Q1 2021 Snap Inc Earnings Call

[music].

Good afternoon, everyone and welcome to Snap, Inc. 's first quarter 2021 the earnings conference call.

At this time participants are in a listen only mode.

After the prepared remarks, there will be a question and answer session.

If you would like to ask the question during that time. Please press Star then the number one on your telephone keypad.

This call will be recorded.

Thank you very much Betsy Frank Senior director of Investor Relations you may begin.

Thank you and good afternoon, everyone welcome to snap the first quarter 2021 earnings conference call with US today are Evan Spiegel, Chief Executive Officer, and co founder, Jeremy Gorman, Chief Business Officer, and Derek Andersen Chief Financial Officer.

Earlier today, we made a slide presentation available that provides an overview of our user and financial metrics for the first quarter 2021, which can be found on our Investor Relations website at Investor day at snap Dot com.

Now I will cover the safe Harbor.

Today's call is to provide you with information regarding our first quarter 2021 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 and future market conditions or the impact of COVID-19 on our business and on the economy as a whole is the forward looking statement based on <expletive>umptions today.

Actual results may differ materially from those expressed in these forward looking statements and.

And we make no obligation to update our disclosures for.

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 annual report on form 10-K for the year ended December 31, 2020, particularly in the section titled Risk factors.

This information can be found in our other filings with the SEC when available.

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 and trends.

These measures should not be considered in isolation from or the substitute for financial information prepared in accordance with GAAP.

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 expense figures they will exclude stock based compensation and related payroll taxes, as well as depreciation and amortization and nonrecurring charges the.

The times in our prepared remarks or in response to questions. We may offer additional metrics to provide greater insight into our business.

Our quarterly and annual results.

This additional detail maybe 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 SEC 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 us.

We began 2021 by achieving our highest year over year revenue and daily active user growth rates in over three years during the quarter and delivering positive free cash flow for the first time public company.

We grew revenue, 66% year over years of $770 million grew daily active users, 22% year over year to $280 million and generated $126 million in free cash flow.

The strength of our business underscores our relentless focus on product innovation and our team's ability to execute well together over the long term.

This momentum has also enabled us to increase our investments in product innovation and the longer term future of our business.

In addition to expanding our global community and growing our advertising business. We are also focused on improving our augmented reality capabilities and building on the early momentum we are seeing with spotlight.

We are thrilled with the progress we are seeing in these areas and look forward to accelerating our efforts going forward.

We added 15 million daily active users in Q1 of <unk>.

Lot of this growth has been unlocked through our ongoing investments in improving the performance and stability of our products across a wide variety of regions and devices.

The vast majority of smartphones in the world are powered by Android and our Android user base is now larger than our iOS user base of critical milestone. The reflects the long term value of the investment we made to rebuilds of our Android application.

Furthermore, as our user base continues to grow outside of the United States. We are evolving our team in operations to be able to more nimbly and effectively support our global community.

These efforts range from region specific performance improvements of our underlying service to the.

The localization of content created tools and language support.

We launched our first local market snap original this march with phone swap of India.

On our dramatically expanding our partnerships and sales efforts to support new geographies, where we are seeing increasing traction with our community.

These efforts have helped drive steady and healthy growth around the world with our daily active user base outside of North America, and Europe, now being our largest community.

Additionally, we are optimistic about the engagement trends, we are seeing as the world is beginning to open up.

As things began to open up in the United States in late February we saw inflection points and key behaviors like story hosting and engagement with the snap map.

More recently, we saw rise on the rate of new friendships and bidirectional communication on Snapchat in late March of <unk>.

People have begun to socialize and broader groups will.

We design snapchat to be of useful complement of real life friendships and are excited about these optimistic trends developing with our audience.

Augmented reality remains one of our biggest opportunities as we look to the future and we are investing heavily in both core technology and the community facing experiences on our service the.

The number of snap chatters engaging daily with our augmented reality lenses grew more than 40% year over year in Q1.

Outpacing our daily active user growth by more than 80% as people interact more with augmented reality on Snapchat.

A lot of this growth has been driven by the incredible creativity of our community.

This quarter lenses created by our community accounted for more than half of all lens views.

We have also been expanding the capabilities of lens studio, where we continue to put powerful technology into the hands of creators to make more compelling experiences such as Andre Papas, who leveraged our machine learning platform to create a viral beard removal loans.

We are now bringing on our platform to cameras beyond snapchat through camera yet.

Over the years, we have invested deeply in both our fundamental technology platform and the creativity of our community and partners to make augmented reality of daily activity for over 200 million people around the world.

While we are continuing to invest in improving our technology and growing our community on Snapchat, we believe that expanding the number of places where people can interact with these are experiences is an opportunity to grow the overall augmented reality ecosystem.

We are excited to expand our capabilities to the Samsung native camera on the latest Galaxy series, which extends the reach of lenses to a much larger global audience and complements our existing the <unk> integration with the Samsung native keyboard.

We believe that our leadership in both our capabilities and user engagement positions us well to expand the augmented reality to new use cases and behaviors.

For example.

As the shift to online shopping continues to accelerate we believe there is a m<expletive>ive untapped opportunity for AUR driven product innovation and E. Commerce and then our young audience will continue to be early adopters of these new technologies and shopping experiences.

One of the key verticals, we are tailoring our solutions for his apparel and accessories, which is the largest shopping category by far among U S teenagers.

We believe that helping buyers find the right size fit and styles will reduce friction in the online shopping experience, which in turn will improve revenue and margins for our business partners, while reducing the waste generated from returns.

This is just one example, among a variety of behaviors and use cases, we believe we can support through our augmented reality platform.

We are also focusing on our ongoing rollout of spotlight, which is gaining traction as we improve the experience for our community and creators.

