Q3 2020 Snap Inc Earnings Call
[music].
Good afternoon, everyone and welcome to snap Inc.'s third quarter 2020 earnings conference call.
This time participants are in a listen only mode.
After the prepared remarks, there will be a question and answer session.
If he would like to ask a question during that time. Please press Star then the number one on your telephone keypad.
This call will be recorded thank you.
Thank you very much Betsy Frank Senior director of Investor Relations you may begin.
Thank you and good afternoon, everyone welcome to snap <unk> third quarter 2020 earnings conference call with US today are Evans Spiegel, Chief Executive Officer, and cofounder, Jeremy Gorman, Chief Business Officer, and Derek Anderson, Chief Financial Officer.
Earlier today, we made a slide presentation available that provides an overview of our user and financial metrics for the third quarter 2020, which can be found on our Investor Relations website at Investor got snap Dotcom now.
Now I will cover the safe Harbor today.
Today's call is to provide you with information regarding our third quarter 2020 performance. In addition to our financial outlook.
This conference call includes forward looking statements any.
Any statement that refers to expectations projections guidance or other characterizations of future events.
Including financial projections future market conditions or the impact of cope with 19 on our business and on the economy as a whole 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.
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 June Thirtyth 2020, particularly in the section titled risk factors.
This information can be found in our other filings with the FCC when 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 and evaluating ongoing operating results and trends.
These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP right.
Reconciliations between 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 expenses figures, they will exclude stock based compensation and related payroll taxes as.
As well as depreciation and amortization and nonrecurring charges attack.
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.
This additional detail may be onetime in nature, and we may or may not provide an update in the future on these metrics.
Please refer to our filings with the FCC to understand how we calculate our metrics.
With that I'd like to turn the call over to Evan.
Hi, everyone and thank you for joining our call.
We added 11 million daily active users this quarter for a total of 249 million.
4% quarter over quarter, an 18% year over year.
In trading the benefit of years of investment in our products and partnerships across a wide range of geographies.
We generated $679 million in revenue this quarter up 52% year over year.
Performing to our expectations and highlighting the substantial value we drive both direct response and brand advertisers. During this continued period of uncertainty.
Our year over year growth rates for both daily active users and revenue were higher this quarter than they were in Q3 of the prior year.
In fact, they represent our highest Q3 growth rate since 2017.
Our success underscores the excitement that our community and our advertising partners have around our innovative products and services.
The adoption of augmented reality has happened faster than we had previously imagined and we feel well positioned to execute on the many opportunities that lie ahead.
Two years ago, we transformed our business by relentlessly focusing our attention on delivering return on investment for advertisers and building new products and experiences to serve our community.
The revenue and community growth, we have generated as a result of these efforts has afforded us the opportunity to double down and innovate, even more especially around our camera and augmented reality platform.
The creative and technical team just snap have worked hard to support one studio creators and evolve our cameras capacity to entertain our community and help our partners grow their businesses.
For example, this quarter, we introduced more lenses for try on and Commerce with Sally Hansen, creating a our trial and purchase for nail Polish and she is doing the same for sneakers.
Snapshot community engagement is strong as we continue to grow in new markets broaden our product offerings and improve our underlying infrastructure. This.
This was our fourth consecutive quarter of more than 15% year over year daily active user growth we are.
We also saw strong retention in our vast community and we continue to reach over 90% of the Gen Z population and 75% of the Gen Z and millennial population in countries like the U.S., the UK and France.
One key driver of growth across all of our markets has been product innovation and infrastructure improvements all.
Following the successful rebuild of our Android application last year, we are rolling out a new lease streamlined messaging infrastructure that we expect will make messaging faster and more efficient, which will help drive increasing engagement, especially as we expand our community across different countries and devices.
Do you foundational investments in our core architecture have also enabled us to innovate faster and release new product features at a rapid pace.
In the last year alone, we launched brand profiles Minis places on the map dynamic ads bid day, our lenses dynamic lenses camera kit snap M.L. lenses, and new creative tools with lots more to come.
We are currently rolling out a new five tab navigation bar for snapshot, which allows us to deepen the product experience for our math and discover platforms. We're in.
We're excited to make the snap map more visible to new snapshot ers and invest in a better content experience for discover especially as we brought in our content offerings across popular creators and professional studios.
Our ability to launch a large scale fundamental product transformation like this quickly and without disruption to our business is evidence of the progress we've made in.
In fact, it was the first major update where we prototype and launched on Android first due to the structural improvements we made to our Android application last year.
Our investments in lens studio continues to drive the growth of our augmented reality platform and we are especially excited to see lenses created by our community driving a majority of the year over year growth in daily lens views.
Our lens studio platform allows people all over the world to create rich Hey, our experience is that highlight the broad range of cultures represented by our community.
Some of these lenses are used by staff patterns across the world well others are notable for their extraordinary original engagement.
For example, a university student in India created aligns with the smoke clears effects, which went viral in India and southeast Asia, garnering billions of views on snapshot and even more on other social platforms.
This demonstrates the impact of the creativity of our community, which empowers self expression with augmented reality and a volume and scale, we can never achieve on our own.
We've also continued to invest in the technology that underlies our <unk> platform to empower new experiences for our community.
We drew on several years of technical investment and creative experience to launch a number of extremely popular lenses this quarter.
For example, our recently launched Anna May lens uses our snap M.L. technology to turn people into enemy characters in real time, and our community engaged with this lens 3 billion times in its first week.
As we push the envelope on what is possible and augmented reality with these new lenses, we're even more excited to contribute these new learnings and capabilities to lend studio. So our community it can leverage them in their own creations.
