Q2 2021 Snap Inc Earnings Call
But the broad based strength of our business and the hard work of our team as we execute to serve our community and partners.
This quarter, we grew both revenue and daily active users at the highest rates we have achieved in the last 4 years.
Daily active users grew 23% year over year to $293 million and we more than doubled revenue year over year to $982 million generating $117 million and adjusted EBITDA.
Adjusted EBITDA improved by $213 million compared to last year.
<unk>, our third adjusted EBITDA profitable quarter in the last 12 months as we continue to demonstrate the leverage in our business as we scale.
At our annual partner Summit in May we introduced new product innovations for our community and partners, including the next generation of spectacles augmented reality glasses that overlay computing on the world and.
And we are excited by the tremendous opportunity for our business in 2021 and beyond.
We made significant progress with our augmented reality platform this quarter more than 200 million snapchat or engage with our every day on average and over 200000 creators using lens studio to build <unk> lenses for our community.
We are focused on learning from our large and engaged community of snap chatters and creators, which allows us to continually improve our <unk> lenses and the tools, we provide to create them inland studio.
This quarter, our cartoon <unk> style lens, which uses machine learning to turn people into a <unk> animated cartoon in real time highlighted the power of lenses to go viral both inside and outside of Snapchat.
In the first week of release it generated $2.8 billion impressions on Snapchat alone.
We rolled out lens studio a 4.0 at our partner summit with new features like visual classification multi person <unk> body mesh advanced cost stimulation true size technology for eyewear trial, and the new visual effects editor, which enables creators to build sophisticated lenses without writing.
Any code.
We also launched connected lenses, which enables real time shared experiences and augmented reality like building a Lego model together with your friends.
We are continuing to create value for businesses by re imagining the shopping experience through a buy.
By leveraging the long term investments we've made in augmented reality and personalization, we are laying the groundwork for an improved online shopping experience for.
For example, we are making it easier to discover new fashion items through scan by helping snapchat or scanner friend outfit or save photo or screenshot to shops, similar looks and recommendations.
When it comes to purchases and returns we believe that helping people find the right size and improving the trial on experience could both increase conversion rates for purchases as well as reduced the rate of returns for online shopping.
We are excited about this opportunity because returned goods cost businesses hundreds of billions of dollars each year and have a large environmental impact.
We are pleased with our early progress in this space and look forward to experimenting and learning more with our retail and E Commerce partners.
We are also collaborating with a variety of partners to power our experiences in their own applications with camera kit.
Which brings the power of the Snapchat camera to partner applications using our SDK.
This quarter, we rolled out a number of camera kit partnerships worldwide, including with Walt Disney World.
We will commemorate their 50th anniversary with an experience where visitors can place their own picture on Cinderella castle to create a virtual mosaic of shared moments as well as access exclusive AAR lenses with Disney characters through the mind Disney experienced app.
We also partnered with bumble and fiber to bring lenses to their respective mobile apps and are working with Google to bring our lenses directly to the new geophone in India with a native camera integration.
We announced our next generation of spectacles at our partner summit, which are available exclusively for creators.
They're our first device with a built in <unk> augmented reality display and represent another step forward toward our goal of overlaying computing on the world.
We are investing heavily in augmented reality across Snapchat camera kit and spectacle and we're excited to continue learning and making progress toward our long term vision.
We also announced a number of new products and partnerships at our partner summit for maps Minis and games.
We are adding layers to the snap app, so that snapchat or can find personalized local experiences from our partners overlaid directly on the map.
For example, users will be able to see restaurant recommendations from the infatuation.
Or their own sales snaps from memories on the map.
We are also expanding our <unk> platform, including a new mini featuring daily shopping events hosted by Posh Mark.
Ticketmaster is partnering with us across a few of these products with a mini where you and your friends can discover different artisan shows and buy tickets, which also integrates directly with the ticketmaster layer on our map that overlays different concerts and events directly on the snap map.
We are adding new titles and genres to snap games with Blu 2 launching 5 new games to Snapchat This year.
We have learned the players who use their bid low G&A game spend twice as much time plan, which is 1 reason unity is bringing <unk> EBIT emoji into their mobile PC and console games with our new unity plug in.
We have observed a number of changes in content engagement as we evolve our content products and manage through the mix impacts of the pandemic.
For example, global time spent watching content on snap grew year over year, while lapping the boosting engagement we saw at the onset of the COVID-19 pandemic.
But we have also observed a year over year decrease in daily time spent watching user generated stories created by friends.
Even as the number of daily viewers of that content has grown year over year.
We believe this is due in part to a decline in the volume of daily story posting activity on Snapchat, coinciding with mobility restrictions and behaviors related to the COVID-19, pandemic, which reduces the amount of content created by friends that is available to watch.
While it is unclear when these restrictions will end and how user behavior will evolve we are seeing stabilization in early recovery in story posting as some communities are reopening and reducing restrictions and we are cautiously optimistic that this will lead to increased time spent watching stories from friends as the world begins to open up.
Meanwhile, we are continuing to evolve our overall content products and business.
As we learn more about the different types of content that our community wants to watch and then drive successful outcomes for our partners. We are doubling down on what is working well.
Based on these learnings, we are adapting and expanding our content offerings from both our media partners and our creator community in order to appeal to the diverse variety of interests of our community for.
For example shows are seeing ongoing success on our platform and we aired 8 new snap original shows this quarter.