We launched spotlight on India, Mexico, and Brazil. During Q1 and are now live in over a dozen countries, reaching more than 125 million monthly active users on spotlight in March.

We are also seeing healthy increases in engagement across the creation and consumption on the platform.

For example daily video submissions have increased by over 40% from January to March while the number of viewers watching spotlight for at least 10 minutes per day grew by over 70%.

We are also continuing to evolve the product itself. We recently launched public profiles for our entire community made improvements to ranking and we're seeing rapid adoption of our sounds feature as we continue to expand our music library available on Snapchat.

Meanwhile, we continue to see healthy growth in viewership of shows on discover which has become a go to destination for credible and entertaining content for our community.

We added over 300, new channels in Q1, including Ryan doesn't know of new.

New snap original show starring Ryan Reynolds, which reached over 20 million viewers.

This has helped us deepen our content offerings and genres that matter to our audience, including news sports Entertainment and beauty.

For example, we now have over 75 million snap chatters watching beauty content and over $85 million snap chatters watching sports content each month on average on discover.

Nearly every aspect of our service, including each of the five screens of Snapchat is supported by our partners and we believe that working together, we can offer the best and most innovative user experiences for our community.

We have been working hard to improve our platform offering for our partners and to help them grow their businesses. For example, we more than doubled the revenue for our gaming partners over the past year as we continue to work closely toward launching new titles.

Meanwhile, we are thrilled to see early progress as we continue to test the business profiles with partners like l'oreal and as any optical using them as an organic digital showroom of their Ah trial on lenses.

We are also expanding the reach of lens studio through partners like <unk>, one of India's top short video apps deleverage, our augmented reality platform by implementing camera kit in their own application.

We have more to announce about these partnerships at our snap partner summit on May 20th which will be broadcast on snap partner summit Dot com.

We are so excited to celebrate our partners and share more around what we've been working on together.

We are excited to see our long term investments in our advertising business begin to pay off as we deliver higher ROI to advertisers.

We still have a lot of upside in terms of the level of optimization and efficiencies that we can deliver.

And are investing heavily across the board to both improve our AD platform and support our growing global Advertiser base.

This has developed into a positive flywheel, where our improved efficiency has driven more advertisers and larger budgets to our platform leading to more impressions and learnings, which in turn increases the rate at which we are able to further improve efficiency and ROI.

Furthermore, we believe that our philosophy and early investments and building a business that is thoughtful about the privacy and the trust of our community physicians as well as the overall digital advertising industry continues to move in that direction.

While there are of course, a lot of unknown to figure out along the way. We are excited to work together with our advertising partners to innovate together toward our vision for protecting user privacy, while delivering great business results.

It has now been over a year since we have been working from home and I'm. So proud of what our team has accomplished over this period.

Furthermore, our financial performance has enabled us to increase our investments in growth and innovation, which positions us well for the future.

We are extremely excited and optimistic about our ability to execute against our long term goals, especially as we look toward working together and serving our community and of post pandemic world.

Now I'd like to turn the call over to Jeremy to share more about our business. Thanks.

Thanks, Evan we were pleased with our results this quarter and we continue to make progress against the many opportunities we have to support our community and our advertising partners globally.

In Q1, we generated total revenue of 770 million growing 66% year over year.

More advertisers were active on our platform than ever as our active advertiser base of approximately doubled year over year in Q1.

We are of a large opportunity to gain share of the global digital AD market, which is $340 billion and growing.

To capture this opportunity we remain focused on our three key priorities first investing in our AD platform in order to drive improved relevance and deliver measurable ROI.

Second efficiently scaling our sales and marketing functions to support of our advertising partners globally.

Third building innovative AD experiences through video and augmented reality that deliver real business value.

The priorities along with our unique reach and growing global audience allow us to drive performance at scale.

We believe firmly in performance driven advertising and continue to scale of our measurement tools and goal based bidding capabilities that allow advertisers to optimize for the objectives. They are trying to achieve.

We continue to see over half of our revenue come from direct response campaigns.

Revenue from our pixel purchase TBB was up over three X year over year revenue from our subscription <unk> was also up over three <unk> year over year and revenue from our pixel sign MTV, the nearly doubled year over year.

We are seeing more and more advertisers leverage our tools to drive measurable returns and as a result increased spend incrementally.

For example, we saw on textile leverage pixel purchase optimization to drive purchases for its portfolio of direct to consumer brands, resulting in efficient cost per purchase up to 25% below goal in Q1 at the.

These results they plan to invest more of a snap throughout 2021. This gives us confidence in our ability to grow budget and increase our share of wallet over time.

In addition, and the advertiser demand and diversity grow we can serve more relevant ads to each snapchat are leading to improved ROI for our partner <unk>.

We believe this will help us to quickly and easily onboard many more advertisers will also driving iron alignment of MFC scale.

This has also been accelerated by the improvements we continue to make to our AD products and back end optimization, which are the increase the scale at which we're able to deliver results for advertisers.

For example, our dynamic ads format enables retailers to run e-commerce campaigns on Snapchat that automatically optimizes across the entire catalog.

How ddos, Canada leveraged our dynamic ads as a part of their always on E Commerce strategy, which resulted in a $4 four ex incremental return on ad spend.

We are also committed to working with our advertisers as we navigate the app tracking transparency related changes from Apple.

We are supportive of Apple's approach because we have always believed that advertising should reflect the customers' privacy. The fact that these changes are coming later than we anticipated has provided additional time to adopt apples S. K AD network and began implementing and testing with our partner on.

Advertisers that represent a majority of our direct response advertising revenue have successfully implemented S. K AD network for their SAP campaign the.

On that we are currently designing an array of privacy centric solutions, both short and long term to ensure we deliver of privacy first experience for our community and best in cl<expletive> offerings for our partners.