Our content platform continues to mature following our investments in regionalized content and the expansion of our partnerships with both traditional media partners and newer mobile focused content studios.
Our premium shows format continues to grow rapidly around the world with time spent watching shows increasing more than 50% this quarter compared to Q3 of last year.
Our successful versus the World dots you series franchise launched its second season, featuring Conor Mcgregor and has already reached 14 million viewers.
Additionally, large media companies continue to find success, bringing their top linear TV shows a snapshot to reach our differentiated audience.
Over 50 million snap Chatters watch content derived from TV on snapshot each month on average and this familiar programming has helped drive an 80% year over year increase in the average number of people watching shows every day that are over the age of 35.
Additionally, as various sports leagues are resuming their seasons, our community has turned to snap to watch the action.
Last month more than 40% of the U.S. Gen Z population watched premium sports content on snap.
The N.V.A. highlights channel saw over 20% more engagements. So far this season than last year and sports center viewership on snapshot increased by 80% from July to September.
We're also seeing dramatic growth in content engagement in markets like India, where discover viewership grew nearly 50% quarter over quarter.
Furthermore, in markets like France, and the UK young people turn to discover as their destination for premium mobile content with more than two thirds of the Gen Z and millennial population in both markets watching premium content on discover.
Finally, as our content business develops we are also providing our partners with better monetization.
This quarter due to growth in shows and improved monetization, we paid our partner's 85% more than we did in Q3 of last year.
In addition to a r. and content. We are also building new ways to empower creators developers brands and others to improve the entire snapshot experience for our community.
For example, we have partnered with turbo to launch a snap many to help our Gen Z and millennial audience Register for the upcoming us election.
Over 1 million U.S. users have signed up for the many where they can get help registering to vote.
According to democracy works more than 50% are likely first time voters that.
Additionally, we are continuing to make early progress on our gaming platform by launching three new games this quarter.
Many of our early developers are deepening their investment as they explore new genres monetization models and game types. For example, Mogi works developer of the popular ready Chicago is doubling down on the snap games opportunity and exploring new genres like music and trivia we have.
We have also been working hard to help our developers on financial success on our platform and have more than doubled the revenue our developers are generating this quarter compared to Q3 last year.
As we look to the future we believe that the fundamental changes, we made to our products and business over the past two years have put us in a strong position to continue executing in a rapidly evolving world.
Our improvements to both our core product infrastructure and our internal team and operations have enabled us to accelerate the velocity of our product innovation.
Meanwhile, our deep investments in building a scalable advertising platform have allowed us to focus more of our attention on these big future opportunities.
We are so excited about our progress in a our content and our growing platform, especially as we look to build on our momentum in these areas going forward.
Thanks again for joining the call I'll hand, it over to Jeremy to talk about our business.
Thank you Evan we delivered strong results this quarter and we're even more excited about the opportunities ahead of us in.
In Q3, we generated total revenue of $679 million, an increase of 52% year over year.
Strength in our business reflects the deliberate and structurally sound investments we have made in our AD platform AD product in team, we remain nimble and responding to the difficult and rapidly changing macro condition by supporting our advertising partners in achieving their business well.
We said at the beginning of a recovery from brand advertisers and continued resilience from direct response advertisers reinforcing our confidence in the long term positioning of our business.
As Brendan other organizations used this period of uncertainty as an opportunity to evaluate their advertising spend we saw many brands look to align their marketing efforts with platform to share their corporate value.
It gave us an opportunity to engage with advertisers and agencies in real time to ensure that our existing partners as well as new prospect understood our offering in relation to our values.
Our sales teams were able to hold many productive sea level conversations to discuss our brand safety positioning and privacy by design principle, which provided an opportunity for us to prove our advocacy and ability to scale.
We implemented a strategy to ensure advertisers investing now and early and sustained success on our platform as they scaled that back and we believe that the customer service. Our teams provided the alignment on our brand safety principal and the strong ROI that our advertising partner the Ci all contributed to our growth this quarter.
As this is adapted and begin to look for opportunities to increase their marketing budget. In Q3, we were pleased to see existing advertisers resumed and even increase their budget as well as new advertiser allocate spending to drive real business value via our self serve platform.
Based on our business in Q3 is the result of many long term investments we have made to improve our sales and marketing function try ROI measurement relevance and optimization and build innovative AD experiences to video and Aer.
It was our continued focus on these three priorities along with our unique reach and growing global audience, which allowed us to accelerate our growth as more of the world opened up and brands in terms of marketing.
Across all sectors in vertical brands are leveraging our millennial amgen's the audience to reach new customers around the globe in the.
In the us UK and France, we reach over 75% of 13 to 34 year old and we are making progress on growing our reach in other priority markets.
To help advertisers better understand the Amtrak generation in August we launched our first ever global business to business marketing campaigns, showcasing the values and behaviors that characterize our community.
Through our research we have substantiated the snapshot generation is deeply purpose driven we.
We found that over 80% of that charters in the U.S. believe they have a personal responsibility to create positive change in the world and they are more likely than not net chatter bison brands, which support local communities.
Overall, the B to B campaign was received positively by our advertising partner and has allowed our team to engage more productively with marketing executives at leading consumer brand as we held businesses learn how to communicate with the snapshot generation.
We continue to add deep domain expertise under Verticalized sales model, allowing us to effectively serve advertisers of all types and sizes.
This structure provided us with the flexibility to pivot resources this quarter to sum up our fastest growing vertical including TPG streaming tech telco financial services and ecommerce.
As an example brands such as Pepsico, MGM, hi mile Sterling Bank and de pop as well in the agency partners to listen and Threesixty I participated in our BTB marketing campaign, where they provided testimonials around the positive result, they achieved while partnering with our team in India.
