath to help people learn how to solve math problems without using a calculator as we continue to scale our content and a our platforms wage also making significant progress against many other long-term opportunities, including Snapchat maps and games.
While these newer offerings are at a much earlier stage than our content and they are platforms. We are excited by the engagement. We are seeing from our community today these platforms enable people to share a new song they discovered on a Spotify see what their friends are up to around the world hang out and chat with a group of friends while playing games and personalize their Fitbit workout routine and watch face with their bitmoji. We can't wage continue expanding these offerings across a wider variety of experiences for our community. Some of which we will be announcing at our snap partner Summit in April given the substantial long-term opportunities ahead. We are working hard to scale our Revenue so that we are able to self-fund our investments in the future. We believe that our platform is still extremely under monetized giving our massive reach among a differentiated and growing Community the whole levels of engagement on our service and our proven advertising products to drive measurable Roi for our partners.
This means that we have a large volume of high-quality advertising inventory and the potential to meaningfully increase our average revenue per user over time even in advance of monetizing.
Our longer-term investments like gaming and maps in 2020. We will continue to evolve our advertising products and go-to-market strategy for both performance and brand oriented budgets.
We have started investing heavily in our ranking and optimization efforts this year to increase the scale and return on ad spend that we are able to deliver to Performance advertisers as these early Investments are starting to bear fruit. We are getting better at increasing the value and relevance of each ad impression. Not only does this increase the return that our advertisers received from their investment in our platform, but it can simultaneously reduce. The number of Impressions we show for a particular campaign this freeze up inventory for additional campaigns while improving the user experience by reducing the number of ads shown that are not relevant to a particular individual.
As with any new technology platform, we expect ongoing improvements to Be steady but incremental and we plan to significantly increase our investment in product and Engineering talent to build upon the gains we have made in Abyss.
Given or massive reach among young people. We also believe we have a strong value proposition for household brands that want to reach our audience at scale but find it increasingly difficult to efficiently access our audience on linear television or other online platforms. We have seen early Success With Many Brands and believe there is a significant opportunity to scale their success across more advertisers, especially as television and desktop budgets represent a three times the total mobile ad spend in the US but advertisers are increasingly unable to reach our unique demographic on those platforms.
building trusted
Relationships and further developing our Advertising Solutions for specific verticals takes time and we are investing in a multi-year strategy to address this massive opportunity.
We are focused on growing our revenue and achieving profitability so that we were able to accelerate both are near term investments in our products and business as well as the realization of our long-term vision for the camera. We continue to urge the tremendous opportunity in defining what it means to be a modern camera company because the camera has seemingly infinite untapped potential historically it was difficult and expensive to create a photograph and people use cameras infrequently to document and save Treasured Memories the past decade brought smartphones with an internet-connected camera in everyone's pocket empowering people to use cameras for daily communication with over one point three trillion snaps created on Snapchat in 2019. This decade promises to bring yet another revolution in terms of camera usage with augmented reality as people begin to experience the world around them through lenses that Inspire creativity provide real utility and understand context in ways that have never before been possible. I'll now turn the call over to Germany to discuss the progress we have made and growing our efforts.
talking business 7
We're so excited with the progress we made in 2019 and see significant opportunities for our business moving into twenty-twenty. Our teams are well aligned enabling our business to grow Revenue alongside our community Through performance improvements on Android and iOS, world-class augmented reality experiences and engaging made for mobile content over 2019. We generated full year revenue of 1.7 billion dollars an increase of 45% year-over-year compared to 43% in 2018 in Q4 2019. We generated revenue of 561 million wage increase of 44% year-over-year compared to 36% in Q4 of 2018. These results are a by-product of the hard work being done across all teams at snapped and validate decisions. We've made wage around the structure of our sales teams and the products we have built for our advertisers and Community as a result. We believe that we have the opportunity to continue growing annual revenue at a pace significantly bath.
Our peers we are fully focused.
I'm making progress against our our pool opportunity which we believed in the short-to-medium term will be largely driven by Advertiser demand. We have significant Headroom and our business given our high levels of Engagement and a life supply of available Impressions globally as a result. We are focused on driving demand from advertisers to improve cpm's in our self-serve option looking at our current ad products and applying comparable industry cpm's their own inventory. We are in a position to meaningfully close the arpu gap relative to our peers in addition not only does demand growth increase contestation in our auction driving up see p.m. But it also increases the number of ads available to choose from for each impression improving relevance per impression and ultimately yielding higher Roi for our advertising Partners even increased prices.
to achieve our goals remain focused on three key priorities first improving our measurement drinking and optimization to drive relevance and deliver Roi second building out our sales and
In functions to support the needs of our advertising Partners globally third creating Innovative add experiences around video and augmented reality that deliver real business value life priorities along with our growing Global audience will allow us to drive performance at scale for businesses around the world.