Our sales team is finding success across a broad set of verticals.

Performing verticals in Q1 included E Commerce retail entertainment restaurants.

Telco apparel streaming gaming and CPG.

For example, Yoplait participated in our CPG fast track program to improve short term sales lift for advertisers, who hadn't previously invested with Snapchat.

Their campaign leveraged snap ads and lenses, which resulted in new buyers driving nearly 30% of incremental sales and exposure to their sponsored lens driving over 40% of incremental sales.

We are also delighted to see some traditionally strong categories of return such as theatrical films and we're beginning to tack on some large categories in which we're well positioned but haven't previously had a large presence such as travel and leisure.

From a regional perspective, North America represents our largest revenue base and it's also our fastest growing well.

We doubled down on our investments in sales and sales support in North America over the past 18 months and we've observed higher growth in this region in recent quarters.

We see a lot of opportunity to repeat this effort outside of North America in order to accelerate our growth internationally.

As we shared in our recent Investor Day, we also have a lot of room to grow in some of the world's most established advertising markets outside of North America.

For example in the countries that comprise over half the world Digital AD spend snapchat reach of 70% of 13 to 34 year old. So we already have deep penetration of critical demographics of our advertising partners are ear to reach and the most important digital AD markets beyond North America we.

We will be making the investments to capture this opportunity in the coming quarters in order to grow our sales team and enhanced sales support in international markets and we're excited about the opportunity to accelerate our topline growth in these markets in the years ahead.

We continue to invest heavily to grow on video advertising business, which currently represents our largest revenue driver as.

As mobile content consumption continues to rise we've seen growing demand for our video AD products that is commercial.

Ah study with IPG media lab showed that on Snapchat, the short one second and the persuaded more customers to consider purchasing the products featured in the commercials compared to 15 secondhand.

Another study produced jointly with the Omnicom Media group showed that Gen Z and millennials significantly increase their video consumption in 2020, and Fei that baseline over one hour per day watching video on social media apps alone.

Lastly, our work with brands over the past year has resulted in upfront commitments for our commercials AD format from our brand advertising partners more than tripling year over year for 2021.

We will be doubling down on our outreach to video advertisers in just a few weeks when we present at the annual New friends conference to further capture the opportunity we see in video advertising.

During the pandemic advertisers accelerated their adoption of our products to enable product sampling and try on when they were forced to find alternatives to traditional methods.

This has accelerated the adoption of these use cases and helped pull forward of adoption of AI driven e-commerce.

We're excited about the new ways that our advertising partners will leverage the AAR as the world Reopens.

Evan mentioned Ah can deliver truly immersive experiences when overlaid on the world around you and we are eager to continue to innovate as more people get out of the house and begin to explore in more places.

One of the primary reasons for the acceleration in adoption is because the brands have learned how to utilize the augmented reality to drive real business results.

One of our goals is to combine our experiences like fit and try on with personalization and customers' preferences to vastly improve the shopping experience, while driving purchases and reducing returns.

We believe we are going after a large opportunity.

94% of people are expecting to use AAR for shopping the same or more in 2022 versus 2021. According to a study we commissioned with Deloitte.

For example, the Euro launched the lens campaign that enabled snap chatters to try on six pairs of the 27 sneakers through augmented reality.

The lenses were promoted directly in the lens care, so within the Snapchat camera MBA snap ads the videos showing runway models and users playing with the lens and encouraging snap chatters to try on the sneakers when do they can do just by swiping up.

The airlines that was promoted in our lens care yourself was well received by snap Chatters and resulted in a $6 two extra return on ad spend.

The are also leverage their business profile effectively turning its home on Snapchat into a digital showroom complete with virtual try ons of the products launch.

In addition, as any optical sought to engage snap chatters, that's Valentine's day with the shopper will lens experience that enabled them to try on and purchase from their large online selection of affordable gl<expletive>es. The.

The lens resulted in a significant lift in purchases and drove a seven nine X return on ad spend.

We have a great opportunity to help brands reach their customers in unique and innovative ways, while continuing to deliver measurable ROI.

This this is leveraging <unk> as one component of a larger multi product campaign on snapchat tend to achieve stronger results.

For example, the CW Superman and Louis campaign utilized snap ads commercials, Anna lens to generate double digit lifts in AD awareness and a nine point lift in show awareness.

When snapchat or as we're exposed to multiple products show awareness here of the campaign increased by $2 Seven X.

We have a lot more work to do in helping businesses understand the value of our many offerings on snapchat, but we're thrilled with the early successes that our partner of their thing and we're going to continue to invest in this opportunity.

This quarter was a strong start to 2021 as we saw the momentum we built in the back half of last year continue.

The amount of money committed the Upfronts for 2021 is already more than 50% above the total upfront commitments made in 2020, which is the strong signal of that brands and agencies have confidence in our platform and are committed to working with us in an always on manner because they value. The return on AD spend that they are receiving.

Based on the size of our audience the level of engagement across our survey on our overall opportunity in the growing digital AD market, we are well positioned to play an important role in driving results of our advertising partners across the world.

In summary, I couldn't be more excited about the opportunities for our business in 2021 and beyond and I look forward to sharing progress with you throughout the year with that I'd like to turn the call over to Derek.

Thanks, Jeremy our Q1 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 280 million daily active users in Q1.

An increase of $51 million or 22% year over year.

The growth of our community continues to be broad based with year over year and sequential growth on both iOS and Android platforms.

In North America, <unk> grew by $5 million or 5% year over year to reach $93 million.

In Europe, <unk> grew by $7 million or 9% year over year to reach $77 million and rest of world. The au grew by $40 million or 57% year over year to reach $111 million.