In addition to support our partners through the pandemic and improve our marketing effort. We launched Snapple gets an online learning force for advertisers looking to create their first AD campaign on snap chat and no no a new marketing programs to educate global marketer about direct response advertising on snapshot.
Mind with our Webinars, an education session, our sales and marketing teams have continued to scale and serve our partners in the virtual environments.
We continue to invest heavily in renting optimization and measurement in order to deliver measurable ROI for our advertising partners.
It was our investment in our self serve AD platform and our ability to service our customers during a challenging time that allowed us to onboard a record number of advertisers this quarter okay.
Ultimately all advertisers that their budgets based on performance be it brand affinity purchases or app downloads and we continue to prove the efficacy of our AD platform by helping our advertising partners achieve their goal.
E Commerce remains an exciting opportunity for us and we are doubling down on our efforts in this area we are.
We are taking a holistic approach to ecommerce to cross sale, Nita sommers products and assets, including our self serve tool lower funnel optimization, both and video AD formats or.
For example, last quarter, we launched dynamic AD globally, which combined product catalogs with our optimization capabilities to reward advertisers to invest in our platform with ROI at scale and we are already seeing strong adoption rates from retail CPG restaurant and gaming vertical among other more.
More brands and pivoted in this direction, including support investing in dynamic ads as a part of their long term strategy and textile optimizing for their Fabletics women's marketing campaign with pixel purchase optimization.
The rise of mobile content consumption, especially on mobile native premium format presents us with a growing opportunity. The first building block with discover our video content business, which we launched in 2015.
We continue to invest heavily in video advertising your commercial our non scalable full stream video AD units and snap select which enabled finest commercial and pre packaged fix price premium inventory burn.
First commercial which gives advertisers away to reserve that first commercial it's matters. These during the show is now available to all advertisers and our asset manager following our beta launch last quarter and we have already seen many advertisers from different verticals and invest in this format.
For example, we saw entertainment brands, such as NBC Universal Peacock invest in our first commercial format at the world shifted to direct to consumer viewership and theatrical releases were put on pause.
We believe augmented reality is the future of immersive customer experiences like try on catalog browsing and show rooming, we invested heavily in our self serve and our tools to provide advertisers with what they need to create manage and optimize an augmented reality campaign that drives measurable ROI well.
This form of advertising is still nascent we are encouraged by the early adoption we are seeing from advertisers.
This quarter alone we partnered with several leading consumer brands such as channel fourth clearly assay Cole Levis, Jordan brand, Sally Hansen, and hope to oney to leverage our A.R. and machine learning technologies and power virtual try on experiences.
Well dynamic ads recommends items to snap patterns based on their interests. They are trying to take this a step further and allows snap chat or the visualize the item in real life.
For example, clearly and I wear retailer leverage her sponsored a our lenses to enable our community trying different pairs of glasses, which resulted in 33 seconds of average play time, and a 5.3% share it clear.
Clearly was able to drive a full funnel intact for their brand achieving a seven point lift in brand awareness and a five point lift in brand consideration, while also driving a 46% lift in unique pains viewers on their site and 3.3% lift in purchases.
Longer term, we believe our map represents an exciting opportunity to innovate and provide new experiences for our community and to grow revenue. We recently added places to our map, which helps people learn more about the businesses around them and view hours and star reviews. We.
We also built a dedicated local as objective as manager to ease this may not flow for local businesses.
Since its launch in July we have been encouraged by the number of local businesses experimenting with the product.
It was still early building connections between our community and the places they did that will be instrumental in supporting local advertising in the future.
Our investment in our self serve platform Verticalized sales team and engaging AD experiences provide the tools necessary for advertisers to reach our valuable community while the.
While the foundation is in place we have a huge opportunity to scale our business as we continue to demonstrate measurable ROI for our partner educate businesses on our unique reach all well, leading the way with innovated digital first ad products.
In particular E Commerce remains a focus area as we look to build upon the early momentum of our newer offering longer.
Longer term, we believe snap tired loan gauge naturally with businesses of all sizes across our service whether that be engaging with the brand profile finding store hours on the map or interacting with product using an airline.
Overall this was a productive quarter for our business and we look forward to building on our momentum as we progress towards our short term and long term opportunity and with that I'll turn the call over to Derek.
Thanks, Jeremy our Q3 financial results reflect our priorities of growing our community, making focused investments in the future of our business and scaling our operations efficiently in order to drive towards profitability and positive free cash flow.
As Evan mentioned earlier, our community grew to 249 million daily active users in Q3, an increase of 39 million or 18% year over year, which exceeded our expectations entering the quarter and represents an acceleration over the prior quarter growth rate the growth in our community continues to be.
Broad based with year over year and sequential growth on both iOS and Android platforms in North America. Do you you grew by 6 million or 7% year over year to reach 90 million into Europe. The EU grew by $7 million or 10% to reach 72 million and.
In rest of World deal, you grew by $26 million or 43% to reach 87 million we believe.
We believe snapshot is a complement to real friendships and the easing of COVID-19 related restrictions in many communities was a modest tailwind to engagement as we moved through Q3.
We observed the restrictions were lifted earlier in Europe and this contributed in part to the higher growth rate in this region relative to North America.
The acceleration of growth in rest of world reflects the benefit of our ongoing investments to better serve our community, including investments in local content language support marketing partnerships. The popularity of augmenting reality lenses created by our community and changing.
Competitive dynamics.
Total revenue for Q3 was 679 million an increase of 52% year over year, representing a 35 percentage point acceleration over the prior quarter, we benefited from an operating environment that exceeded our expectations entering the quarter as many of the.