Our business growth is enabled by our large growing unique and unduplicated audience. For example in the US. We reach more than 90% of 13 to twenty four year olds and more than 75% of 13 to 34 year olds. In addition. Our reach is expanding outside of the us as a result of ongoing product improvements that allow us to grow our business and Community around the world our community engages with our service for over 30 minutes per day on average and our advertisers have unparalleled reach with the valuable thirteen to 34 year old demographic that makes up the majority of jobs and gen Z
Our first priority is investing heavily to improve our measurement ranking and optimization to drive relevance and deliver Roi in 2019. Our investments enabled performance advertised to scale on our platform. For example, at the start of the quarter our pixel purchase optimization goal comprise less than 5% of self-serve Revenue over Black Friday and Cyber Monday, however, optimization goal that allows advertisers to bid explicitly on purchase activity on their website grew to over 10% of self-serve Revenue globally. We enter 2020 with multiple investments in college. I spent the past year ready to scale to new advertisers are self-serve tools lower funnel optimization goals video ad formats and advanced Solutions such as product catalogs and dynamic ads work together to reward advertisers to invest in our platform with Roi at scale.
for example
We run started testing Dynamic ads in October of 2019 as product-based ad formats have been amongst the tactics to have worked their business after initial testing proved to be extremely successful being a student. I spent by three times in Q4 2019 during one of the most competitive times of the year for Shoppers the solution not only helps them Drive relevance during the holiday. But they shared this will be a key performance drives throughout the course of the year.
Our second priority is to grow demand via better service for our advertising Partners. As you continue to scale our advertising business across all geographies. We expect to build out teams in different verticals to support our growing had business this includes building a Global Partners team to work with our largest global advertisers to create seamless Global planning hiring more sales operations experts to continue to improve operational rigor and our sales teams and pipeline planning and generally mature the ways our sales organizations operates as we scale over the coming years. We're encouraged by the early success with many of our verticals wage. Most notably Tech restaurants entertainment and cpg.
for example PepsiCo is Mountain Dew look to Snapchat to leverage our
Bad products and drive sales for the Mountain Dew brand Snapchat worked with Mountain Dew to run two campaigns for their do knighted and Voodoo product lines the United campaign leverage snap ads and filter off highlight the classic Mountain Dew logo and help Drive incremental sales returns above PepsiCo Norms primarily through a lift in household penetration, the voodoo campaign leverage stop ads and lenses Halloween fans and candy bars which resulted in a significant lift in add awareness and brand favorability for Mountain Dew's limited-time Voodoo product. Our third priority is to continue to lead the way with Innovative advertising products and services and Brands focus more on incremental reach and depth of Engagement rather than just clicks and Impressions more advertisers are employing Innovative formats that drive real customer action. Snap is the ideal place for these Brands because our advertising products are built on the same Foundation that makes are engaging consumer products successful.
We continue to invest heavily in innovative solutions that leverage our content and augmented reality Platforms in order to drive better outcomes for advertisers and Delight are Snapchat Community video in a top priority.
For example, we started to scale commercials are six second non skippable full screen video format and snap select which enables fixed CPM buying of commercials in pre-packaged premium inventory home remaining was engaging adformat and easy to buy model within premium content placements has seen early success with high-quality Brands recently. We rolled out the capability for Snapchat life more deeply with our commercials product and I've already seen success stories for Black Friday 2019 goes the global platform for style featured a week-long Black Friday raffle that included over three thousand prize has 35,000 sneakers and $10,000 and go credit. They ran a commercial campaign that swept up to the promotion landing page which led users to download the app Snap accounted for 95% of all traffic to that landing page and goats cost per install of just twenty cents from Snapchat or downloading their app to participate in the Black Friday raffle.
Amanda Sun senior user acquisition manager said will continue to leverage commercials annually with our Black Friday raffle as well as with other similar campaigns to not only brought an awareness but to reach highly engaged audience.
Turn brand building on mobile remains a challenge for marketers and no one is better positioned to deliver Solutions than snaps we have a huge opportunity with our camera first functionality and are sponsored AR lens formats Thursday. We are at the beginning of building out our our ecosystem for Brands and providing additional value Beyond paid media. For example, this quarter. We announced that McDonald's and Coca-Cola are the first brand Park to utilize our skin camera search technology our scan feature combines visual search and Augmented Reality by recognizing images through the snap camera and providing a are lenses related to Wolf Camera is focused on in this case the well-known logos of McDonald's and Coca-Cola these initiatives complement our existing marketing campaigns and Link digital content to the physical world.
Any brand can now utilize our scan technology for free Via Linda Studio our public AR creation tool and submit it to the Snapchat Community turning physical products that are part of snapchatters everyday lives in to conversation starters to immerse. The day are is a unique way to connect with our audience and important milestone for this technology. You believe we are poised to continue growing Advertiser adoption of birth is augmented reality marketing becomes more widely adopted by businesses. We are also seeing that when Brands utilize a portfolio approach of combining sponsored augmented reality lenses which snapped off the result in stronger Roi and lower cost per outcomes. This is leading Brands to deepen their investment with SNAP over time, for example, our partnership with MGM Resorts International start and focus campaigns including Allen's in Q4 of 2018 to launch their new parts MGM Hotel in Las Vegas.