Many of our partners reach a broad audience through several different channels and 9 different partners reached more than 30 million unique snap chatters in the United States alone.
We added 177, new international discover channels this quarter to support our international growth strategy and deepen engagement.
For example, total daily time spent by snap Chatters in India watching shows and publisher content increased by 150% year over year.
Additionally, we are seeing early promise and showcasing the best and most entertaining snaps from our community on spotlight.
While we are still in the early phases of launch an iteration. We are excited about our learnings and progress so far.
Engagement is growing rapidly as we rollout spotlight worldwide with spotlight, the au growing 49% quarter over quarter and average daily content submissions more than tripling when compared to the prior quarter.
We are also seeing time spent growing rapidly with daily time spent per user on spotlight in the United States growing more than 60% in the last quarter.
US additional confidence in our ability to build spotlight into a meaningful business overtime.
There is still a lot of work to do as we build out spotlight and innovate to improve the product experience for viewers. We are adding new features like the trending page, while improving personalization and ranking in order to show the right content to the right people based on their engagement and interest.
For creators, we're making it easier to create compelling content using creative tools and our camera and we launched creative kit for spotlight. So the creators can easily create and cement videos to spotlight from applications like Boise.
In video we.
We signed deals with Universal Music group, Sony ATV and dislocated in the first half of 2021 to increase the availability of sound on our platform and to help our community discover new artists.
We are also helping creators monetize and develop relationships with members of our community through products like gifting, our creator marketplace and by supporting them directly through our creator funds, which we are continuing to evolve as we move beyond our initial launch.
While we are still very early on this journey. We are excited about our ongoing work with spotlight to help our community discover new content creators, while also supporting our global creator community.
We've now spent over a year working from home and we have learned so much as a team about how to execute remotely while continuing to deliver rapid product innovation.
While we are excited to see each other in person. After all this time. We are also planning to retain many of the behaviors and practices. We developed during the pandemic. So that we can continue benefiting from the flexibility of being able to work and collaborate remotely.
This new way of working has brought us closer together as a team and helped us to work more effectively as a global business with team members and partners located around the world.
I am deeply grateful for the resilience of our team during such a difficult period.
And I am optimistic about the progress we are continuing to make in growing our company.
Now I'd like to turn the call over to Jeremy to share more about our business.
Thanks, Evan we're pleased with our results this quarter and believe our business is well positioned for the future.
Q2, we generated total revenue of $982 million, an increase of 116% year over year, reflecting the momentum in our advertising business and the hard work of our teams serving our partners and helping them generate return on their investment.
We benefited from a favorable operating environment and continued success with both direct response and large brand advertisers and we continue to leverage our performance AD products to grow our advertiser base globally.
We are fully focused on making progress against our revenue and <unk> opportunities, which we believe will be driven by 3 key priorities first driving ROI through measurement ranking and optimization.
Second investing in our sales and marketing functions by continuing to train hired and built for scale and third building innovative AD experiences around video and augmented reality with a focus on shopping and commerce.
Our commitment to these 3 priorities along with our unique reach and large engaged community allows us to drive performance at scale for businesses around the world.
We believe all advertisers optimize for driving ROI and measuring performance, we have accelerated our efforts to drive ROI for our advertising partners via lower funnel bidding capabilities, which allow advertisers to optimize for the objectives. They are trying to achieve and our innovative AD units, which are tailored for the most sophisticated performance advertisers.
For example, booking dot com employed a strategy that used dynamic ads to reach new customers on Snapchat.
By utilizing our dynamic AD solution for travel they were able to dynamically pull images directly from their product catalog that displayed relevant and visually appealing destination photos and features.
This helped booking dot com and mark an incremental audience within the United States, which resulted in a positive incremental lift in bookings across both their website and their app and delivered a cost per incremental booking of approximately 36% lower than their goal.
Our AD platform is being utilized as an effective self service tool to help advertisers of all types and sizes create manage and measure campaigns on snapchat.
Further and as a reflection of our focus on privacy and innovation as we are delivering results for advertisers. While also respecting the privacy of our community, which has been a core tenants since they launched add on Snapchat.
This year has clearly demonstrated how important it is to simultaneously meet these 2 objectives for our advertising partners.
As Apple rolled out its app tracking transparency related changes near the end of Q2, we observed higher opt in rates. Then we are seeing reported generally across the industry, which we believe is due in part to the trust our community has in our products and our business.
The rollout of the most recent iOS update came later in Q2 than initially anticipated and the peak of updates by iPhone users has also been slower than we anticipated.
This has given us more time with advertisers to navigate the transition but also means the effects of these changes will come later than we initially expected.
We continue to work with our advertising partners on privacy safe solutions in other attribution techniques. For example, we fully rolled out support of SK AD network version 3 play now, which we believe will aid in improving attribution for advertisers who have implemented apples API.
We also launched advanced conversions and ads manager, which allows advertisers to measure their campaigns via our privacy protecting measurements back.
We are dedicated to delivering value for our advertising partners, while respecting the privacy of our community as we have work to do for many years.
That said it remains very early in the adoption of the iOS platform changes and we will continue to learn how these changes may impact our advertising partners business and the industry as a whole we.
We are seeing some initial signals as advertisers test and learn in this new environment and this is causing some interruptions demand that we had anticipated will be part of the adoption process, particularly in the direct response e-commerce and gaming sectors.
It is too early to determine how long it will take until these changes are fully adopted the scale of potential interruptions to demand or the ultimate impact on the longer term growth of our business.
