Q1 2022 Snap Inc Earnings Call
[music].
Yeah.
Good afternoon, everyone and welcome to snap Inc's first quarter 2022 earnings conference call.
At this time participants are in listen only mode.
After the prepared remarks, there will be a question and answer session.
If he would like to ask a question during this time.
Please proceed.
Number one can you talk about <unk>.
This call will be recorded.
Thank you very much David I'm here head of Investor Relations you may begin.
Thank you and good afternoon, everyone welcome to <unk> first quarter 2022 earnings conference call with.
With us today are Evan Spiegel, Chief Executive Officer, and cofounder, Jeremy Gorman, Chief business Officer, and Derek Andersen Chief Financial Officer.
Please refer to our Investor relations website at Investor Snap Dotcom define today's press release slides prepared remarks on our updated investor presentation.
This conference call includes forward looking statements, which are based on our assumptions as of today.
Actual results may differ materially from those expressed in these forward looking statements and we make no obligation to update our disclosures.
For more information about factors that may cause actual results to differ materially from forward looking statements.
Please refer to the press release, we issued today as well as risks described in our most recent Form 10-Q , particularly in the section titled risk factors.
Today's call will include both GAAP and non-GAAP measures.
Reconciliations between the two can be found in today's press release.
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.
Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today's call.
With that I'd like to turn the call over to Evan.
Thank you all so much for joining us the first quarter of 2022 proved more challenging than we had expected and our team was able to make significant progress against our goals. Despite the increased volatility in the operating environment. Our community grew 18% year over year to 332 million daily active users and revenue grew 38% year over year to <unk>.
1.06 billion this.
This resulted in adjusted EBITDA of $64 million and free cash flow of 106 million, marking our third quarter of positive free cash flow. While we are pleased with our progress given the macroeconomic environment. We also recognize that we have a significant amount of work to do to realize our long term opportunity and we believe we are well positioned to invest through the.
<unk>.
A great deal of our focus has been supporting our team members located in Ukraine, and helping our Ukrainian colleagues.
The war in Ukraine is heartbreaking for all of us, especially because Ukraine as the birth place of luxury accompany that laid the foundation for snap augmented reality platform.
As we look forward to our snap partner summit on April 28, where we will celebrate our partners and launch new products, our thoughts and prayers are with or Ukrainian team members and their families not only because of these horrible circumstances, but because they have made so many of our innovations possible.
We have remained focused on expanding our product offering and deepening engagement with our global community, which grew by 13 million daily active users in the quarter.
The future of our business depends on the engagement of our community and we are pleased to see elevated growth rates in the rest of World region, where we added 10 million daily active users in the quarter.
This rest of world growth follows our investments in building out the team and operations necessary to accelerate our growth in geographies, where our community has demonstrated a clear product market fit with snapchat as well as our efforts to localize our product offering and improve application performance across a wide range of devices.
Our community in North America, and Europe continued to grow and use geographies represent our largest monetization opportunities in the near and medium term.
We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate what began as an application for visual communication has evolved into a leading augmented reality platform or creators are building unique and innovative experiences and lens studio and distributing them on snapchat and in their own applications using camera kit.
Over 250 million snap chatters engage with augmented reality every day on average across a variety of use cases, including entertainment fashion and education.
Over 250000 creators build more than $2 5 million lenses and snap Chatters played with lenses created by our community more than twice as much this quarter when compared to Q1 2021.
We recently launched our Asl alphabet lens, a first of its kind experience that inspire snap chatters to learn American sign language through the Snapchat camera. The Asl alphabet lens uses advanced hand tracking to recognize hand poses and gestures, providing feedback as people practice communicating with sign language.
We also launched custom landmark or as in lens studio, helping creators to build location based lenses for local places they care about from SaaS user storefronts to tell richer stories about their communities through a R.
In partnership with two Queenie Mandela and Black Cultural Archives, we released our hidden life stories local lines, transforming London shortfall or square into an experience that showcases key moments figures and stories from Black British history.
In an effort to educate our community on the power of <unk>, We announced a new augmented reality creator program in India powered by lens studio.
The program will include an online developer course in a series of challenges that aim to empower developers and local creators across the country.