Just drove a 10-point lifting.
Not awareness and a five-point lift and consideration intent given the upper final success. They saw they implemented the snap pixel and expanded into running direct response efforts to drive room bookings across their entire life properties using Snapchat story ads and collection ads these generated an 18 x Blended return on ad spend across all ad units. Most recently. They came Circle by combining the best of their direct response learnings with Snapchats augmented reality Opportunity by applying a r for direct response to drive Park MGM and expanded portfolio bookings in Q3 wage in nineteen this activation drove return on ad spend in line with direct response Focus story ads and snap ad units proving augmented reality is an effective tactic for achieving cost-efficient booking.
We enter 2020 with a full-featured ad platform and a sales team structure to support our business looking forward. Our strategy for growth is to continue to invest in new products and Marketplace improvements to help.
Kayle build Focus relationships with Brands and agencies across many of our verticals and to improve our direct-response products for performance Centric businesses based on the size of our audience wage levels of Engagement across camera content and communication and our overall opportunity in the growing digital advertising Market. We are in a position to meaningfully close the arpu gap relative to our peers wage is incredibly excited about what the future holds for snap. And we look forward to growing and building deep relationships with our partners over the longer-term with that. I'll turn the call over to Derek.
Thanks, Jeremy our Q4 Financial results reflect our priorities of making focused investments in the future of our business and scaling our operations efficiently in order to draw towards profitability and positive free cash flow.
As I mentioned earlier our community grew to 218 million daily active users in Q4 2019 which represents an increase of thirty 1 million or 70% year-over-year. We are pleased to see that the year-over-year growth rate of our community accelerated from 13% in Q3 2019 to 17% and Q4 29th, and that the sequential growth and exceeded our expectations entering the quarter.
We continue.
To benefit from the cumulative impact of improvements. We have made to our application which are contributing to higher levels of Engagement and the sustained retention of new Snapchat erzberg.
The growth in our community continues to be broad-based with your over year and sequential growth on both IOS and Android platforms as well as you're over year growth across each of North America Europe and rest of world as we are now lapping the. When you stabilized near the end of 2018. We are focusing once again on the year-over-year growth rates and you which tend to better illustrate the underlying Trends within the community compared to the sequential growth patterns that are often skewed by season off within regions in North America you grew by 7 million or 9% year-over-year up from five million or 6% in the prior quarter cup in Europe grew by 7 million or 12% year-over-year up from 6 million or 9% in the prior quarter.
in Reston
Yeah, you grew by 17 million or 36% year-over-year compared to thirteen million or 28% in the prior quarter. We are pleased to see that a pattern of Solitaire over year growth has developed across all regions and that the rates of year-over-year growth accelerated across all regions in the current quarter.
We believe the accelerating growth of our community in an increasingly competitive market for attention on mobile clearly demonstrates the value of our differentiated platform.
We exceeded the top end of our guidance range in Q4 and generated total revenue of 561 million an increase of 44% year-over-year.
It's expected our rate of Revenue growth decelerated versus the prior quarter reflecting a tougher comparison. In Q4 relative to recent prior quarters and the impact of a shorter Peak holiday. In the current year recent prior quarter growth rates have been elevated by the impact of growing always on demand for our goal based off sizing products, which is help to fill in valleys of demand within ourselves serve option ecosystem. We are now laughing the launch of our goal based advertising capabilities in the prior years, which resulted in a tougher comparison. This quarter relative to recent prior quarters.
in addition while we experienced elevated
Holiday driven ad spending throughout the period between Black Friday and Christmas. This window of time was approximately one week shorter in the current year compared to the prior-year and this fact wage also contributed to the deceleration in your over year Revenue growth rates in the current quarter in North America Revenue grew 42% year-over-year in Q4 compared to 52% in Q3 while arpu grew 31% your rear compared to 43% in Q3 this relatively lower rate of growth in North America and Q4 reflect impact of the shorter holiday. Being concentrated in this region as well as the tougher comparison. In Europe Revenue grew 47% year-over-year in Q4 compared to 36% in Q3 while arpu grew 31% year-over-year compared to 24% in Q3. We were pleased to see European growth accelerate following the completion of our sales team.
the organization in the prior quarter
In rest of world Revenue grew 49% year-over-year in Q4 compared to 55% in Q3 while our program 9% year-over-year compared to 21% in Q3 the degeneration in rest of world Revenue growth reflects the Steep ramp in the prior-year when rest of world Revenue grew 47% sequentially following the launch of more sophisticated go off based bidding capabilities our goal based advertising products gain traction quickly in the rest of world region a year ago and helped to drive the growth of are always on Advertising business worldwide wage throughout the course of 2019.