We have proven through our efforts in North America that with a robust team surrounding resources and a local focus we can accelerate revenue. We are now taking that model and replicating it in several markets that we have identified as having a large digital advertising market and significant levels of existing Snapchat adoption, we have a lot of room to grow in <unk>.
1 of the world's most established AD markets outside of North America, especially in Europe for.
For example, in the UK, France, and the Netherlands, we reach over 90% of 13 to 24 year olds and 75% of 13 to 34 year olds, we will continue to make progress on hiring and investing in our team globally across sales marketing and partnerships. Among many others as we believe this investment will position.
And as well to grow our business over the long term.
We continue to invest heavily in video advertising with the goal of driving results for our advertising partners and connecting them to the Snapchat generation.
For example, we worked with Nielsen to help U S advertisers understand how to more efficiently reach their target audiences via snap ads.
The total AD ratings study analyze however, 30 cross platform advertising campaigns reached people on both Snapchat and television. The analysis showed that Snapchat campaigns contributed an average of 16% incremental reach to advertisers target audiences and over 70% of the Gen Z audience that was reached by Snapchat.
Was not reached by TV only campaigns.
This is especially important as people are increasingly cutting the cord and mobile content consumption continues to grow presenting us with a large opportunity to help advertisers reach the snapchat generation at scale.
Augmented reality advertising is delivering a return on investment that is measurable and repeatable, which is encouraging more and more businesses to invest in a R. For example, smile direct club leveraged our goal based bidding click optimization for a R, which drove 49% of snap customer leads in Q2 and was the most effected AD unit at driving.
Traffic for their business compared to other social channels.
That's the lens ultimately incurred smile direct club to include <unk> lenses as part of their long term business strategy. We are doubling down on our efforts to help advertisers improve conversions and ROI and recently launched our <unk> purchase optimization for AAR, which allows advertisers to optimize their campaigns were down funnel purchases.
It fits well into our shopping strategy.
We continue to rollout a number of products and features to help empower our commerce on Snapchat.
We recently launched public profiles for all businesses, which can businesses of all sizes of 3 permanent home on Snapchat, where they can highlight engaging content showcase compelling experiences even after a campaign, it's finished and share shopper will product directly within the app.
Public profiles allow brands to build a direct relationship with our community and we are already seeing some of the largest brands investing in their profile for example, Nike leveraged our airlines as part of its play a new campaign to encourage snapchat or to get active and the company is planning to build additional lenses for its public profile.
In addition at our partner summit in May we launched unique new try on capabilities, such as risk tracking technology for watches and jewelry and true size technology for eyewear, which complement our existing foot tracking technology and are all designed to get snapchat or is more confidence in the ability for AAR try on to emulate a physical shopping experience.
For example, watchmaker P. J is using risk tracking technology to make it possible to try on a variety of different time pieces.
And businesses like there's any optical or using our true size technology to help snapchat or timeframe that fits in perfectly.
Through new 3 D body mesh capabilities retailers now have the ability to showcase products realistically on the body. This is come to life from brands like Prada that created a bag try on experience for snapchat or to shop directly in the camera.
Additionally brands like Farfetch are tapping into these technologies to allow our community to try on and shop, a variety of jackets from its catalog all.
All of these technologies and more are available and lens studio for the world's leading creators and agencies to build for brands.
We also recently built a new beauty template and lend web builder, which allows beauty brands to upload their entire catalog and publish <unk> lenses quickly and in a cost effective manner for.
For example, <unk> cosmetics is able to pull in many of their 800 product skus to create unique makeup try on experiences and with the lenses. They built thus far are already seen snapchat or engage with their products in new ways.
We are in the process of Onboarding hundreds of emerging Gen Z focused beauty brands, who will be able to leverage this technology for their air campaigns.
We have a lot more work ahead to build out our technology and increase our adoption, but we are thrilled with the results that our partners are seeing as we invest in our long term camera opportunity.
When brands utilize a portfolio approach of combining sponsored IR lenses with snap ads. They result in higher ROI and lower cost per outcome for.
For example, global sports streaming service to zone Lunched, a multi product campaigns that utilized our lenses snap ads story ads and commercials in order to drive awareness or its live sports channels and sales for that.
And subscriptions for its streaming service the zone leveraged our new <unk> app install optimization for a R, which not only drove incremental installs, but also reached millions of unique snapchat or.
The overall campaign resulted in lifts and installed in subscriptions and drove incremental snapchat or towards platform ultimately reinforcing the value of leveraging our AD formats together to drive performance and ROI.
We will continue to invest for the long term by demonstrating measurable ROI for our advertising partners, providing support through our sales and marketing functions and leading the way with innovative advertising products and services to help advertisers scale.
We are confident in our long term opportunity and are excited to double down on shopping and commerce the augmented reality.
Given our community their depth of engagement on our platform and our overall opportunity to take share of the growing digital advertising market. We believe we are well positioned to drive business results for advertisers over the long term with that I'd like to turn the call over to Derek. Thanks.
Thanks, Jeremy.
Our Q2 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 293 million daily active users in Q2, an increase of $55 million or 23% year over year the.
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, the au grew by $5 million or 6% year over year to reach $95 million.
In Europe, <unk> grew by $7 million or 10% year over year to reach $78 million and rest of world <unk> grew by $43 million or 55% year over year to reach $120 million debt.