Potential headwinds, we noted on our last call did not fully materialize in India.
In addition, the auditing of social media platforms by many advertisers and agencies, which occurred throughout the summer was ultimately constructive towards building and expanding our relationships with many of these advertising partners. These.
These favorable operating conditions led to rapid growth in demand from our brand advertising partners that built on top of the already strong growth trajectory of our direct response business and together contributed to record high active advertisers and revenues in the quarter why.
While we were pleasantly surprised by the favorable operating environment in Q3, we were not surprised by the growth we delivered under these conditions. We demonstrated early in Q1 that our platform is capable of delivering growth over 50% under more normal operating conditions and we were pleased.
To see operating conditions significantly improved in Q3.
In North America revenue grew 56% year over year in Q3, while ARPU grew 46% year over year and year.
In Europe revenue grew 49% year over year in Q3, while ARPU grew 36% year over year, the relatively higher rates of growth in North America and Europe. In Q3 reflects the ramp in demand from brand advertisers beginning relatively earlier and stronger in these regions in rest.
The World revenue grew 35% year over year in Q3, while ARPU declined 6% year over year as accelerating growth EMEA, you modestly outpaced growth in absolute advertising demand.
Rest of World revenue growth accelerated by 21 percentage points over the prior quarter as demand has begun to recover from the relatively more severe impact of COVID-19 related disruptions to demand in this region as.
As we noted previously our proven rest of World is best viewed as an output metric at this stage given the simultaneous rapid growth in our community and advertising demand. So.
We continue to see strong adoption of our own products revenue from our commercial side product more than doubled year over year in Q3, as we continue to see building demand from advertisers seeking to reach Gen Z and millennial audiences at scale and with a full screen video advertising products.
That is delivered adjacent to brands a content. In addition, our revenue from camera products nearly doubled year over year in Q3, driven by strong adoption of our self serve region frequency lenses and filters that offer brands an opportunity to interact with snam charters through engaging augmented reality.
Your experiences.
For the first time as a public company, we observed a rise in overall EPS GPM in Q3, driven by a combination of mix shift towards higher ecpm products, such as commercials as well as the rapid rise in overall demand.
Verges Cpms increased 20% year over year. However, we believe our Ecpm has remained well below market rates for our audiences and AD units the ongoing growth of our community as well as deepening engagement within our Anup continues to add more inventory opportunity to our ecosystem over time.
In addition, we continue to make improvements to our targeting and optimization capabilities that allow us to show more relevant ads to stem charters and utilize our inventory more efficiently for example, while he cpms for inventory monetized by a pixel verify purchases rose by six.
71% sequentially in Q3, the cost per purchase for our advertising partners rose by just 1% over the same period. Consequently, we believe that we will be able to deliver attractive returns on outspend to our advertising partners as easy PM grows over the long.
Sure.
Gross margins were 58% in Q3 up seven percentage points year over year, we continued to make significant progress against our goal of driving down or underlying infrastructure unit costs over time.
In Q3, our efficiency improvements fully offset the year over year increase in user activity, resulting in infrastructure cost per deal you have 70 cents.
On the content side, we have been doubling down on our investments in premium content and we were pleased to see that these investments drove a more than 50% year over year increase and total daily time spent watching shows in Q3.
Which contributed to our ability to grow revenue ARPU any cpms at the rates we observed in Q3.
The focus on scaling our infrastructure cost sufficiently has allowed us to make these investments and premium content, while continuing to expand our gross margins, which reflects our overall approach of scaling our operations efficiently, while making investments in the future of our business.
Operating expenses were 338 million in Q3 up 24% year over year and in line with the estimates we shared on our prior call.
Full time headcount grew at a rate roughly in line with the growth in operating expenses as we continue to make focused investments in our monetization and engineering teams.
In addition, we continued to grow our investments in marketing in order to build on the momentum we have established with our advertising and snapshot or communities. We continue to invest in the long term health of our business, even as the operating environment became more challenging earlier this year and we believe that the growth we observed.
And our community and our top line in Q3, how validated this approach.
Q3 marked our second quarter of adjusted EBITDA profitability at $56 million for the quarter, an improvement of 99 million year over year and $152 million over the prior quarter.
In Q3, we delivered adjusted EBITDA leverage of 42% as we continue to invest in the future of our business, while making progress towards profitability and positive free cash flow.
Net income was negative 200 million in Q3, an improvement of 28 million over the prior year and a 126 million over the prior quarter.
The year over year improvement in net income reflects the flow through of improved adjusted EBITDA offset by the impact of interest expense related to the convertible notes issued over the past year and higher stock based compensation, what we have.
Well, we have continued to grow our team stock based compensation declined on a per capita basis in Q3 as our team continues to migrate towards sustainable and competitive compensation structures that we have put in place in the years following our IPO.
Total fully diluted shares outstanding grew 4% year over year in Q3.
Flat from the prior quarter and down from 6% in the same quarter of last year we.
We consider careful management of our stock based compensation programs to be a key input to efficiently managing our fully diluted shares outstanding as we seek to build shareholder value over the long term.
Free cash flow for Q3 was negative 70 million an improvement of $15 million year over year, primarily driven by the improvements in adjusted EBITDA that were partially offset by changes in net working capital we.
We ended the quarter with 2.7 billion in cash and marketable securities up from $2.3 billion in the prior year as the proceeds of convertible notes issued in Q2 more than offset the investments we have made to grow the business over the past year.
Similar to last quarter, we do not intend to provide financial guidance for Q4, but we do want to share some perspective on how we believe the quarter might unfold.
While we have benefited from an improving operating environment in recent months, we are unconscious that external factors similar to those that produced more volatile operating conditions earlier, this year could emerge and impact our momentum.