We continue to see broad-based Improvement in Advertiser demand and strong adoption of our ad products including story adds Revenue that doubled year-over-year in Q4 and commercials add Revlon them more than tripled year-over-year in Q4. We continue to view the camera as a significant long-term monetization opportunity and we are pleased to see you're over year Revenue growth from a our lenses wage filters accelerate by 21 percentage points in Q4 driven by strong adoption of our self-serve reach and frequency a our products and strong demand from advertisers seeking to build a presence in the carousel at Key moments total Impressions doubled year-over-year in Q4 while cost per impression continue to stabilize with a year-over-year decline in DC p.m. Of 20% in queue for an improvement over the 27% decline observed in the prior quarter the ongoing growth and engagement combined with optimizations to our self-serve platform to utilize. Yep.
our inventory more efficiently
Are driving continued expansion of our available Supply which allowed us to grow Revenue 26% sequentially, which is to 7% rise in yields over the same.
Gross margins were 56% in Q4 2019 up eight percentage points year-over-year and five percentage points sequentially as we continue to focus on scaling our operations of infrastructure cost per day or $0.72 in Q4 flat versus the prior-year but up $0.02 sequentially reflecting seasonal Trends and user activity month. We continue to make significant progress against our goal of driving down our underlying unit costs over time, including the cost to deliver a snap the cost of deliver an impression and other key drivers wage structure costs in Q4 our efficiency improvements fully offset, the year-over-year increase in the user activity resulting in flat cost per year over year off on the content side. We have been doubling down on our investments in premium content and we are pleased to see these Investments yield more than fifty shows with monthly audiences wage.
10 million are greater in.
For which contributes to our ability to grow story adds revenue and commercial ads Revenue at the rapid rates noted earlier the focus on scaling. Our infrastructure costs especially has allowed us to make these investments in premium content while continuing to expand our gross margins which reflects our overall approach of scaling our operations efficiently while making an investment in the future of our business.
Operating expenses were 271 million in Q4 2019 up 14% year-over-year And flat. Sequentially. We shared last quarter that we intended to invest in the future of our business by growing are talent-based and we have begun to do so full-time headed kind of grew 11% year-over-year Q4 with the growth and headcount focused on monetization and engineering and this was the primary driver of our year-over-year operating expense growth while there is typically a lag between investing and talent and improved output metrics. We are pleased with the momentum that we're seeing from the Investments. We have made over the past year and expect to continue to invest productively in the growth of our business going forward marked our first quarter of adjusting profitability at $42 billion for the quarter and Improvement of ninety-three million over the prior year and eighty five million over the prior quarter.
consistent with our prior guidance
This was the seventh consecutive quarter that we reported a year-over-year Improvement in adjusted ebitda in Q4. We delivered adjusted ebitda leverage of 54% which is expected was down from 65% in the prior quarter as we continue to invest in the future of our business while making progress towards profitability and positive free cash flow with that income was negative 241 million in Q4 a decline of $49 million over the prior year and $13 billion over the prior quarter the decline in net income large reflects a one-time legal settlement, which all said the Improvement and adjusted ebitda in the quarter.
Free cash flow for Q4 was -76 million and Improvement of seventy-three million year-over-year and eight million quarter-over-quarter primarily driven by the improvements in a month, even though there were partially offset by seasonal changes in net working capital between Q3 and Q4.
did the quarter with 2.1 billion in cash and marketable securities down from 2.3 billion in the quarter which largely reflects investments in working capital as well as cash Investments related to m&a activity during the.
As we look forward to q1 we expect to continue to invest in the future of our business to scale our operations efficiently and to make additional progress towards full-year profitability positive free cash flow to begin. I will share with you that our financial guidance for q1 assumed you of 224 million to $225 billion impact your over your growth of 18% for Revenue. We are guiding to a range of between 450 million and $470 for q1 which includes the potential for mods acceleration and year-over-year revenue growth relative to Q4 at the higher end of the range for adjusted ebitda one. We are guiding to a range of between -90 million off of 70 million with a sequential decline reflecting the seasonally higher revenue and Q4 and our plans to invest in the future of our business while continuing to achieve positive adjusted.
to give a doll Leverage
Thank you for joining our call today, and we will now take your questions.
Thank you. That concludes the prepared remarks for today's earnings call and we will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two in the interest of time. We ask that you please limit yourself wage one question after your initial question is asked your line will be muted and at this time we will now pause for a moment to assemble our roster.
And our first question comes from Ross Sandler of Barclays, please go ahead.