Continued robust growth in rest of world reflects the benefit of our ongoing investments in local content local language support marketing partnerships and the popularity of augmented reality lenses created by our global community.
Total revenue for Q2 was $982 million, an increase of 116% year over year as we left the quarter in the prior year, where the pandemic most significantly impacted advertising demand.
We benefited from an improved operating environment in Q2.
And strong momentum with our advertising products and partners. In addition, the <unk> platform policy changes that we anticipated could disrupt advertising demand in Q2 of this year did not materialize as expected in Q2 as the changes were rolled out later and adoption occurred at a slower than expected pace.
In North America revenue grew 129% year over year in Q2 will ARPA grew 116% year over year as we continued to benefit from the significant investments we made in our sales teams and sales support in the prior year.
In Europe revenue grew 94% year over year in Q2, while our per grew 76% year over year in.
In rest of World revenue grew 86% year over year in Q2, while <unk> grew 20% year over year.
As indicated in the prior quarter, we are continuing to accelerate our investments in sales and sales support beyond North America in order to capture our global URB, who opportunity faster in the years ahead.
Average CPM increased 122% year over year in Q2.
Rising ECP EM relative to the prior year reflects the rapid rise in overall demand improved optimization capabilities within our auction.
Mix shift towards relatively higher ETP AUM products as well as the mix shift towards relatively higher <unk> regions, such as North America.
Dynamic ads are Great example of an AD product, where we are seeing the power of product innovation and auction of optimization to deliver return on AD spend while achieving relatively higher yields for our inventory with revenue from dynamic ads more than doubling sequentially.
With the rapid rise in total revenue of 116% year over year and 28% sequentially.
The rate of growth in demand outpaced the rate of new optimizations delivered in the quarter.
And we observed sequential increases in cost per action for our goal based bidding products in the quarter as a result.
We continue to invest heavily in our teams and tools to continually enhance our optimization capabilities over time and this is a top priority as we seek to deliver attractive returns on advertising spend for our advertising partners over the long term.
In addition, the ongoing growth of our community and strong engagement in areas of our application that we have not yet begun to monetize.
Provide us with the opportunity to expand our inventory and grow our long term <unk> opportunity overtime.
Gross margins were 55% in Q2, an increase of approximately 9 percentage points year over year and 8 percentage points sequentially.
We continued to make significant progress against our goal of driving down our underlying infrastructure unit costs over time.
In Q2, we continued to benefit from several recent efficiency improvements delivered by our engineering teams as well as negotiated rate improvements for several of our cloud services.
In addition, the acceleration in growth of our community has been a modest benefit to infrastructure cost per day are you in recent quarters as new users tend to have lower initial marginal cloud infrastructure costs relative to longer tenured snapchat.
These factors combined to deliver infrastructure cost per day are you of 62 in Q2, which was consistent with the prior quarter and down from 60 non sense in the prior year.
On the content side, we continue to invest to support the launch of spotlight in Q2, and this contributed approximately $76 million to our cost of revenue in the quarter, which is a modest sequential decline in cost as we continue to evolve the cost structure for this program to promote more content diversity by rewarding top performing <unk>.
Content creators, while also seeding new content categories. We are pleased with our progress on this front as we've observed all time highs and daily submissions after making these changes to the incentive program.
We also continued to be highly encouraged by the early returns from our investments in spotlight with daily time spent per user on spotlight in the U S growing more than 60% in the last quarter.
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.
We're particularly pleased that we have been able to continue to invest in spotlight and discover while expanding our gross margins year over year, which reflects our overall approach of scaling our operations efficiently over time, while making investments in the future of our business.
Operating expenses were $427 million in Q2 up.
Up 39% year over year, as we anticipated last quarter, our rate of hiring stepped up in Q2 and the growth in employee related costs was the single largest driver of growth in operating expenses in Q2.
Total employee related costs, which represent more than 60% of operating expenses were up 35% year over year, driven by a 31% increase in full time head zone that reflects the ongoing investments in our team as well as the integration of recent acquisitions, which contributed approximately <unk> <unk>.
8 percentage points to the year over year growth in full time head count in Q2.
We have also continued to invest in marketing to build on the momentum we have established with our advertising partners and in our community with growth from these investment areas contributing in part to the growth in overall operating costs.
As we anticipated last quarter. We are also beginning to see certain costs returning to our cost structure that we're significantly diminished due to independent Dominic related restrictions over the past year, including travel and event related costs among others.
The partial return of these costs to our cost structure in Q2 was an additional factor driving the acceleration in the rate of expense growth in the quarter.
Adjusted EBITDA was $117 million in Q2, an improvement of $213 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 40% in Q2, as we continue to invest in the future of our business, while making progress towards sustained profitability and positive free cash flow.
Net income was negative $152 million in Q2, an improvement of $174 million over the prior year and representing net income leverage of 33% as we continued to make progress towards achieving profitability and sustained positive free cash flow generation.
The year over year improvement in net income primarily reflects the flow through of the $213 million improvement in adjusted EBITDA as.
As well as 80 million higher net gains on investments in the quarter.
This was partially offset by $88 million higher stock based compensation driven by several factors, including approximately $43 million attributable to growth in our team due to hiring over the past year.
$25 million, driven by higher payroll taxes, due to our higher stock price and.
$13 million related to long term retention associated with several acquisitions completed in the last year.
While we have continued to grow our team and leveraged 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 4% year over year in Q2.