In addition advertising demand in Q4 has historically been bolstered by the holiday season in the latter portion of the quarter and it is not clear at this time, what does that key source of advertising demand will materialize in the same way this year as in prior years.
Assuming that the current favorable operating conditions persist and that the holiday season materializes inline with what we have experienced in prior years, we believe that year over year revenue growth of 47% to 50% is attainable in Q4.
On the expense side, we intend to continue to invest in the long term growth of our business and are currently contemplating incremental investments to double down on the momentum we have established.
Consequently, we expect the year over year expense growth is likely to be higher in Q4 than we have observed year to date.
While there is continued uncertainty about the macro operating environment. We are pleased with the strength of the underlying momentum we have established with our advertising partners and we remain highly optimistic about the long term prospects for our business. In addition.
In addition, we are pleased with the growth trends, we have observed in our snapchat or communities and believe that momentum will continue into Q4 with D.A. you have approximately $257 million.
Implying year over year growth of approximately 18%, which is consistent with the growth rate observed in Q3.
Thank you for joining our call today, and we will now take your questions.
That concludes our prepared remarks for today's earnings call and we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys to.
To withdraw your question. Please press Star then two in the.
In the interest of time, we ask that you. Please limit yourself to one question.
After your initial question is asked to your line will be muted.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Ross Sandler.
Of Barclays. Please go ahead.
Oh, great. Thanks.
And you mentioned that you are starting to rollout futures on Android first before iOS that seems like a pretty big milestone for you guys in terms of where the Android stack is so I guess, how is faster product development on the Android side impacting your thinking on retaining.
Again growing the audience in international is that where some of the 10 million of our Adobe you are.
Users came from and then Derek one on the guidance.
So just on the math for July and then what you did in the quarter. It would imply that you're growing 60 percentish over the last couple of months.
So it is the comment about 47% to 50% growth in the fourth quarter reflective of that.
The mix up of brand advertising.
Or anything else you would call out in terms of why why you're expecting that to drop out.
Or drop off a little bit would be helpful. Thank you.
Thanks, Thanks, Ross, we're really pleased with the progress we've made on Android, we've certainly learned a lot from our prior mistakes and the client is in is in a much better place and has allowed us to experiment and Iterates a lot more quickly on the Android platform, we do still see some upside in the backend improvements we're making.
So we're working a lot on improving our messaging infrastructure for example, and that's been rolling out and really helped adjusted pretty improved the speed of communication, which we think I can have a positive impact on engagements. So overall big changes to the clients on Android more changes coming on the back end and then we're trying to do the same thing on iOS now you know Iowa.
It was in a better place to start with but we really believe that we can continue to improve the iOS architecture. We've got a big initiative underway there across the entire company, which should allow us to move at a similar pace to Android is believe it or not we can actually move faster on Android now than Iowa.
In Iowa, so huge huge change obviously, we're really excited about it.
Certainly it's vital when we're thinking about unlocking growth markets that are dominated by Android.
Hey, Ross, it's Derek speaking I'll take the second part of the question. Thank you.
Yes, if we look forward, we're really pleased with what we saw in terms of growth as we move through Q3.
Started a little slower at the beginning of that quarter, but weve enjoyed nicely elevated growth levels, you know since August and through the quarter and as I look to Q4, one of the unique thing, but Q4 is that the revenue tends to be more back ended than other quarters, and so you want to be a little bit more cautious about drawing too many inferences from from there.
Early days of Q4, it's a little bit different from other quarters in the year, but as I mentioned look there's obviously you know the potential for uncertainty in the operating environment, but if were able to maintain the positive conditions. We've seen recently and we see a strong holiday season, that's roughly around what we've seen in previous periods, we do believe that for.
He 7% to 50% range is attainable and and wanted to share that so we could provide at least a little bit of an indication of how we thought the quarter could transpire. So hopefully that gives you a little bit more context about what were thinking there.
Our next question comes from Doug Anmuth of JP Morgan. Please go ahead.
Thanks for taking the question you talked about E. Cpms are increasing for the first time as a public company. We should hope you could talk about the drivers here curious how much that's a function of higher value inventory like commercials snap select versus auction density from a larger number of advertisers and im curious.
If you have any thoughts on how far below you.
You are versus market rates at this point thanks.
Hey, Doug It's Derek speaking I'll take that question. Thank you yeah, we did enjoy an increasingly CPM. There I think it's important to think about it very much as an output metric at this point in our in our business.
One of the things that we look to the areas that we've seen a really robust demand for some of our highly CPM products. So there's a mix effects. There as you noted in your questions of commercials being a very good example, where we saw revenue from commercial more than double year over year in the most recent quarter and that certainly contributes to the number there.
Yes, we've seen an overall lift in absolute demand, but we continue to also invest very heavily as we have over the last year and our model and our monetization optimization capabilities, making sure we're getting the right AD to the right snapshot at the right moment and that contributes to our ability to deliver the action that advertisers are.
Seeking a fewer impressions and that has the effective right braving the output metric of you CPM, but as long as we're able to continue to drive great optimization, we don't see a corresponding lift and the cost per action for the advertiser and I shared in my prepared remarks, some metrics around for example, what we saw with pixel there.
Five purchases so we're going to continue to invest there, but it's very early days and our monetization and realizing the potential monetization of the business.
If you think about our content business first very early stages, there, but we're pleased with what we're seeing and that's a big driver at the moment and optimization continues to help there, but also we're seeing growth in engagement and I mentioned, the 50% year over year.
Growth in terms of time span good shows and we continue to invest there alongside the optimization a long way to go there to get close to market rates for our.