Hey guys, just a question on on Revenue trajectory and and 14 and one Q. So Jeremy you flagged how the ad load is pretty low, and that there's plenty of availability Impressions on any given day given the engagement here. So the question is more on the demand-side how much of the the growth that you're seeing in the fourth quarter. The 44% is from new versus existing advertisers, and then I guess what's the team doing to increase the pace of onboarding new advertisers under the platform? And then, you know looking back one Q Revenue range there you mentioned there's acceleration at the high end. We can all see that so I guess what's what's giving you the confidence that the revenue growth is going to to pick up in 1 Q. Thank you.
Thanks for the question.
A couple of different things. So from The Advertiser account perspective as we don't break it out specifically We are continuing to see strong demand for down funnel did optimizations such as app install and then a demand for our premium ad units from Brand advertisers like commercials and they are our advertisers are generally retaining well and increasing their spend as we continue to demonstrate this meaningful, Roi would really critical in terms of Advertiser growth. I'm pleased to let you know that in Q4 of 2019. We did have our highest number of active advertisers ever and there's still a lot of room to grow there. We have a lot of opportunities to get new advertisers primarily through education of the market through our sales teams and our work with our agency partners as well. And in addition in Q4, we started a deliberate approach to buying B2B marketing to reach the media planning community and that's still early days, but we really like what we're seeing so all in you know, we continued continue to deliver Roi we're really really focused on the market ensuring that wage.
Bring the best solutions to them and have them.
fact right products to continue to grow The Advertiser base
Hey and it's Derek speaking. Thanks for the question Ross. I'll take the second half of it with respect to the q1 guide. You know, I think a couple of things one when I look at the growth rate in Q4. Obviously, we pointed out, you know, someone time they're they're impacting the revenue around the timing of the holiday season and whatnot. And so, you know, one of the things you know, I think when we think about the revenue going forward were really confident in in the trajectory of the business fundamentally for all of the reasons that you know, Jeremy just mentioned, you know, but in terms of our personality around guiding we want to make sure that we're you know factoring into our range not only the things that we're optimistic about that we're seeing materializing in the business, but also the potential for some risks to materialize in the environment and so on so our guy tries to reflect, you know, both, you know, the momentum we see in our business and the confidence we have about our long-term trajectory, but also, you know the potential for the materialized throughout the course of the quarter and hopefully that gives you a little bit of a sense of you know, why we, you know point a little bit optimistically to the higher end of the range and the potential for you know for us to bounce off that Q4 number.
Our next question is from Michael Levin of pivotal research group, please go ahead. I'm thinking for the question. I wanted to understand how big of a driver for 2019 and conceivably in Q4 native direct-to-consumer advertising has been for the business. It's it's definitely a question. We get a lot of
a lot of in downs from from investors
Thanks for the question Michael. I would say that you know, we're very very fortunate to have both a strong brand based business and a strong D are based business. So we're not we're not concerned relative to the fact that we have that diversification and a suite of products. It's meant to serve advertisers of all types. We love what we're seeing in the verticalization efforts and that broad-based swath of success across verticals like a payment Tech cpg and more. So we are not as heavily reliant on that data see group because we have products and services to be as Diversified as possible.
Our next question comes from he's Terry of Goldman Sachs, please. Go ahead great. Thank you. When you look at the improvements that you're seeing in in arpu in the quarter. How would you disaggregate that between usage and and monetization there was a lot of great detail about monetization in the the prepared remarks, but can you quantify the the contribution from the Investments that you're making in sizing technology better targeting and and measurement and there are there specific components in that ad Tak that you'd call out as contributing, you know, whether whether it's a specific ad formats or or specific tools that that you're seeing advertisers use and then just when you mention that arpu Gap in the the transcript, can you quantify what you see is the bulb the right measurement of that gap between sort of where you are and and who you're using not necessarily who but the the level that you're using is the is the benchmark.
maybe if it's
Thanks for the question. There's sort of two components there. I'll take them, you know in reverse order. The first one was just about the arpu Gap and what Gap where we trying to close, you know, I think what we think about our arpu opportunity, you know near-term and longer-term are really looking at the audience. We have the engagement we have the ad products that we have today and the yields that we see in the marketplace but the inventory that we have and you know, well, we're all excited about is the opportunity to just continue to drive demand into our ecosystem and get market-based and yields for the inventory and the audience that we have. So we're trying to drive towards that you know, and of course we look at piers in the marketplace in the near-term like a Twitter, you know, which we think is, you know a benchmark we want to drive towards, you know, and obviously we've got opportunity to to go beyond that. And and that's where we get into some of the discussion about how excited we are about the improving engagement on the user side. We pointed, you know in some of the prepared remarks and highlights to the growth that we're seeing an engagement on Discover with the time spent being up there growing wage.