However, excluding the shares we issued in exchange for early conversion of approximately $840 million of our convertible notes the rate of growth in shares outstanding was just 1.7% year over year day.
<unk> from 2.6% in the prior quarter and below the 3% estimate we shared during our recent Investor day. There was noted to be exclusive of any dilution related to convertible notes.
Free cash flow for Q2 was negative $116 million or $33 million unfavorable versus the prior year. This was driven primarily by a $233 million increase in net working capital driven by the rapid sequential and year over year growth in revenue that was partially offset by improvements in.
Our cash conversion cycle, including an approximately 2 day reduction in our day sales outstanding metric, which reflects our broader initiative to scale our operations efficiently.
The impact of topline growth on our net working capital position was largely offset by the $213 million improvement in adjusted EBITDA nor that earlier.
We ended the quarter with $3.5 billion in cash and marketable securities up from $2.8 billion in the prior year as the proceeds are convertible notes issued over the past year more than offset the investments we have made to grow the business over the past year.
As we look forward to Q3, we are observing a resurgence of COVID-19 cases, and the ongoing impact of the pandemic around the world, which continues to present, an uncertain operating environment.
We currently estimate that <unk> will grow at a rate of approximately 21% year over year to reach approximately $301 million in Q3.
On the monetization side, we note that the comparisons will be more challenging in the second half as we begin to lap the acceleration in top line growth that we experienced from the prior year.
Our guidance range is for year over year revenue growth of approximately 58% to 60% in Q3.
This range reflects our best current estimate of the potential impact of anticipated disruptions associated with the iOS platform changes.
As I mentioned earlier, the iron with platform changes have been adopted more slowly than we had anticipated and the interruptions to demand are therefore expected to come later than we initially anticipated.
As a result, it is still not clear what the longer term impact of the iOS platform changes may be and this may not be clear until at least several months or more and after the changes are fully implemented.
Till then we remained focused on helping our partners navigate these changes while optimizing return on their AD spend across our advertising products and platform.
On the expense side in Q3, we intend to continue to invest in our long term growth of our business in order to build on the momentum we have established with our community our partners and our topline growth. In addition, we expect to continue to see certain costs that will diminish during a pandemic such as travel and event costs continue to return.
Turning to our cost structure in the quarters ahead, which will impact operating expense growth.
Estimates for Q3, adjusted EBITDA reflect our revenue guidance and our expected level of investments, resulting in a range of $100 million to $120 million for Q3.
Thank you for joining our call today, and we will now 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 assemble our roster.
Our first question comes from Doug Anmuth with J P. Morgan. Please go ahead.
Thanks for taking the question a question for Jeremy.
Average CPM was up more than 120% year over year related to higher demand and ROI and then also product and Geo mix shifts and I realize you CPM as an output for snap and not a pure indicator of the prices that advertisers are paying but we've also heard a lot about price inflation across the.
Online AD market. So just wanted to get your views on whether you think there are any risks around price inflation and how you think about sustainability going forward.
Sure Hey, Doug It's Derek speaking I can take that 1 on the CPM question Youre right with EBITDA.
I think it's EPS from Q2, they were up 122% year over year.
We do think it will <unk> at least in part as an output metric at this stage of our growth and we expect that it could fluctuate as our business evolves over time.
In Q2 in particular, we did see rising CPM is driven by several factors 1 of them is just the rapid rise in their overall advertising demand, we've experienced which was up 116% year over year entropy.
Yeah.
Mix shift towards higher <unk> products is also a factor here such as dynamic ads. The revenue doubled sequentially in Q2, and then we do see mix shift across from regions with North America growing at a relatively higher rate as well.
Over time, however, there are several competing forces many of which we have influence over that can put downward pressure on AC GAAP, including.
1 of the growth in our overall community and we've seen that accelerate in recent quarters with global <unk>, reaching 23% growth year over year in the most recent quarter.
Second there is the potential to expand our inventory opportunity by bank monetization of highly engaged areas within our application.
Examples include the camera and given that our app opens to the camera and our audience creates billions of snaps per day, the inventory potential other cameras already a man. So we're investing heavily in our capabilities to capture that opportunity as you can see with our recent product announcements and acquisitions and Sean Spotlight is another example, and it remains early days for this new platform.
Engagement is growing rapidly and we're excited about the potential for spotlight to expand our arco opportunity over time.
<unk> is another really good similar sort of example of an entirely new revenue opportunity with very attractive levels of engagement and the opportunity to serve as an on ramp for a new audience of advertising partners over time.
Last but not least we've been investing really heavily in our ads product and optimization capabilities in order to deliver our goal based outcomes for advertisers such as pixel verified purchases as efficiently as possible, which allows us to excel.
Expand our inventory opportunity and then.
Lastly, I hope all of that would give you a little bit of a framework of how we're thinking about this evolving over time.
As these dynamics play out so hopefully that gives you a little more context. Thank you.
Our next question comes from Brian Nowak with Morgan Stanley. Please go ahead.
Great. Thanks for taking my questions I have I have 2 first 1 just on the strength of the AD business in <unk> and then with the <unk> guide relative to sort of Peel back for any more detail on the product level drivers of the AD business.
What is sort of seeing the most incremental momentum between lenses and they are vs stories versus discover versus anything else that I'm missing that'd be that'd be super helpful. Then the second 1 Evan just on AAR shopping talk to us about sort of your where you think you've made the most progress there and then in your mind, what are sort of some other key hurdles and friction.