In celebration of International Women's day, we launched and airlines upon consisting of three workshops across southeast Asia to encourage the participation of young women and new digital fields like augmented reality.
We believe that augmented reality belongs everywhere not just on Snapchat, we built camera kit to enable our partners to leverage our augmented reality platform and their own websites and applications through.
Through camera kit, we can help grow the ecosystem. They are developers and help businesses understand the immense potential of <unk>.
We are excited by the growing demand from businesses, who want to bring snaps AI capabilities into their own apps and websites.
For example, Xu our storytelling App for families integrated camera kit to help people bond by sharing stories, while using lenses to resemble storybook characters.
We continue to make meaningful progress overlaying computing on the world through spectacles are augmented reality glasses hundreds of creators are developing <unk> lenses for spectacles building, new immersive and interactive experiences like Reimagining, our restaurant menu in three dimensions or enhancing a workout routine.
We have continued to make software improvements and offer new capabilities for developers, including a new voice ml temple inland studio, which enables traders to build voice enabled experiences without scripting and lens studio streaming mode, which helps creators developed lenses with hand tracking from a first person perspective.
With our powerful developer tools in one studio and distribution through Snapchat camera kit and spectacles, we've created a compelling platform for creators to build and share augmented reality experiences, reaching hundreds of millions of people and exploring the next generation of computing.
We continue to provide value for our growing community through our diverse content offerings, which include our two content platforms stories and spotlight.
Our storage platform enabled snap chatters to share snaps with their friends and narrative form via friend stories and watch content from professional publishers and Influencers and discover.
Spotlight is our newest content platform for showcasing the most entertaining snaps created by our community in Q1 overall time spent watching content globally grew on a year over year basis, driven primarily by growth in time spent with content in discover and spotlight.
We continue to see growth in viewership of content on discover which has become a destination for credible and entertaining content for our community. For example, total daily time spent by snap Chatters 25, and older engaging with shows and publisher content on discover increased by more than 25% year over year, we expanded our international content offerings by partnering with new.
<unk> UK tariff all in lamons in France, and NBC in a lot of beer in the middle East.
Snap original represent another important element of our strategy to improve the diversity of available content on discover.
Over 10 million viewers watch breakwater, our new snap original about the dystopian future caused by climate change that featured episodic AAR lenses in partnership with Verizon, helping snap chatters to immerse themselves in the show.
Our content partners continue to find success on our platform with six discover partners, reaching over $100 million global viewers in Q1.
We are also investing in new tools and capabilities to better serve our content partners and to help them reach new audiences on Snapchat, We recently announced dynamic stories and new discovery format that allows publishers to automatically create stories based on news they publish online to help snap chatters learn about the world as it happens.
Early partners include GQ, Vogue, CNN, and ESPN and the Wall Street Journal.
We are very excited about the long term potential of spotlight, while still early in its growth and evolution. We're pleased with the engagement, we're seeing with total time spent growing 230% year over year.
Over the last several months, we are focused on building the tools and infrastructure to help creators of all kinds thrive on spotlight and we observed a three five X increase in the number of spotlight submissions using our lenses, our creative tools compared with Q1 2021.
Spotlight offers opportunities for creators to improve discover ability and get more reach with their SaaS. We continue to focus on the relationship between stories and spotlight, where creators can use spotlight to start building an audience and deepen their relationship with that audience through their stories.
Today, there are many different ways for creators to grow an audience and build a business on snapchat creators can open shops to sell merchandise join our creator marketplace receive virtual gifts from fans and monetize their content via our recently announced mid roll ads in stories.
We continue to innovate on our map to bring utility and value to our community and partners as snap Chatters are able to move about the world again, we're seeing upticks in engagement on the math.
While still very early we are encouraged to see that snap Chatters open places from the math more than twice as often this quarter when compared to Q1 2021. We also added a new way to help staff hires discover live events with the launch of our Ticketmaster layer snap Chatters can now browse ticketmaster's upcoming events on the map based on what is happening nearby we see incredible potential.