Engagement with premium shows and in general the health of the ecosystem. And of course when we see the growth in our use accelerating your every year versus the prior quarter all of that just adds to our unity and so when we think about closing the Gap, that's the kind of stuff we're looking at and then to your other question, which is you know, how much of the
Growth is being driven, you know by usage versus say optimization and I think at this point because we are not supply constrained. We're looking at a predominantly just trying to build absolute demand into the ecosystem. And so what you see when we're able to improve our optimization and serve the Right add to the right user at the right moment and we can bring more diversity of advertising into the ecosystem that just allows us to use our inventory more efficiently and it takes some of the pressure off yields, which is great for advertising customers who benefit from really low yields in the ecosystem today because we are not home supply constrained. So that's how we see the the marketplace Fielding out and and hopefully that gives a little bit more color to your question there.
Our next question comes from Mark mahaney, please. Go ahead.
Okay, two questions. Please one even in the the quarter or two ago. You called out the impact particularly if some of the new features on the gender filters off on the da you growth and this last quarter you had this nice innovation in terms of Cameo is it was just not as material so there wasn't a need to call it out if you'll talk about that and then you toss out of full-year ebitda profitability, but Derek you didn't mention that at the end. So just is that a is that a goal is that is that not wishful thinking but is that like a nice to have goal or is that actually you're trying to run the business to generate full your profitability? Just if one or two of you will adjust that. Thank you.
Hey Mark. Yeah, you know a lot of exciting Innovation for us.
Cameo is included. It's very early for cameos that are part of our chat service. And so I think over time is more and more members of our community discover cameos. They'll get really excited about them. And I think that has a lot of potential to drive growth in the future. But I think one of the really interesting thing that's happening in our business is that as we start turning our products into platforms, for example, whether that's our content business or augmented reality. We took a lot of opportunity for durable Innovations. So one of the things we're seeing on the augmented reality side is this the community created lenses are really growing and engagement and popularity. And what's great about that is that way, we don't have to come up with all the ideas here at snap our communities coming up with great ideas every day and they're actually building them and then sharing them with everyone and that's driving a lot of recurring engagement and growth for us. And so we talked about that going into the future.
And then, you know Mark things for the question and obviously on on the full-year profitability side, look obviously 1,000% aligned. This is an objective for the company, you know, we don't guide be on the current month, but
You know as as you can see we've been investing in the company in order to accelerate our Revenue growth. Try to close. These are poo gaps faster. And you know as we pour those Investments on we'd like the returns that we're seeing and so we're moving the scale in the business in order to make that possible. And so it's obviously an objective that an entire leadership team is pushing towards we just don't guide beyond the current quarter and that's why you don't see me talking about it and and my section there.
Our next question comes from Rich Greenfield of light shed Partners, please go ahead. Hi. Thanks for taking the questions. I guess just kind of maybe to start with kind of philosophical. You know, I think if you look back a year ago, it's kind of quality of discover was something we spent a lot of time harping on and I think if you look a year forward, you've made a lot of progress in improving the quality of the content that's their way. Just wondering like as you think about the tension between what the algorithm wants to suggest to drive the most clicks versus improving the quality. How does that battle take place? It's nap every day and you know, if some of it what you're seeing in terms of, you know, Revenue growth or arpu growth is part of it constrained of like you're improving the quality of the experience and it takes time to unboard all of the advertisers to benefit from the Improvement in quality and then just kind of a follow-up to the question that was asked earlier about number of advertisers Facebook disclose. I think over eight million advertisers now up from 7 million Jeremy. Is it fair to say that you're still in the hundreds of thousands wage?
Advertisers and you know, I guess the the biggest single question.
That everyone's thinking about is is that the single greatest driver of closing the Gap is just bringing on more advertisers to build up competition in the auction. Is that what gets you, you know fifty sixty percent Revenue growth relative to where you are now. Thanks.
Thanks for your questions Rich. You know, we're really excited about the momentum. We're seeing on the content side of the business and I think there's still a lot of room to improve the service. There's going to be some counts were making later this year around new Innovations to to that effect. And you know, I think that tensions always going to be there but one of the really unique things about snap is that all of that content and discover is curated art. And so we're really defining the pool of content that served to our community and that's how we tried to get the right balance between, you know content that's really relevant but also content that high quality and so I think that's sort of the right track off to make for now but we're doing some experimentation around merchandising things like our shows more effectively. You see that if you swipe over from discover one page over we're doing a lot of experimentation there and you know, we're learning a lot. So we hope to bring some of those learnings more broadly to our community as we go forward.
And then I'll take the second part of your question. Yes, absolutely. Definitively advertise. Our account is the single best way to grow demand including onboarding new advertisers.
Of all types, we have products for all of them and we're very comfortable with how we're on boarding those but tons and tons of opportunity ahead. We do have fewer than eight million advertisers, but I am a lot of Headroom to grow we have the supply to do it and the products to do it and bring on advertisers of all types. Oh, yes that is where we are myopically focused on the sales team to ensure that we have a breath of advertisers to close this Gap relative to our peers set.