<unk> need to overcome from an execution perspective to really realize that opportunity.
Hey, Brian Thanks, so much for the question will.
Really happy actually with the products across the board and the adoption and so on.
Derek spoke to we've seen a robust increase in just overall demand of our innovative AD formats and improved self service model, which has very much enabled us to scale demand globally.
Specific about your question in the products that we've released over the last 3 years that continue to see strong growth strong growth.
Really in dynamic ads down funnel of GBP with examples being pixel purchase in App purchase.
Other than chosen games, and then and self service they are as well.
Again kind of runs the gamut there, but additionally, we continue to invest in AD measurement and optimization, which is the most important thing for us because it helps us drive outcomes more efficiently and increase yield but also includes performance for advertisers.
Particular flywheel is why we're so excited about our future potential across all of these products as we scale, our advertising business and I will let Evan will take the second part.
Hey, Brian Thanks for the question, we're Super excited about shopping in particular, we're focused on apparel and accessories. It's obviously, a huge spending category for young people, but more importantly, it's a real opportunity for us to differentiate so if you think about the in store experience in a changing room, that's not particularly clear.
And at home trying to shop online and find the right size and scroll through thousands of little.
<unk> models wearing clothing.
None of those deal personal and none of them really capture the experience of trying something on which is so important for consideration with apparel and accessories. So Ah can really solve this problem in an interesting way there are some places where I think from a product perspective, we have solved the technical challenge. So trying on a pair of shoes or watch sunglass.
Assets those are all areas, where today, we see really great results.
For retailers and that's where we're focused on scaling so helping people create and manage their <unk> models.
Make sure that they can easily turn them into lenses.
And then there are other problems that we're still working on solving. So for example, trying on a T shirt and making sure the cost looks really realistic and drapes over your shoulders in the right way that that's much more complicated to do from a technical perspective, and we're making good progress there, but it's not perfect. Yet so I'd say, what we've tried to do is focus on the areas where we are.
Got a great technical solution and the product works and delivers results.
And of course brands are seeing success with the lenses that they're creating and then we're making much longer term investments with things like fit analytics to find the right fit and the right size with all of our efforts around clothing try on and we really some really great. New features in 1 studio a 4 point out recently that that helped get us part of the way there, but it may take a little longer per pull.
On apparel try on but nevertheless, we think <unk> is going to play a really important role theres lots of stuff, we can do to scale today.
You may have seen some of our efforts to make our beauty IR lenses more scalable. So that we can ingest someone's entire catalog of beauty skus and how people will try them on really easily through length web builder. So a.
A lot of effort to reduce friction and make it easier to scale and then a lot of really exciting technical and product opportunities for the future.
Our next question comes from Rich Greenfield with <unk> partners. Please go ahead.
Hi, Thanks for taking the questions Ive got a few first and it will be quick.
Huge advertiser demand for spotlight, which sort of replicates, the tick tock and Facebook reals.
Sort of user mechanic, what's holding you back from starting advertising within the feed, especially when ads are already being created in similar sort of form factors on other sites 2 storey studio I know you announced it at.
At the partner summit, it hasn't launched yet curious I guess for Evan specifically, how do you think it's going to change the quality of the content on snap and maybe even since it can be used for any app. How do you think it sort of leads to the use of snap content across the broader mobile web and then just the last piece for Jeremy.
Specifically curious what are the key building blocks, you need add product wise to drive small and medium businesses to advertise in much larger numbers like what should what should we be looking for in terms of your AD products or tech stack that needs to be done to really ramp those numbers. Thanks.
Hey, rich thanks for the great questions, Yes, as you pointed out we really pioneered that vertical video format with stories and of course now use that format.
And spotlight and so.
That I think we will transition to monetization really easily and of course leverage our fall AD stack and all of the optimizations and measurement capabilities that we offer today, we've done some small testing with advertising and spotlights.
We're ready when we want to turn on but for now we're just really focused on the core experience. There's so much opportunity. There. We've got a great road map of improvements and we just don't want the team to get distracted frankly with monetization at this point when there's so much upside in the quarter user experience in core user engagement. So we've chosen to focus on the product experience from <unk>.
Now and then overtime will think about monetization, but we're testing and learning. So we're ready when the time comes out and then when it comes to storage sorry studio somebody asked. This question is something we're really excited about have you think about the course Amtrak camera, we're always optimizing around communications. So we wanted to work really really quickly and oftentimes that means we don't.
Offer some of the more sophisticated creative tools that you might want to use when youre, making the perfect video and maybe you want to spend 20 minutes really per.
Besting the transitions in the text overlays in the audio and things like that and so what we wanted to do is create a separate application story studio to really focus on some of those more fine grain editing use cases to help people make really beautiful videos, and we think theyre going to use them and a bunch of different ways. After they create them of course are contributing them to spotlight or.
Even.
To make stories for discover so we don't know what folks will make that but it is a really great opportunity for us to invest in great creative tools and over time, we may invent new creative tools and storage studio and bring them over to Snapchat. So it's a great new way to experiment with video editing and we're really excited to get it out there.
Okay.
And then thanks.
Thanks for the great questions as always I will take the small medium business question. So specifically as it pertains to small and medium Vanessa is I think 1 other things that can kind of get completed is that talking about local is that talking about E. Commerce in app install et cetera. It sounds like an answer kind of in 2 parts here, but the first is really the.