For innovation across our communications platform, which brings enormous value to our community by connecting people with their close friends and family. In addition to adding several new chat features including chat replies to emoji reactions and pulse stickers. Its also where our community can launch games and minis two platforms built to re imagine shared experiences with friends.
We were pleased to see returning gaming partners Fund a factory and Vudu launch new game titles in Q1 hour.
Our gaming partners are finding success growing their businesses with more than one third of our current gaming partners, having made over $1 million in revenue.
<unk> represent a new platform for social experiences we've seen recent momentum with giving lease second many send gifts where <unk> can send gift cards to friends discover partner wave sports and entertainment launched the gym heroes, many social fitness experience on Snapchat that offers original daily fitness challenges and full workouts curated by fit.
<unk> experts.
<unk> is designed for snap chatters to challenge their friends and collaborating groups toward their workout goals.
We're so excited about the growth of our community and the evolution of our service and we can't wait to share more at our snap partner Summit next week on April 28, we will meet the challenges of the current operating environment by prioritizing the needs of our community and partners, who are central to our success and we will continue to invest against our enormous opportunity and augmented reality.
As we work to accelerate our roadmap and deliver against our long term plans for computing overlaid on the world.
I'll now turn it over to Jeremy to discuss more about our business.
Thanks, Kevin we continue to make progress against the many opportunities we have to support our community and advertising partners globally. Thank you.
We generated total revenue of $1 6 million, an increase of 38% year over year.
We continued to work through platform policy changes, which are primarily impacting direct response advertising partner and we believe that we are building effective measurement solution for advertisers to prove the efficacy of their campaign.
In addition to these ongoing platform related headwind supply chain shortages in labor disruption rising inflation and geopolitical unrest are presenting challenges for a wider array of industry verticals and then the prior corner.
We saw strong growth in verticals like financial services, and screening, which each grew well over 50% year over year we.
We believe that the impact from the ongoing platform policy changes are compounded by macroeconomic challenges, which are now the primary headwinds to client demand. We remain focused on supporting our community and advertising partner, we will do so by continuing to focus on our three key priorities.
Driving measurable ROI second deepening our vertical expertise in growing our sales capacity.
Third, creating innovative AD formats on video and augmented reality.
Our commitment to these priorities along with our unique reach and global growing audience allows us to drive performance at scale for businesses around the world.
Our team continues to help advertisers navigate the platform policy changes through the enablement and utilization of privacy preserving measurement solution.
We've made a significant place to improve our first party solution as we seek to help advertisers adapt our policy change and.
The first step was to drive broad availability of installation, which means the largely a team now.
Now we are working towards achieving Brian utilization and full confidence in these measurement solutions.
While it can take time for advertisers to tune their campaigns using our new measurement solution. Some advertisers who have invested early in our first party solutions are seeing signs of success.
Beauty brand nicely implemented our conversions API or Kathy on both web and App to deepen its partnership with snap and leverage the full integration across the platform.
After integrating copy for web and App, the multi product integration resulted in a six X increase in return on AD spend above its non integrated results.
We also continue to innovate by improving our first party measurement solutions with features like estimated conversion, which helps provide more granular and timely result in a privacy safe manner and improvements to Cathy with strength in snap direct advertiser data integration, allowing advertisers to measure conversion from multiple sources.
Launched in 2018, Kathy also provides advertisers with more sophisticated incremental measurement solution that just conversion lift.
For example, sports betting company drag Kings Rana conversion lift study in the two weeks, leading up to the Super Bowl across several established eight and observed at 10, 8% lift in App install and a 188% lift in first time deposit for males 21, okay.
Outpacing therein.
I think all of them.
As we continue working to drive measurable ROI for advertisers of all types and improving the efficiency of our offering and lowering the effort. It takes to utilize our platform is a major okay.
By lowering the cost and decreasing the time to create personalized ads, we can improve ROI by reducing the investment it takes to achieve that given return.
One. Notable example is our progress with dynamic AD by dynamically building adds from product catalog, we're able to greatly expand the set of ads that are created.
Dynamic ads can update automatically as new products are entered into the catalog remaining up today and driving ROI as a result revenue from dynamic ads more than tripled year over here.