We believe snapchat as a complement to real friendships and the easing of COVID-19 related restrictions in many communities with a modest tailwind to engagement as we move through Q1, the contributed in part to the growth in our Snapchat community.

The continued robust growth in rest of world reflects the benefit of our ongoing investments to better serve our community, including investments in local content local language support marketing partnerships and the popularity of augmented reality lenses created by our community.

Total revenue for Q1 was $770 million, an increase of 66% year over year, representing a four percentage point acceleration over the prior quarter.

We benefited from continued improvement in the operating environment in Q1, and strong momentum with our advertising products and partners. In addition, the iOS platform policy changes that we expected could cause the interruptions to demand in Q1 did not occur in the quarter and thus we're not a headwind in the period.

In North America revenue grew 75% year over year on Q1, while <unk> grew 66% year over year as we continue to benefit from the significant investments we've made in our sales teams and sales support on the prior year.

In Europe revenue grew 49% year over year in Q1, while <unk> grew 36% year over year.

And rest of World revenue grew 46% year over year on Q1, representing a 19 percentage point acceleration in growth over the prior quarter as we began to see the operating environment recover in this region, which was relatively more impacted by COVID-19 related disruption to demand in the second half of 2020.

And the indicated during our recent Investor day, we are accelerating our investments in sales and sales support beyond North America in 2021 in order to capture of global <unk> opportunity faster in the years.

Average ECP M increased 67% year over year on Q1, rising CPM relative to the prior year is driven by a combination of improved optimization capabilities within our auction.

A mix shift towards relatively higher ECP on products, such as commercials as well as the mix shift towards relatively higher <unk> regions, such as North America, while our top line has benefited from year over year growth in E. C. P. M. In recent quarters the cost per action for our advertising partners.

<unk> declined sequentially for three of our top four goal based bidding objectives in Q1, as we continue to enhance our optimization capabilities in order to use our inventory more efficiently.

Sequentially, we believe the we will be able to deliver attractive returns on the AD spend to our advertising partners as the <unk> grows over the long term. In addition, the ongoing growth of our community and strong engagement in the areas of our application that we have not yet begun to monetize provides significant room to expand our.

Tori and expand our long term <unk> opportunity over time.

Gross margins were 47% in Q1, an increase of approximately one percentage point year over year.

We continue to make significant progress against our goal of driving down our underlying infrastructure unit costs over time.

In Q1, our infrastructure cost per year, you benefited from several factors with the most significant being the efficiency improvements delivered by our engineering teams, including the re architecture of our messaging platform that we mentioned during our recent Investor day.

In addition, we continued to benefit in Q1 from negotiated rate improvements for several of our cloud services.

Lastly, the acceleration of growth of our community has been a modest benefit the infrastructure cost per day you in recent quarters as new users tend to have lower initial marginal cloud infrastructure costs relative to the longer tenured staff charters. These factors combined to deliver the lowest infrastructure cost per day of U.

We have reported as the public company at just 62 cents in Q1 down from 69 in the prior quarter and 71 in the prior year.

On the content side, we continue to invest to support the launch of a spotlight on Q1, and this contributed approximately $90 million to our cost of revenue in the quarter, representing a 12 percentage point headwind to gross margin expansion in the quarter.

We are highly encouraged by the early returns from our investments in the spotlight with this new platform, reaching over 125 million monthly active users in March.

While it is still very early for this new platform. We are excited about the potential for spotlight to further expand our monetization opportunity in the future.

In addition, we are pleased that we have been able to support the launch of spotlight, while continuing to expand our gross margins year over year, which reflects our overall approach of scaling our operations efficiently, while making investments in the future of our business.

Operating expenses were $367 million of Q1 up 23% year over year.

Bridge full time head count grew 19% year over year on Q1, as we continue to make focused investments in our monetization and the engineering teams.

The rate of growth on head count in Q1 with several percentage points below our operating plan expectations and we expect this will step up modestly in future quarters, as we invest to accelerate our roadmap as discussed at our recent Investor day.

In addition, we continue to grow on investments in marketing in order to build on the momentum we have established with our advertising and Snapchat or communities and we are pleased with the results. We're seeing from these efforts thus far as evidenced by the growth on our active advertiser base and Snapchat or community.

Adjusted EBITDA was negative $2 million in Q1, an improvement of $80 million year over year as we continue to grow our top line rapidly while scaling our cost structure efficiently.

We delivered adjusted EBITDA leverage of 26% in Q1, as we continue to invest in the future of our business, while making progress towards sustained profitability and positive free cash flow net.

Net income was negative $287 million in Q1, an improvement of $19 million over the prior year.

The year over year improvement in net income primarily reflects the flow through of the $80 million improvement in adjusted EBITDA and 34 million of higher net investment gains versus the prior year due to a combination of realized and unrealized gains on various strategic investments.

These favorable impacts were partially offset by $94 million higher stock based compensation driven by several factors, including approximately $43 million attributable to the 19% growth in the head count and retention of our existing team.

Proximately $29 million related to payroll taxes on the SPC driven by our higher stock price as well as approximately $19 million driven by higher SBC related to long term retention <expletive>ociated with several acquisitions completed in the last year.

While we have continued to grow our team and leverage stock based compensation strategically to foster an ownership culture and drive long term retention.

We have remained focused on managing these programs responsibly.

Total fully diluted shares outstanding grew two 6% year over year in Q1 down from three 4% on the prior quarter and below the 3% estimate we shared during our recent Investor day.

Q1 marked our first ever quarter of positive free cash flow as a public company at $126 million, an improvement of $131 million year over year.

The improvement was driven primarily by the $80 million improvement in adjusted EBITDA and an approximately $75 million of improvement in net working capital as we continue to focus on enhancing our cash conversion cycle.