Small and medium businesses as it pertains to App installed.
E Commerce digitally native businesses.
Any specific we believe that we already have a lot of other tools focused on measurement ROI that flywheel that we talked about in the last question in terms of optimization and ensuring that people get results when they use things like our goal based bidding strategies and those products are already in place, but we believe that we have a significant opportunity with a smaller growing company.
In that particular space and then looking longer term, we believe that the snap map and public profile for our business. It will be really keeping share to unlock growth in the low all F&B space.
Different than that the E com and the App install business, but we're still really really early on in this particular journey.
The good news is though that Snapchat is they're starting to interact with local businesses organically on the service. So as we improve the utility of those core service, whereby we will be investing in more local specific advertising product, but we're not there yet so that's what you should be looking for.
Our next question comes from Ross Sandler with Barclays. Please go ahead.
Hey, guys, Evan just a question on engagement.
Noted that time spent watching content is up overall, but it's down for user stories. So is that from less mobility or is that being cannibalized by the spotlight engagement and do you think you can grow both areas in tandem or should we expect the dine.
Dynamic to continue.
Hey, Ross Thanks for the question.
I think the best way to think about it is while it is not going to be purely incremental but so far what we've seen is that it's largely incremental and the reason why we think that is because spotlight and discover our storage products are really different purposes. So what we're seeing is a spotlight is a great way to discover new content to find greater as you've never heard of before or even someone who.
Just submitted a really funny snap that they created.
And then story is a much more high intent product so people make friends and want us give exactly what their friends are up to or they subscribe to their favorite publishers and so what we're really interested in over time is actually the relationship between the 2 so discover people might discover new influencers, new creators and spotlight.
And then go view them on discover so.
I think youre right, its not going to be purely incremental but so far it has been largely incremental and we're really excited about the long term opportunity for the price to evolve the relationship between the 2 so the spotlight has really opened up a whole new canvas for us.
To explore this way of distributing content and actually help people find things that frankly are pretty hard to find today on the <unk> page.
Our next question comes from Mark Mahaney with Evercore ISI. Please go ahead.
Thanks throw a couple of questions 2 please 1 on spotlight.
I will have investment in continuing to incentivize content do you expect to keep that at roughly the same level or do you think you've reached enough critical mass where you don't need to incentivize content. Secondly, could you talk a little bit about monetization of maps.
And where you are.
The path.
Lay out some expectations please for that.
And then maybe 3 high level question for you Evan which is.
Do you think about augmented reality and virtual reality also as a potentially new compute platform over the next 5 to 10 years and you've talked about this in the past, but just your updated thinking on how much of a new.
Quote unquote compute platform that could be.
And the extent to which you think that we will just fundamentally change or at least a significant segment of the population will fundamentally change how they interact because of a RMB or do you think about it as complementary or supplementary ore.
Actually replaces substantially replacing current interactions thanks a lot.
Yeah.
Yeah.
Hey, there mark.
It's Derek I will take the first part of your question on Spotlight, then I will turn it over to Evan on the other parts of your question on spotlight in particular.
1 we're continuing to improve the experience for our community and per our creators for viewers, we're adding new features like the training page, while improving personalization and ranking in order to show the right content to the right people based on our engagement interest from for creators, we are making it easier to create compelling content using creative tools and our camera and will launch creative kipp.
So the creators can easily create and submit videos to spotlight from applications like Boise and and so on.
We're really excited about the momentum we're seeing on spotlight submissions have tripled sequentially, while at the same positive engagement trends with 49%.
<unk> will increase from <unk>. We're also seeing time spent growing rapidly with daily time spent per user on spotlight in the U S growing more than 60% from last quarter on the creator funding the level of investment we remain dedicated to rewarding our community for what they contributed to spotlight. We have evolved the creator fund in the most recent quarter in order to continue to reward.
Top creators will also feeding new content categories, and we're pleased with what we're seeing in the results of that so far.
We made over the last quarter as we've observed all time highs and daily submissions to spotlight after making these changes.
We're still very early on this journey, we're excited about our ongoing work with spotlight to help our community discover new content creators will also supporting our global creator community on the monetization side.
That it.
It's just it's very early and we don't feel pressure to do that at this time, but hopefully that gives you a little bit.
<unk> of where we are on spotlight and our commitment to investing in that product over time, I will turn it over to Evan to handle the next part from your question there.
Hey, Mark Thanks for the question of 2 things I love talking about with maps, we're really focused on the product opportunity and just continuing to evolve.
The platform, we see this as a huge long term opportunity and so it's just critical that we remain focused on delivering value.
To the people that use our map it start out with no answering basic questions like what are my friends actually where are they or are they on their way home yet and now has evolved to really show people, what's happening around them and of course, most recently with our map layers.
Really to even find events nearby or restaurant recommendations and so what we're going to focus on now is expanding that functionality to more partners, making the map.
Much much richer in terms of its content and then doing an even better job personalizing. So over time of course, we're going to have to filter through all the possible layers that you could engage with on the snap map and really find the relevant concerts or restaurants or.
Local parts.
Maybe our most interesting are important for you. So the big focus right now is continuing to evolve people's relationships with the places around them. We've also really some really cool products that will allow people to favorite places or find find ones that are popular with their friends and so we're just focused on growing that engagement and then of course over time.
We think we can provide a lot of organic value to local businesses help show them, who their customers are how frequently they visit help them understand per traffic trends.