AD units and audiences and then of course, you know earlier stage at the camera side, we're really pleased with some of the early indications we're seeing there as I mentioned my prepared remarks around.
The growth in reach and frequency self serve lens products, then nearly doubled year over year in the first we've got great early traction there and then of course you shared recently some of the metrics around the map and how deep the density of their in of course.
That part of our engagement, we haven't begun to tap a monetization. So I think all that sort of gives you an indication of just how early we are in the and realizing the full potential of monetization and hopefully that gives you a little more context around some of the specific dynamics on the DC Cam in the period.
Our next question comes from Michael Levin of pivotal Research group. Please go ahead.
Thanks for the opportunity you guys, maybe a question for both Evan and for Jeremy and Evan in your prepared remarks, you guys had talked about seeing good growth with respect to sports viewing.
I know that that had been an area that Derek had highlighted wasn't necessarily going to be a headwind, but you guys didnt, maybe quite know what it looked like but it is I'm watching whats happening in the rest of the world. The media. The traditional media companies are having just atrocious ratings in I think I'm hearing that theres more dollars acute that are flowing in from guys who.
One or two advertising the games in the inventory doesn't was it just there. So I know a couple of questions. One I am curious has that actually translated into an incremental tailwind for you guys and then probably more for Jeremy I think if we actually have this big unlock of dollars that was going to be allocated to live sports.
In 21, I mean do you have to make any further investment in the vertical sales efforts, where do you feel like you've got to those key categories lined up. Thank you so much.
Thanks for the question at a really high level sports are deeply interwoven into culture and they are really really important to people and therefore there.
They are very important to our communities. So we worked really hard to think holistically about our sports partnerships now across augmented reality of course content things like bit Mogi and all of that helps people talk about an express themselves in relation to the team that they really care about and driving that conversation is obviously, a really important for the belief and also for.
For our business. So we think we can continue to play a role there is obviously really important to our community and Jeremy can speak to the implications that for advertisers, who obviously also really want to associate themselves sports.
Yes. Thanks for the question, Michael and certainly I cannot let a good sports question I know without mentioning how exciting it is for our teams here in Los Angeles. This season in particular, it's now we're all very excited about it over here and as I haven't talked about last month more than 40% of the U.S. Gen Depop population watched premiums.
Foreign content on snap, specifically and the Nvidia highlights.
And the Nvidia highlights channels over 20% more engagement. So far this season than last year at the I'll speak to the trends as as you know sports are absolutely highly visible to advertisers who are looking for both premium content contextually Ravel relevant placements and then large pack advise on with ourselves and with our partners that are inclusive.
The things like augmented reality technology and others as Evan mentioned, our commercial that and is continuing to perform for US has allowed us to increase the old with some premium sports content and we're really happy with both the audience and the revenue growth on that product and frankly still early for us and we're going to continue to experiment and worked with our content partner.
To bring immersive sports experiences to snap pattern, but in the meantime go on line.
Our next question comes from Heath Terry of Goldman Sachs. Please go ahead.
Great. Thanks.
Look at that the acceleration and and rest of world. There are way that you could disaggregate for us what you feel like is driving that how much of that is macro versus things that you've done with with product or or or even just marketing that you feel like striving that and as we think kind of more specifically about.
What Monte but those users might look like longer term, how do you think about sort of the monetization of rest of world users. What's their long term potential as you as you grow in those markets to monetize relative to say that the U.S. or Europe.
Yes. Thanks for the question, we're really excited about the momentum we're seeing internationally. Obviously a lot of that is following our major investments and things like the Android rewrite, but also our partnerships with telcos and Oems that have been helpful in driving growth there or just removing friction from using our.
Yes, one of the big things that we're really excited about also is the way that things like augmented reality.
Really been localized for our community because creators in these different markets are building locally relevant lenses, and then sharing them with all their friends and so there is this really sort of exciting and virtuous cycle, that's happening here, where local creators build really compelling a our experiences share them with the broader community people make staff with those and then share them with their friends or share them on other platforms.
Which helps support our growth overall, so I think as we look at localized content augmented reality and the continued growth of our partners were just really excited about how that's all coming together, obviously, it's been a long road to get there, but we're excited by what we're seeing.
I can get that part and BRAF wild monetization figure to give you. An example, like what we're doing here is that we are deploying a strategic hybrid strategy three years reseller isn't a marker and we've done that for many years, we consider them to be extraordinary partners of ours and truly an extension of the snap seem pretty remarkable.
This is that these markets to see how well they represent after expenses.
Very exciting journey, but as engagement growth certain criteria are met Rick do you read that snap sales people on the ground, including account executives account manager created strategists and more and then we work alongside our reseller partners to determine which clients snap is going to serve us directly and which they can switch to resell.
Your best supplement and we're going to continue to deploy this hybrid strategy around the world. It's working on them. We found a successful so far we like.
We look forward.
We're continuing to do that as we grow broccoli.
Our next question comes from Rich Greenfield of late said partners. Please go ahead.
Hi, Thanks for taking the question when you think about advertisers. It seems like you had a real sort of drop in sort of the quality of advertisers shifted to programmatic and I think what Jeremy talked about was this audit that took place over the summer and it does look like the brands that were seeing whether it's M&A mems or Verizon.
Pfizer legos or peacock or Bud light like it's incredible how many big brands. We are seeing now on the service maybe if you could just spend a minute like what actually happened that this audit took place in all of these brands came back fast like what were they looking at are these dollars shifting actually from TV are you still in sort of a non TV sort of advertiser.
Bucket like what's actually happening there and then I've got a couple of follow ups on housekeeping points.