This was partially offset by the approximately $29 million increase in the SBC related payroll taxes noted earlier.

We ended the quarter with $2 6 billion in cash and marketable securities up from $2 $1 billion on the prior year as the proceeds of convertible notes issued in Q2 2020 more than offset the investments we have made to grow the business over the past year.

As we look forward to Q2, we estimate the day you will grow at a rate consistent with the prior quarter or approximately 22% year over year to reach $290 million in Q2.

On the monetization side, we are cautiously optimistic that the operating environment will continue to improve.

Our guidance range is for revenue of $820 million to $840 million, implying year over year revenue growth of approximately 80% to 85% in Q2.

This range reflects our best current estimate of the potential impact of anticipated disruptions <expletive>ociated with the iOS platform changes it.

It is not clear yet what the longer term impact of the iOS platform changes may be for the top line momentum of our business and this may not be clear until several months of more after the changes of implement.

Until then we will remain focused on helping our partners navigate these changes will optimizing return on AD spend across our advertising products on platforms.

On the expense side in Q2, we intend to continue to invest in the long term growth of our business and will continue to support the launch of spotlight with our 1 million per day creator fund in order to build on the momentum we are seeing with this exciting new platform.

While we see a path to adjusted EBITDA breakeven in Q2. We are also cognizant that there are a number of cost drivers for our business, including travel and event related costs that had been lower over the past year due to COVID-19 related restrictions.

It is likely that these activities will begin to resume in the coming months as restrictions ease and the related costs will begin to return to our cost structure as a result.

Given this our guidance ranges for adjusted EBITDA to be between negative $20 million and breakeven for future.

Thank you for joining our call today, and we will now will take your questions.

That concludes the prepared remarks for today's earnings call and we will now begin the question and answer session.

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At this time, we will pause momentarily to <expletive>emble our roster.

Our first question comes from Richard Greenfield with <unk> Chad. Please go ahead.

Thanks for taking the question the first one for Jeremy.

On a physician overseas is that its still at a much earlier stage. When you look at your RP yet the past couple of quarters, North America grew far faster than both Europe and rest of world.

You talk about investments, but I guess, what is holding back overseas monetization, just given where the starting point is of <unk> like what what is going to be the trigger for international to grow at a much faster rate year over year, then our Europe and rest of world. The North America like what do you need to do to make that change and then just.

Quick follow up for a quick question for Evan.

Lot of kind of noise or chatter about sort of the device side of what's nap jet may or may not be working on could you just maybe give us some of very high level like why is devices something you should be doing given just how successful you've been on the software side of building sort of the App and monetization like why is hardware part of what you need to do longer term.

Okay.

Alright. Thanks for the question you are definitely right that our North America business has been as both of our largest and fastest growing revenue base.

I think one of the most exciting things about that is that we have doubled down on the investments on sales and sales support in North America over the past 18 months since Medicalization actually and we've observed higher growth end of the three Jenny has the result, because the and then in the recent quarters. We didn't vertical is our international sales team of but generally speaking the.

Sales and sales support teams and our international regions are smaller so it was more difficult to kind of perfectly execute this vertical of station and specialists in terms of.

Vertical of measurement specialists on marketing specialists of communications specialist by vertical but.

What's so exciting about the opportunity is that we now know the playbook, you're seeing it show up in our strong results in North America, and so we're going to replicate it in Europe and the rest of the world on the divestments you were talking about two of them to accelerate our growth internationally and we talked about this at our recent investor day that I know a lot of you were listening to you, but we do have.

But our advertising partners are eager to reach on so in 2021 and to answer your question, we're going to be making these investments in sales and sales of heart team to capture the opportunity of the way that we have in North America in the coming quarters and going to grow those teams to grow topline growth in the ear of the head.

Hey, rich thanks for the question on hardware I think as we think about the future of augmented reality of really the promise of augmented reality is that you can interact with computing in a way in a way that's similar to how do you interact with the physical world around you and so I think ultimately over a longer period of time hardware will be of constraints on our of.

The lead to fulfill that vision. So today with your smartphone you can enjoy augmented reality, but youre limited to this really tiny screen you have to use the touch screen and I think as we think longer term about the future of hardware. There is an opportunity to overlay of computing on the world around you in a way that's much more immersive on it allows you to interact with it in terms of using both of your hands.

Having a much.

Larger display size in front of you and I think as we think about the future of our platform overall experimenting with hardware and forums that software roadmap and helps us think about what we need to be building over the next several years as we work towards the.

The vision really for a new hardware platform that brings they are the life in a totally different way.

Our next question comes from Justin Post with Bank of America. Please go ahead.

Great. Thank you for taking my questions, maybe one for Evan on one for Derek.

Evan you made some interesting comments on reopening on the call and we have a survey that says people may use that more upon reopening. So maybe you could expand a little bit on what you're seeing in countries or states that are reopening and what areas of snap benefit maybe world could you see a little less usage.

And Derek.

Yes, the entire Dr. Advertising sector has tougher second half comps I don't think snaps alone on that how would you think about modeling the second half.

And could platforms like spotlight on maps help on a on a sequential or year over year basis. If you could turn those on thank you.

Thanks for the question and the great to hear about your survey I guess that lines up definitely with what Ive experienced personnel during the pandemic of lot of folks sort of shrunk their social graph. They started talking more to their family members are really close friends and what we're seeing now in the United States, which is.

Really exciting is the people are going out more and theyre seeing more friends or they're returning to school or work and so the social graph on the people that are interacting with on a regular basis, the starting to expand and that's sort of communication with that wider social graph drives a lot of the frequency of use of Snapchat and then of course, the the conversion onto our other platforms and products that we offer.