Our next question comes from Doug and most of JPMorgan please go ahead. Thanks for taking the question. I just wanted to follow up on Discover you talked about the Thursday percent increase in time span and more than that among users 25 plus can discover help snap a job more overtime here. And then can you just talk more about what the shift wage in usage tour discover means for monetization and and closing that are poo. Thanks for a high level, you know, they're really interesting shifts happening in content consumption long, as you know, as you know, the viewing Behavior moves from linear television to mobile content consumption and I I think the content offerings really across the board have not caught up to this behavioral shift and that's why we see so much opportunity here in why we're continuing to invest in, you know, creating new shows creating new content types because we see so much demand from our community so that that behavior shift shift I think happened first with you know, young people and see
Increasingly happening with older folks as well and we're excited about the growth that we're seeing there. So I I do think it plays an important role in closing the arpu Gap, but frankly the RP opportunity is so broad snap.
Given the current level of Advertiser demand in the amount of inventory that's available. I think, you know, we'd have to grow something north of 50% you know full year Revenue, you know for several years to just to get close to a Twitter level of our poo. So we're very focused on you know, accelerating Revenue growth which which we think is possible.
Our next question comes from Justin post of Bank of America Merrill Lynch. Please go ahead a couple of questions first, you know you are guiding to possible acceleration in q1. I know the cops get them both on and and revenue growth is year progresses. How how do you feel about about the year and you're you're, you know Revenue initiatives and and just kind of the setup for the money you can help with that at all, and then secondly thought it was interesting that your Revenue share costs were up 49% year-over-year, but your commercials, I guess we're up three acts. So maybe you could get us a little bit about the gross margins of the Discover Business if if those are really attractive to you and and the operating margins there. Thank you.
Hey, Justin.
Tara speaking. Thanks for the question, you know in terms of a set up for for the year on Revenue just our momentum, you know heading into it. I think we've really been focused on our long-term opportunity, you know both Evan and I touched on it here today around the the longer-term opportunity and we've been investing in the business in a lot of different ways around the monetization time. And in terms of our sales teams, the engineers that support those teams on optimization and then of course in the product and so we feel like we've been putting the inputs into the business in order to set ourselves up and so, you know, I think we are really pleased with the momentum we're seeing in the business and the absolute Revenue growth opportunity there. And so we're going to keep you're going to see us continue to invest in the business in order to make it possible to close that Gap faster in terms of you know, the the scaling on the cost of Revolution. There's really three big component of the cost structure. They're obviously infrastructure, which you can see separately and then of course the content side and and then of course you certain costs and so on or run ads and dead
You know what, I think about the scaling. They're the biggest we do report that within revenue-share. So it probably gives you a little bit of in a sense of the structure of a lot of that costs, but we're also investing in our own shows and our own content suck structure.
There's a little bit different and scales frankly quite well for us, you know as our audience grows and as the engagement grows and so that also contributes to our ability to expand our margins as we scale the business office. So you're seeing a really good flow through there, you know, the a percentage Point expansion, you know is really healthy and we expect it. You know, we can continue to scale efficiently, you know having that infrastructure cost number get more affect on you going to cost basis over time really opens it up for us to invest in the future of the business, you know on the content side, which expands our monetization opportunity while still growing those margins and so that code has been working nicely for us. We're going to stay focused on being operationally efficient so we can make those Investments.
Our next question comes from Steve of Credit Suisse, please go ahead. Okay, so thank you. So Evan some of the r o w regions have lower GDP per capita. So your bank approve May ultimately be lower, but would you say that the cost to serve in those regions may be that much lower as well given the data cost constraints you called out and the use case for the app might be different and Derek. Your dsos are down every quarter this year relative to the prior year or so. Can you talk about this shifting mix between revenue. As more self-service versus agency drug and ultimately where that DSO can ultimately go as to Advertiser based continue to shift. Thanks.
Hey Stephen, thanks for the questions to the first.
One, you know in terms of you know as managing our infrastructure cost by you and any of the the long-term around the cost per day you by region relative to our poo. Obviously, we've got a lot of opportunity to grow arpu is we've been talking about and we've been able to grow arpu much faster than our cost per day. You can see that you know, this this quarter with the growth and revenue and flat club. And so that's allowing us, you know to expand our our efficiency overall in our margin, you know, typically, you know is you're thinking through the cost per of infrastructure. No user engagement is obviously a driver the cost of delivering Impressions or also a factor in there. And of course it it's kind of vary based on user engagement. It's going to vary based a little bit on our crew because of the Impressions being faith in the bat and so generally speaking, you know, there's some alignment there between your arpu and your cost per day when you look at different regions and so that helps you a little bit as you've got your are approved varying wage.