Thanks for the question rents and thank you for noticing the quality of the advertisers and you're right our investments in optimization measurement and ranking are paying off and big brands as well and RCR brands are finding success and it's really exciting for our community who continues to see more and more relevant ads as we add to this to me.
And across the board over the past five years actually we've been building a powerful video business with the goal of connecting advertisers to the snap chat generation and it's really getting increasingly difficult to reach this audience on linear television. They are watching TV, it's just in their pocket.
We've made several key hires in the area and our executives most responsible for video monetization have a lot of years of experience in this field. They know the strategy and they know the buyer based on the strength of what we're seeing in our video business, we're continuing to invest in new product. So to give you. An example of how we're continuing to capture these.
But more and more incrementally region. We recently launched its first commercial which gives our advertisers the very first AD in the very first I'd snap piracy and every marketer knows how important it is to make that first impression arc.
Our commercial their design from a social video and online video buyers and the goal is really to just attract incremental TV budgets into our hand curated brands. They carry any content on the summer. So all those things coming together after five years of long hard work and what you're seeing right now and we're really excited about the future.
Our next question comes from Justin Post of Bank of America Merrill Lynch. Please go ahead.
Great Congrats on a great revenue quarter, I Wonder maybe focus more on users.
First can you talk more about the cove it impact on North American usage, and whether you might be seeing any leakage to entertainment app tick tock or you tube and second you mentioned you testing the.
Five cab navigation bar, which is pretty interesting can you talk about is that increasing usage in your test to other snap applications and what could that do to overall usage. Thank you.
Yes, I think as we look at competition more broadly obviously entertainment services do compete with that content section of our business, but obviously the core driver of engagement on snapshot as communication that has been impacted by have anything on the areas that are more open and like in Europe, and whatnot, we see less of an impact.
We think some of that's due to the fact that maybe people are making fewer French EPS or things like that when they're stuck in their houses and.
Hi, we're paying attention to but overall you know that our audience.
Our audience in the U.S. and in North America is growing we are seeing some slight shifts in engagement, but we think that as the U.S. continues to open up calling co bed that will return to more normal engagement patterns. There looking at the five how navigation bar, we've learned a lot from some of our prior redesign.
Signs and so as we look at realizing this big opportunity of breaking out things like the map and discover giving them more prominent in the service. Our number one goal is really to do no harm to the core engagement and so that's really what we focused on here what we're excited about over the longer term obviously as of now we have two new areas to really play an experiment rapidly.
And servicing those areas to our entire community allows us to do that a lot faster you know previously both discovery on the map were relatively hidden inside of snapshot. So we're excited about the long term opportunity the same way that separating social for media really made a big difference for our business took a little while asset to pay off obviously, but we've really seen a long term impact of this is another one of those.
Changes designed to unlock longer term opportunity of course, our number one priority is do no harm, but now we're really excited to iterate here and to continue to grow those platforms that are so important to us.
Our next question comes from Eric Sheridan of UBI.
Yes. Please go ahead.
Thanks, so much for taking the question Jeremy maybe if I can direct one to you you guys started the year with a lot of growth for the big step up in January and February and earlier in the year, we talked about sort of an unlock a fee agency side and with bigger advertisers as you exited 19 I want it to 20 and you've got a lot of success for direct response this.
Sure can you just maybe put a finer point on the Ark, we've seen this year against the backdrop of COVID-19 in terms of how you feel your position with respect to dialogue with AD agencies large advertisers and how sustainable you think some of the depth and advertiser growth you've seen this quarter is as we turn the page from 2020 to 21. Thanks so much.
Thanks for the question Eric Yeah, we are incredibly excited to see that our growth has returned is returning to the levels that we saw at the beginning of the year. So thank you for making mention of that to give you more specifics around your question. Some are our fastest growing verticals includes cpgs streaming tech telco.
Financial services and E Commerce I'm in particular E Commerce remains a very exciting opportunity for us when you start to think of things like a our trial the utility of being able to put shoes on your feet or weapons on your base are high on your head and utilize that for utility the advertising and they are we are absolutely doubling down on our effort.
It's in that area and as.
As everybody knows that last quarter, we launched dynamic ads globally and not continue to combine our product catalog or that advertisers product catalog with optimization capabilities to reward advertisers coming back on our platform with Fiat scale and.
In that particular area, we are seeing strong adoption rates from retail CPG and restaurants, and we have been working alongside travel partners and we are ready for them when now well start traveling again, but ultimately we know that all of our advertisers set their budgets based on performance and whether that's brand affinity purchases or app downloads.
And then we're going to continue to prove the efficacy of our platform and know that we can continue to grow and no budget and important to note that it was these investments in our self service AD platform and our ability to service our customers. During this challenging time that allowed us to onboard a record number of advertisers this quarter.
Our next question comes from Brian Nowak of Morgan Stanley. Please go ahead.
Thanks for taking my question I have two one for Jeremy one for Evan just Jeremy so going back to the discussion of the World look like in January and February versus August September talk to us about so if you look back in January February.
What are your advertiser vertical mix look like and are there still large buckets of verticals of advertisers who were material spenders in January February who are not yet back spending because of macro factors or is that not something we should be thinking about from a recovery standpoint heading into 21 and then on.
And then on games Evan I wanted to ask you you guys are doing a good job of sort of starting to blur the lines between social and gaming maybe just talk to us about what your multiyear vision is for snap gaming and the investments you need to really build out the gaming metaverse. Thanks.
Sure. Thanks for the question Brian. They just mentioned we are seeing a lot of success. The CPG streaming past, how how <unk> financial services and E. Commerce in particular and in terms of large buckets that we had at the beginning of the year that we are no longer are seeing a lot of momentum from.