So we're super excited of the people are out and about and Theyre taken fast with our camera. We mentioned story posting has increased and we've been investing a ton in the snap map and sadly the.

Last year, there hasn't been a lot of reasons to use the same happens everyone's been staying at home. So we're really excited to see people engaging more with that product and there is a really exciting roadmap. There looking forward. So so great to see that adoption.

Hey, Jonathan it's Derek I'll take the the other part of your question there.

First I'd say, we're really pleased with the momentum we're seeing in the business overall the year on.

Year of growth rate accelerated sequentially, it's the third quarter in a row that we've grown the top line more than 50% year over year and obviously the guide going into Q2 is to accelerate that further you're right the comps in the.

Q2 for sure are a little bit easier, but if you get into the second half the comps are going to look a little bit more of like what we saw in Q1. So obviously they are a little tougher.

We feel good about the results we put up in Q1 on a relatively tougher comps right now what we're really focused on is making the investments in our sales and sales support to build on the momentum we like what we're seeing on the active advertiser growth. We're liking what we see on the upfront commitments.

And we're focused on delivering the return on AD spend investing in our optimization capabilities. So that we can deliver.

The return on AD spend for those advertising partners just the continued to build on the momentum we're seeing.

Look what we're excited about the momentum.

The we're seeing there on the satellite side.

It's early there we're really excited about the product of the momentum in terms of the need to.

Open that up the advertising I think we continue to be more demand demand constrained the supply constrained. So we're going to continue to focus on improving of the experience for our Snapchat community and for creators on the near term and we've got lots of room to grow the top line in the areas that we're already monetizing today over <unk>.

For the near term thanks for the question.

Our next question comes from Brian Nowak with Morgan Stanley. Please go ahead.

Thanks for taking my questions I have two the first of all I want to go back to the the recent analyst day, where you talked about potential low fifties revenue growth for the next few years.

Without any contribution from spotlight or maps, maybe just talk to us of a little more about what are you seeing or <expletive>uming from an advertiser growth.

The quarter advertiser spend adoption cycle or even sort of of the use cases that give you confidence to be able to grow faster. The next three years than the than the last three.

And then the second one you mentioned the upfront commitments up 50% year on year I think thats after doubling.

Last year, maybe talk to us about what types of advertiser verticals Youre seeing joined the platform and grow their spend now that you weren't seeing a year ago.

Sure Hey, Brian It's Derek speaking I will take the first half and then kick it of Jeremy to talk a little bit about what we're seeing with advertisers.

I think one of the things that we do see is we're excited about the potential to grow the business at the elevated rates for an extended period of time and we see a lot of opportunity just looking at the screens that were of monetizing today in particular, so if I think about the various screens in the.

First I would I wouldn't zero in on the.

On the content business.

We're really pleased with what we've been able to do in terms of growing the commercials product over time.

And obviously, you're starting to see some improvement in <unk> on a lot of that driven around us getting much better on the optimization and helping get the right out of in front of the right smell charter at the right moment, which allows us to use our inventory more efficiently deliver the options that advertisers are looking for with fewer impressions on that that continues to therefore span.

And our Arco opportunity on the screen so of monetizing.

So that's the most mature part of the business, but still very early if I move over to the camera. We're really excited about some of the momentum that we're seeing around on our products and our ability to deliver unique advertising experiences.

And obviously with.

Over $280 million.

Opening the F 30 times of day, the inventory potential of the map is already on that so we're excited about the momentum that we're seeing with our average moving partners and with the inventory of potential of those screens, we continue to execute well and I think if you look at what's happened with the business as you said the.

Maybe three years ago versus where we are today.

Got a much more sophisticated advertising platform has reached feature parity with with the largest advertising platforms from of sophistication of targeting abilities in terms of the goal based bidding optimizations in the AD products that are available in terms of driving towards the ROI and so you can see now of the build of the momentum.

Three quarters in a row of growth over 50% elevated growth, even all the way back to Q1 of last year or so.

We continue to build on that and deliver returns for our advertisers and you can see that coming through now on some of the outputs of leading indicators around active advertisers and of course the upfront commitment. So hopefully that gives you a little bit of a sense of it of course as you look longer term the opportunity to grow the business.

By starting to tap into other areas of the App that are more greenfield at this point in time, whether that be the map, where we're focused on building utility for advertisers in the near term or eventually over time to realize the opportunity to expand our true the spotlight on another product innovation. So hopefully that gives you a little bit of a sense of where we are.

And where we're seeing the momentum on the near term.

And then I can take the part about offense. So in the specific around the upfront commitments, but are up over 50% year on year, even after doubling in 2020. So we're very excited about that obviously I think one of the most compelling reason to do of France is to really understand what part of the media plan.

He will make up of large advertiser and these are incredible signals to say that we have definitely moved out of the experimental budget on into the fabric on the always on the media plans on that comes from a lot of the hard work that's been done over the last several years.

Showing that we're focusing on ROI and optimization and measurement, we know of that retaining advertisers and it really comes down to rois of retaining them and growing them. At this rate is the are all really good signals for us in terms of the vertical specifically we've had a lot of success on E Commerce CPG Tech streaming.

Online education telco a lot of these verticals over the last 18 months 12 months or thereabouts, and we're really excited to see the return of some of the categories in which we are historically strong theatrical movies will be of really good example of that they are incredible advertisers when it comes the perfect.

The case for that so we're really excited about that.

And then in addition, we've been spending a lot of his time working on the AD Tech stack working with large partners to be very ready for categories in which we are historically strong travel and leisure being a really good example, something that will come back we believe width of Fury and then we have been really preparing for that.

Add on the AD.

<unk> side as well as on the sales side. So really excited about that and then of course, we continue to be very bullish on the E Commerce opportunity. Derek just mentioned that our AD Tech is at parity with the largest players at the table Stakes, but all the spending with pixel based conversion et cetera.