And importantly we're getting you know better and better at managing those costs and and getting them scaled appropriately. And so that's been working pretty well for us. And I think you can see that coming through in the margins even as our you know, our rest of world has been growing a little faster than than
Are more mature markets the margins have still been expanding. And so I think you can see that coming through in the outputs in terms of DS. Oh, yeah, we've, you know put a lot of attention on just you scaling our business recently and making sure that we're managing our DSO efficiently and working capital making sure it's scales. Well, obviously queue for working capital, you know was a drain quarter-over-quarter seasonally higher revenues, you know, we've got to collect those in but generally speaking we've been able to expand working capital structure pretty efficiently over the course of the last year and you can see that starting to come through in the outputs.
Our next question comes from Eric Sheridan of UBS, please go ahead. Thanks, maybe two topics that I can on the shorter holiday. They're just want to know if you could quantify how that may impact the Q4 and whether that out performed or underperformed versus your expectations that we knew the calendar was going to be less days. And then on the always on on demand and and thinking about the bath used to build into the self-serve auction, you're calling that out as a headwind. Thank you for looking back over to one two, three of nineteen as we look at your in your comparisons going forward. Are there any compact we should be aware of the creative? They're tougher comps or easier comps now as we look forward over the next couple of quarters that we should be aware of just versus the way you'll be communicating on the business going forward. Thanks so much money.
All right. Thanks for the questions. Yeah, the shorter holiday. I mean the way I think about that is a look at the revenues to the quarter and you know.
What we've seen in in Prior years, we saw elevated holiday spending in the period between Black Friday and and Christmas that. Just a little shorter for us and one of the things that's really important to understand about our business office because you know, we're we're not supply constrained. We're more sensitive to fluctuations in demand, you know, whereas other platforms of your more dense, uh, when you have that kind of demand fluctuate in it's going to trade against yield a little bit more and so we the expectations that we had for that impact in Q4 pretty much lined up with what we saw it was as expected which is why you saw it's coming real close to our side and then you know, in terms of the impact of the always on going forward for sure. We saw the business accelerate throughout the course of 2019. And of course that just makes the expectations higher but you know, as we were seeing our our business improve of the course of 2019, we were investing in the business and you can see that where we were investing in our sales teams and our engineering and product organizations that support the business birth.
And content and so on and so as our business has improved we've been investing in the business. Typically, you'll see a lag effect between the Investments that you put into the business and the monetization that results from all of that. We're pleased with the early results that we're seeing from those Investments and we're doubling down on what's working. And so that's what's making us optimistic about our ability to realize our our opportunities. We move forward because of those Investments to appear to be looking good. Thanks for the question. I hope that helps to illustrate.
our last question will come from
Brian Nowak of Morgan Stanley, please. Go ahead. I have to the first one Jeremy. I appreciate some of the the the detail on your your key strategic priorities, I guess, you know sitting in your seat. Now, what do you think are sort of one or two of the the most important aspects to really improve to improve the the direct response Advertiser adoption choice of which Dr. Dollars can flow over the platform. You know, what what's the biggest area of of friction? You need to improve in in 2020, and then the second one for for Derrick. I guess I thought was interesting to hear sort of your home or guidance philosophy or your service of assuming some risk to the upside and downside. So just as we're thinking about the first quarter guide maybe talk us through some of the the potential risks to the downside that are incorporated into the office that could perhaps go better or worse. Thanks.
Thanks for the question Brian. So we are absolutely focused on optimization and ranking alongside improvements to our advertising tools and products for are more sophisticated advertisers. But there are there not a lot of huge hurdles remaining in the business. I think we're structurally sound but I think really importantly one of the things is that advertisers really just want us to win. They want us to succeed wage. They want options. They think they're looking for brand safe environments for their messages. They want to reach gen Z and Millennials where they're forming lifelong habits. They want performance media they want video and they want creative Genesis and we have all of those things. So I think in terms of fundamental we have everything we need in the building to to re accelerate revenue and we're extremely optimistic about our ability to do that. So we're looking forward to a great 2020.
and
It's Derek speaking. Thanks for the question, you know keep on going to think when you're thinking about risks and opportunities a lot of that really comes down to you know, our execution and how quickly we can capitalize on our opportunity. Obviously, we talked about keys to growth being bringing more and new demand into the platform diversifying our advertisers and continuing to deliver optimizations and that allow us to use our inventory more effectively and deliver Roi for our advertisers. And that's really the focus and how quickly we can execute on that and how quickly our customers react to the ROI that they're seeing and we're really excited about the you know, our opportunity and the momentum we have in the office and you know, we're trying to give you a good estimate of where we think things can come out and obviously, you know, when you're growing at the the rates we are there's a little bit of a range around what that possibly is and you know, we're trying to divorce in the short term but also keep our eye really focused on investing for the long-term so that we're accelerating the business to capture the longer-term opportunity as quickly as we can and the q1 guide reflects that and birth
Arrange around what we think the execution could be.
Thanks for the question. Hopefully that helps explain.
And this will conclude our question-and-answer session as well as snap fourth quarter and full-year 2019.
Earnings conference call thank you all for attending today's presentation and you may now disconnect your lines.