And of course, eventually help them market to reach there.
Other local customers so.
It's definitely an exciting opportunity for us, but it's really important that we focus on the core of that product opportunity because it's a really big 1 and it's something that we're really excited about.
And then as it comes to augmented reality, we're really excited about the potential for a mostly because it makes our computing much more human it's overlaid on the world around you you don't have to look down at a tiny screen you can look up and day immersed in a computing experience, but that said I don't think its a replacement at all for existing computing devices.
Which frankly are much more oriented around information retrieval and information organization.
So.
I think what we're going to see instead is an augmented reality is much more oriented around human experiences and so whether that.
More recently, we did a partnership with Lacma to create new monuments in Los Angeles or learning about the world and walking through the solar system to see what it looks like and of course many of the other ones as we referenced earlier around commerce and trial and I think augmented reality can provide a totally new ways to interact with computing that experiential.
And very different than the way that we interact with computing today. So I don't think it will be a replacement, but I certainly think it's an exciting way to experience the world and that's why we're investing so heavily of course in the near term on smartphone augmented reality, but then in the longer term as well with wearable which is something we're really excited about.
Our next question comes from.
Mark Shmulik with Bernstein. Please go ahead.
Yes, hi, thanks for taking the question 1 follow up if I may around e-commerce, and so lots of deals that effort is taking place on that Brian we put around the business profile.
Et cetera.
Obviously, a lot of different ways for brands will sellers to reach their customers that are being tested within snapchat, but is there anything you could share about how and where snap tenders are engaging and shopping with that content and potentially what the roadmap could look like towards perhaps like a more permanent E store within the application. Thank you.
Yeah sure. Thanks for the question from Jeremy appreciate it.
As Evan mentioned, we really think that the shift towards e-commerce as a long term secular trend and we know that <unk> can play a really pivotal role in improving the e-commerce experience for shoppers that's been beneficial to both the retailer and the customer and we talked a little bit about this in past calls, but when you take a look at will be trends that accelerated bearing law.
It was really an interesting period of time, because we had a lot of people in our Snapchat community that are fully engaged in a 200 million people engaging in a our every single day and brands really needed to find a replacement for them. All then for showrooms in these kinds of things, which accelerated the trends and we don't look at it as necessary.
Fairly 1 specific destination on Snapchat, where people can go and experience. They are our brands can have a presence, but rather they are shopping in its entirety is a huge focus for us, but we're also looking at commerce and shopping is the type of experience that can be threaded throughout the service so not like a specific destination, although of course that will be available.
On public profiles as well, but we've experimented with shopping.
Screenshots that will be a screenshot native comments from publishers and creators and discover and even scan to shop with our Amazon partnership that we launched a few years ago.
When we work with advertisers all the time spend a lot of time with them and they consistently tell us that snapchat and talking with their best friends comes up as a really important part of the shopping experience. When you think of the kind of the evergreen question. That's been going on for years as does this look good on me.
Imagine how how much more effective that is and they are without having to buy something or return. It later and we're going to look to leverage those close friends that type of sentiment.
D wave shopping experiences throughout the Snapchat service and just a really natural and engaging way.
Our last question comes from Justin Post with Bank of America. Please go ahead.
Great. Thank you a.
Couple of questions first of all what were the key drivers are revenue upside versus your expectations, obviously very good quarter.
Were there any unusual positive impaction in may or June or actually even a benefit to snap shifting spend because of FX and then secondly, just maybe you could provide a little bit more details on what you're thinking around <unk>.
Is it actually affecting targeting and how do you think about some of the work around you're seeing or you're implementing so far thank you.
Yeah sure. Thank you for the question. So I think when we're kind of talking specifically about what drove the success. This is my favorite question until I am excited that you asked I think you as that was really broad based across all of our sectors as well as our region. So when we look at different areas.
The success when you take vertical by vertical by vertical we had a lot of success in areas, where we've seen that type of acceleration during lockdowns like screaming for us Ben but then as the world started to reopen a bet. We also started to see success in areas like retail and restaurants, and a little bit of life back into the travel sector, which has been nice.
It's an exciting as well.
I'll, let Derek talk to anything specific that was kind of May June relate in if he'd like but I can also take the IVF. A question I think the important thing about the FAA is to really understand that the solutions are not yet fully finalized everyone is still evolving apple the entire industry is still evolving and we said this before.
I just want to reiterate that we genuinely support Apple's approach, we've always believed that advertising should respect customers' privacy and it's cort snap and the products that this amazing team has built them for the last almost 10 years now and we've been working really hard to make this transition smooth for our advertising partners as well as our businesses and so where we are in the cycle.
Now is that we've rolled out full support of Essakane network to refi now, which we know will aid or will we believe will aid in attribution for advertisers and we've also implemented apples API. In addition, we launched advanced conversions and AD manager. So advertisers can measure their campaigns with our privacy conscious measurement stack and then.
I think 1 other things that we are where.
They were observing here is that our opt in rates have been above what is sort of widely reported and and both the press as well as with the analyst community.
So that's that's good but it remains so early and these iOS changes and there's no question that it will be a change for the industry and in of itself, but I think we are preparing to the best that we can the product teams and engineering teams have been working really closely with all of our partners and our sales teams to make sure that this transition for our advertisers.
That's possible.
This concludes our question and answer session as well as Snap Inc. Second quarter 2021 earnings Conference call.
Thank you for attending today's session you may now disconnect.