And working on continuing to invest there and then when I think of E. Commerce on the kinds of things, where we can double down there is no doubt that we think of augmented reality as a huge opportunity in E Commerce and we're excited to bring more of that innovation to our partners yes.

Yeah.

Our next question comes from Ross Sandler with Barclays. Please go ahead.

Hey, guys. Thanks for letting me ask the question I just wanted to add.

Ask them on on what Jeremy just talked about the the shopping experience. So you've got a lot of e-commerce advertisers buying ads. Some of those are click out and some of those are these are these new lenses and these new kind of in the App experiences. So the question is what do you see of the future of <unk>.

Snaps in App shopping experience can you help us size, how big this category of this opportunity could be.

And then you recently acquired.

The analytics and the Ariel.

How do those two acquisitions put into the the.

The strategy Thanks, a lot.

Thanks, Ross for the question and certainly a lot of stuff.

Super exciting and commerce, especially with the big acceleration, we saw through Covid. So I think I can talk about a couple of things that we're working on maybe I can start with augmented reality, because it's such an interesting opportunity to really differentiate the shopping experience and make it more engaging for consumers, but what we're seeing that's really compelling for <unk>.

Retailers is that a try on can dramatically improve conversion and.

As you mentioned, we acquired fit analytics to try to take out of step further taking to help people find the right style and fit for what they are purchasing which we believe can also help reduce returns overall, which should improve margins for retailers. So we believe the AAR can really help retailers on the top and bottom line and also provide a really compelling shopping experience.

The consumers as well.

The thing in many other areas, though I can highlight many of the as an example, or native checkout, where we're really trying to remove friction from the checkout process overall so that.

Brands, who want to host their own store on snap.

To make it really easy for folks who want to buy their products to essentially tap and buy on one click save credit card data on things like that so.

Our investments are really across the board, we're trying to remove friction from the shopping experience and reflect the fact that consumer behavior has shifted I think there will certainly be folks who go to a destination to shop, but more and more of what we're seeing is the content and things like augmented reality experiences.

Drive new types of the behavior, and then shopping actually happens downstream of that so people are discovering products of interacting with them in new ways through content on through augmented reality and then we're going to work really hard to make the conversion of seamless as possible.

I can talk I'll, let all of that about that from the advertiser perspective from the.

I'm on to the reality of Melendez does that you know really during the lockdown during the pandemic advertisers accelerating their adoption of our products out of necessity. They they had two they had to ensure that they could get the products into the proverbial hands of their customers when things like malls and showrooms were closed and the best really accelerated the trend is that.

We think is really important and the best part about it is that our of Snapchat community was already there on theyre already using augmented reality.

Quite a bit every day, we have over 5 billion videos and pictures taken in the camera on every day and some of the shoppers were already there on the advertiser. They are meeting them, where they where it's very rare to be in a position where marketing opportunity of such wide open spaces some of them really.

They like to see the acceleration of that.

And I think most importantly, what we're seeing is Evan talked about is that <unk> is driving real business results. So this isn't just the size of this isn't just the brand campaign on our goals.

The spending products work with augmented reality and the the aforementioned there we've seen it with the or are we thought with money, we thought with a number of others and we've learned of course that when we deliver this rois and will continue to grow and so we are very.

I'm very optimistic about the space.

Our next question comes from Lloyd Walmsley with Deutsche Bank. Please go ahead.

Hi, Thanks, one I guess for Jeremy and one for Evan.

Jeremy what what are you seeing in terms of just advertiser adoption and budget scaling specifically since pushing the AAR lens adds into the self service platform, allowing advertisers to buy those across more objectives and then Evan.

Maybe you can talk about the expansion of the snap camera functionalities to Samsung devices.

What is.

As the ultimate kind of business implication for that is that driving activity back to the core app is that sponsored lenses and filters getting distribution more broadly kind of help us understand that kind of strategically and how it impacts of the business.

Sure. Thank you so much for the question on as far as airlines the scaling its still early but we're expanding the range of use cases, the AAR can follow up our business as we've talked a little bit about the e-commerce opportunity of the retail opportunity.

Beauty opportunity we've had a lot of advertisers with makeup try on with nail Polish try on et cetera, but we're continuing to expand that range of use cases and ensure that it is performance along the way. Some of this includes the addition of new goal based bidding options for augmented reality products, but really on the shopping online shopping.

<unk> continues to accelerate we just believe there the m<expletive>ive untapped opportunity for air driven product innovation and e-commerce, but we're seeing it with automotive as well really just getting across the board travel and the really exciting one when we start to think about how we can have our snapchat community experience places or what does.

The new travel experience look like on a plane in the hotel et cetera, all of those things can be experimenting with and augmented reality and experience, which is great, but really what we're focused on is tailoring our solutions for apparel and accessories. Since it's the largest shopping category by far amongst the U S teenagers.

Okay.

Thanks, Robert for the question about the camera kit, it's certainly something we're really excited about and even beyond Samsung we're now extending camera tenants in many of partner applications, including as I mentioned <unk> in India, which.

Which is integrated into their application I think what's really exciting for us of that because of augmented reality is so new there are still so many people on the world, who haven't actually experienced it or play with it and so the more than we can extend the augmented reality into different cameras than other services that people use the more they can try it find out how fun. It is realized the power of augmented reality.

And then ultimately hopefully come to Snapchat for a much bigger selection of our lenses and to really engage with our entire lunch creator community so well.

We're really excited to get that out there and hopefully we've got some more interesting partnerships along the way we've got our snap partner summit on May 20th that we're really looking forward to and hopefully you can join us there.

Our next question comes from Brent Thill with Jefferies. Please go ahead.