In addition to dynamic ads, we're also increasing the automation of our multi format and delivery, which allows our systems to optimize across formats to achieve the best ROI for our advertisers and the most relevant ads for our community.
These features released at that time increased delivery efficiency and expand advertisers addressable audience.
We're seeing strong adoption of our automated offerings and we will prioritize these efforts in the year ahead.
Continue to add deep domain expertise with our vertical sales strategy, allowing us to effectively serve advertisers of all types and sizes.
Our work with agency and advertising partners over the past year has resulted in upfront commitments for 2022, and our more than 60% higher than the total upfront commitments made in 2021.
We view upfront commitments as a technology strong confidence from agency and advertising partners as we become a part of Theres always on performance oriented advertising strategy.
While the majority of our revenue today is generated from video ads. We believe we are still early in terms of realizing the full monetization potential of our content platform.
Today, we comprise less than 2% of the 210 billion U S digital AD market and less than 1% of the 520 billion global digital AD market, while reaching nearly half of U S smartphone users and more than 75% of 13 to 34 year olds in over 20 countries.
In addition, mobile advertising is growing faster than desktop advertising video advertising is growing faster than non video advertising and self serve advertising is expected to make up 90% of all digital display AD spending plenty plenty to these.
These trends are favorable for our strategy and we believe our video advertising business has the potential to deliver robust top line growth.
Our unique and innovative <unk> lenses give our team a huge opportunity to attract advertisers across multiple verticals in the past larger brands use augmented reality for brand moments to drive awareness and reach through expensive one day take over Atlanta today, both brand and performance oriented advertisers are utilizing augmented reality to drive significant.
And measurable business results.
We are also adding more tools to help our advertising partners find customers and build their businesses on Snapchat, we learn.
Chuck first snap a certification on snap on's called augmented reality strategy for advertisers.
Five part learning pathway offers hands on education and real life examples to help advertisers gain a deeper understanding of how a R isn't it an essential tool for business and marketing objective.
We continue to invest in Arcadia, our global creative studio for branded augmented reality experiences. The team has been hard at work, creating managing and launching several experience at most recently a Verizon GE connected Snapchat lens for the big game in our hometown of ally lending snapshot or FEMA and battle with other groups to take control of the giant.
Virtual airship hovering about the fields.
Arcadia also created <unk> in partnership with Verizon uncertainty.
Transports the renowned Oh performance in Las Vegas to the palm of a snapshot our fans.
<unk> seen a notable acceleration in the number of advertisers leveraging our self service tools for with over 70% of our revenue now delivered via our self serve ad platform.
We recently brought our GBP pixel purchase optimization to IR and we are also investing in additional features for AD manager to make it easier for advertisers to create manage and deploy their air experience. It.
Following the launch of first commercial in October 2020, we recently launched first one which enables advertisers to reserve the first sponsored lens impressionist outer season the lines carousel.
First one is operating more operational ease because bookings are made through AD manager and simultaneously improve the snapchat or experienced by surfacing. The first one is based on relevant.
A top priority for <unk> is reducing the barrier to creation and helping brands I understand the importance of air experiences and the value they can drive.
While we are still in the early stages of AAR Advertiser adoption, we are already making solid progress in investing to build the AI ecosystem. For example, Nike recently launched at Nike Bayou Sneaker customization line in order to drive increased engagement with its Nike app and generate membership sign ups.
It's all campaign resulted in an increase in sign ups, especially among 13% to 17 year olds, a key demographic for Nike program.
After the success of the <unk> campaign in the U S. Nike has scaled it blend campaign to additional regions internationally. These results are emblematic of a larger shift where thing with AAR transforming e-commerce by increasing conversion rates.
We believe that virtual try on represents a massive opportunity to improve the way our community shops and experiences new product.
Businesses are benefiting from creating their own public profile, which offers a free permanent home on Snapchat, where they can showcase compelling experiences and share shop of our products directly within the app.
Online retail platform recently created a profile and uploaded to <unk> and Linda and the first week alone they thought over $1 million place encouraging note to further invest in their snapchat prison.
We're seeing higher retention for advertisers, who have activated their public profile a promising early indication then an organic presence on snapchat is meaningful for advertiser return on ad spend.