Not something that we are concerned about and we obviously know that and in the macro conditions. There are categories like travel and automotive that are suffering a little bit more given the macro conditions, but relative to how they fare at snap on it's not something that we're going to file because we continue to grow and these are incredible.
Yes, I'm, there where people are finding success and platform I just talked about ecommerce a little bit I will continue to have to put a finer point on that I can't say enough about how important that opportunity is for us as it pertains to not only the performance that we are able to deliver for those advertisers that are great products like dynamic ads, but ended.
And our our ability to really mix.
To make sure that our goal based bidding products are serving them. The right ROI. So we're going to continue to focus there and when categories like travel and automotive come back we will be welcoming them with open arms and we're really excited to work with them.
Thanks for the question on gas something were definitely very excited about I think the best way to think about it is lot of little experiments that we're running right now in our games are still hidden in chat and so you got to really look for him to play and so that allows us to really focus on integrating and building engagement learning what sort of comp at work learning what types of.
Services are developers really need in order to grow games and monetize them.
And reengage their community. So there is definitely a lot of work to do there.
No one of the experiment that we're trying right now it's pretty fun is around snap token so that helps.
Helps our community engaged with in App purchases inside of gains, which provides another revenue stream to gaming companies and our partners and so really what we're doing is just listening to our community listening to our partners and working hard to build a platform and this is the approach we've taken with some of the other platforms, we've built like content or a our where we start with a select set of partners.
Just do our best to listen and learn and iterative until it really clicks, so lots of exciting things.
Some some gains obviously doing better than others and we're learning from the ones that are working and the ones that aren't working and helping our partners have it continue to grow engagement around gaming.
Our last question will come from Mark Smith of Bernstein. Please go ahead.
Yes, hi, Thank you for taking my question Evan you called out at the top of the call that air traction and adoption kind of above expectations.
Obviously, we've seen so the our virtual try-ons pick up some speed and the launch of local lenses, but how are you now thinking about the roadmap of where a argos over the next few years from both like a user and a monetization perspective, and then one for Jeremy if I may it certainly a nice problem now first I've tried to have with the rapidly growing portfolio of all these new AD brought.
Yes.
How are you thinking about making sure that the right AD products get to the right Advertiser in this vertical lot Verticalized sales model already some of the changes that were that domain expertise roles that you mentioned earlier play a role. Thank you.
Yeah.
Well you mentioned the stars are really aligning on our augmented reality business at the moment, which is super exciting. So you know the last five years. We've obviously worked very hard to evolve the technology and we've gone to a place where we're capable some pretty sophisticated.
Tendering things like snap ml for example, like really represent a step change in augmented reality as you go from sort of overlaying threed graphics on a theme to fundamentally rendering.
Reality, and Thats unlock a lot of really compelling new.
Use cases of course, our community, they're engaging with augmented reality has just exploded over the past few years. So it's become really of everyday behavior first now counter that and that's something that's really important but I think the big change really.
That's accelerated with covet has been that businesses are coming to the table and really understanding how our can drive their business.
Frankly, I think businesses were just less open to these types of experiments when.
Retail was opened and widely accessible and things like that and so we've just seen a lot of like openness and excitement from brands to try new things and help customers try all their product to your trial is a hugely important part of driving sales and.
In retail and so being able to power these trial and experiences whether that shoes or nail Polish or beauty products or whatever and then convert directly to a purchase I think achieves two goals for business as one of course, it helps them build their brand and things like that but also it really drives our alliance. So I think businesses are open minded to try and ROI in their fight.
They are open minded to try and HR and they're finding ROI when they do that and so that that's really exciting for us as we look at the next couple of years, there's still just.
Massive massive roadmap in terms of the overall platform improvements, we're trying to make that should enable even more deeply engaging a our experiences. So we'll be really focused on just building a platform helping people learn how our can help them achieve their business goals.
But overall, we're just we're just excited because this change happened faster than we expected and just exciting to see so many brands play around with this totally new category.
Yeah and follow up on that and yes, we definitely believe that our Verticalized sales model has helped us get through this unique time with the macro conditions in particular, because our teams deeply understand the needs of their advertisers at this time and there has been no more important time for that to be true.
They are studying everything from Tara.
Tara to understand the impact on downstream profitability of a particular CPG company all the way through how many people are passing through T.S. day every single day to know how with travel is going to be recovering and they're doing an extraordinary job I couldn't be more proud of the team.
To make sure that the REIT average the right product gets the right advertisers, we've launched a lot of b to b marketing efforts, including snap fasteners snap connect with both with serve different purposes, one of which is to get the first advertising is dying and our second is to continue to grow EPS, but as it pertains to the product specifically I know you listed a few of them, but you're right we couldn't be.
The more lucky to be in a position to be able to talk about things like Matt Shoppable Aaas are dynamic ads first well these bidding globalization of our fraud and so on and that teams done an incredible job of launching performing product, we know that our products work better together and they serve different purposes video ads augmented reality, they both reach user.
But they reach them in different contacts on the App.
We're continuing to see case studies, where combining IR with video AD yield better results for the advertiser and so theres lots of opportunity to make our service and products from our approach of on easier to use and more performance overtime.
But perhaps the most critical thing is that our video ads our performance they are engaging and it's really exciting to see advertisers continuing to invest more and more in our car video AD products and we're still early in the journey for augmented reality out of advertising has 11 said, but we think we can keep building on our lead here.
They're talking about the success of our self service. They are and that is really going to lead us to connect all of the innovation happening with Atlantic studio products on our advertising technology stack.
This concludes our question and answer session as well as snap Inc.'s third quarter 2020 earnings conference call. Thank you for attending today's session and you may now disconnect.