Thanks for Jeremy and Derek you mentioned the user behavior really started picking up as as things started to open up again I'm curious did you see of subsequent advertiser behavior pick up.

Anything to point out in terms of linearity.

Throughout the quarter of the start start of Q2.

Hey, it's Derek speaking.

I think one really pleased with the momentum.

As Jeremy mentioned in her prepared remarks on a little earlier just about how we're seeing some positive momentum with some categories as we see reopening of how we're excited to serve some of the categories that maybe had a little tougher go through some of the restrictions that you would expect to return and so obviously, we've made a lot of progress will their platforms over the last year or two so.

<unk>.

Optimistic about the reopening of the momentum that we're seeing on the business.

I spoke a little bit earlier about the trajectory in terms of comps and obviously an archived reflects the.

On the comps get a little bit easier as we go into Q2, and that's why we've guided to a pretty significant acceleration of that so.

That gives you a little bit of a sense of how we're feeling about the reopening and the momentum we've got with our partners.

And then also sort of the topography of things as we move into Q2.

Our next question comes from Michael Morris with Guggenheim. Please go ahead.

Thank you good afternoon, guys. A couple questions first you referenced the successful implementation of the S. K out of network for certain stock campaigns with your partners and I'm curious what define success of that implementation and does this mean similar feedback to what you saw previously.

Do you expect this to mitigate some of the idea of the headwinds that have been the source of investor concern.

And then second I just want to ask you will maybe more tactically about the AAR opportunity you've spoken about a lot and I am curious if you how you see the adoption curve by your Advertiser partners are there certain milestones that you think you can accomplish this year on the sort of education or implementation front for your partners.

We can accelerate that curve do you think it's sort of a steady growth trajectory just curious how you see that playing out thank you.

Alright. Thank you so much for the question I can take the part of our S. K AD network and we are really focused on helping our advertisers make the transition to the best possible of measurement and optimization tools. So smoothly on the change happened later than we expected on which gave US a lot of time to prepare.

And okay on network as one part of that so we're really pleased to see that advertisers that represent the majority of our direct response revenue will have implemented so far but we know that theres a lot of work to be done with the transition smoothly. We're working closely with the Apple to understand the role of the <unk>.

And we're preparing to follow them and I think importantly, we really of support Apple's approach because we've always believed that great advertising and customer privacy are not mutually exclusive.

It's a huge part of value of snap of the privacy and so we're excited to will be implementing means alongside our partner that's been a huge cross functional effort between product engineering. The sales team the marketing team to work with our customers to ensure the best transitioned out of home.

I guess I can speak a little bit to the AAR opportunity I think what's really interesting is despite the fact that 200 million people are using augmented reality every single day, it's still very very early for augmented reality advertising and for businesses as the whole to understand how it can really drive results for them. So I think one of the most important things.

We continue to really inspire businesses with the creative execution on the AAR interaction on one of the ways that we're doing that is helping to connect them with creators that are now thousands of thousands of people around the world, making incredible experiences and they can work very closely with brands to bring their ideas to.

The life and then the I think the other important thing that we've spent a lot of time on is making sure that when brands do experiment with the AAR that they have a positive experience that measurement is really easy and they can see the results very quickly for their campaigns and of course, then showcased those augmented reality experiences on their brand profile. So I'd say overall it's.

Really early but the results for advertisers that are experimenting with they are extremely promising and the engagement we see from our community of its truly staggering. So I think that bodes well for the long term, but given it's such a new technology. Despite the tremendous level of engagement of its just kind of take time to really work to educate advertisers and remove friction from the creation process.

Our last question comes from Doug Anmuth with J P. Morgan. Please go ahead.

Great. Thanks for taking the question.

Just wanted to ask you about input costs. They were down on a per day of U basis about 13% year over year.

And then you talked about the the biggest part of that perhaps coming from the messaging efficiency improvements, but as you look out over a multiyear period.

You still see room for meaningful further improvement in the info cost per day, you and where do you think those could come from or where do we run into kind of flattening out more of there. Thanks.

Hey, Doug Thanks for the question, Yes, we're really pleased with what we saw on infrastructure Cross here.

We've been able to keep them relatively flat on a per day basis for a few years now and now a pretty good step down in Q1 with the drop to 62 <unk> per day of U from 69, So really nice improvement there as you noted, we're making a lot of progress on efficiency here.

I'd say that.

There is no one single.

Improvement the tends to move the needle in a big way this is the.

A long game of really good work by the engineering and product teams to continue to find efficiency.

And one of the really important flywheel that we're experiencing there is the when we will make the product work better and faster and more efficiently for our Snapchat community.

<unk> tends to also make it more efficient for us on an infrastructure utilized station perspective and of course that helps to drive engagement and lower our costs.

And when we have engagement grow that gives us more volume and of course that gives us more scale with our partners, which gives us more ability to negotiate and drive down our rates and so what youre really seeing is that flywheel demonstrated in Q1 really well, where we've had a number of efficiency improvements.

Were engineered by our teams compounded by some negotiated rate improvements.

All delivering together to give us a really nice result.

Over the long term, there's going to be a battle here, we've got really the healthy engagement with our community and so that puts upward pressure on the infrastructure cost quickly are you on a good way, but of course contributes to the Arco opportunity of the same time, but our teams will continue to grind that our unit metrics and our rates with our partners and so.

On to the extent that you will see infra go up in any period, that's a great volume for engagement and to the extent that you see it go down because we're doing a good job managing our unit costs on our partners. So.

Hopefully that helps explain what we're seeing there and really pleased with the results from the team. So thanks for noticing.

This concludes our question and answer session as well as Snap Inc. 's first quarter 2021 earnings conference call. Thank.

Thank you for attending today's session you may now disconnect.