Lastly, when Brent and use a portfolio approach of combining sponsored lenses, but snap AD. They are able to drive higher ROI and lower cost per outcome. For example, electronic Arts ran a campaign for Madden NFL 22, videogame franchise, which included commercial snap AD, Linda filters and store, yet where each of these products.
<unk> saw significant lift in higher and lower funnel metrics for snap chatters that we're exposed to all three AD products. We saw even higher list. This is why we are so excited about multi format delivery, which enables these types of campaigns with greater ease.
While the macro operating environment remains challenging and difficult to predict we continue to invest in product innovation to help advertising partners scale build strong relationships with advertisers across vertical and improve our targeting and measurement capabilities for businesses.
Based on the size of our audience their high levels of engagement across our service and our overall opportunity in the growing digital advertising market. We believe we are well positioned to drive business results for advertisers over the long term and 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 332 million daily active users in Q1.
The increase of $52 million or 18% year over year.
In North America, <unk> grew by 5% year over year to reach 98 game in Europe grew by 10% to reach $84 million in.
In rest of World grew by 36% to reach $150 million as we continue to invest in local language support local content local.
Local marketing partnerships and support for local creator communities.
Total revenue for Q1 was $1.063 billion, an increase of 38% year over year revenue growth in Q1, initially exceeded our expectations entering the quarter with year over year growth of approximately 44% through February 20 <unk>.
In the days immediately following brushes invasion of Ukraine on February 24, we observed that a large number of advertisers initially paused their campaigns.
The vast majority of clients resumed their campaigns within 10 days following the invasion and.
Daily average revenue in March exceeded pre invasion levels, but the rate of year over year growth remains below pre invasion levels at approximately 32% from February 24 through the end of Q1.
The slowdown in the rate of year over year growth observed post the invasion of Ukraine was broad based with the deceleration evident in both our direct response and brand advertising businesses and in many industry verticals.
In the latter portion of Q1 advertisers in a wider variety of industry groups reported concerns related to the macro operating environment.
Including continued supply chain disruptions rising input costs economic concerns due to rising interest rates.
And concerns related to geopolitical risks stemming from the war in Ukraine.
While the impact of these headwinds was felt broadly our brand advertising business grew at a relatively slower rate of 26% year over year in Q1.
As new headwinds built on top of supply chain and labor supply headwinds already impacting a subset of industry sectors coming into this quarter <unk>.
Despite the challenging operating environment, we were encouraged by the progress in our direct response advertising business with a year over year growth rate of 43% for the full quarter and nearly 50% prior to the invasion of Ukraine.
A small subset of lower funnel <unk> such as in App purchase continue to be the most impacted by the platform policy changes.
The rollout of our privacy preserving first party measurement solutions continues to progress with these solutions now enabled for advertisers representing more than 90% of direct response advertising revenues.
We are cautiously optimistic that the partners, who utilize these lower funnel <unk> will benefit from the more holistic.
And timely measurement of results that our first party measurement solutions afford as they built confidence in them over time.
We believe that our continued focus on driving measurable returns on advertising for our partners will be critical to the long term success of our advertising partners. The best we have ever reported for this metric as a public company.
<unk> from 62 cents in the prior year and 66 in the prior quarter.
With global <unk> growing at 17% year over year and infrastructure costs per day declining by 6% over the same period efficient scaling of our cloud infrastructure was the largest driver of expanding gross margin.
We have now completed new multiyear agreements with both of our large infrastructure partners and the lower pricing from these agreements drove the majority of the sequential improvement in cost per Teu.
We believe that the progress we have made in driving down our unit costs over time.
Actually in an inflationary environment provides powerful validation for our asset light infrastructure model.
Which has in turn allowed us to hold capex investment at less than 2% of revenue over the trailing 12 months.
The growing scale of our cloud partners and their resulting efficiencies are flowing through to our pricing.
At the same time, our multi cloud approach and the growing scale of our community and our improving operational excellence and managing our unit costs have worked together to expand our adjusted gross margin by two two percentage points over the last three years.
The operating leverage we have realized from scaling our infrastructure cost efficiently is a key input to order ability to invest in our long term growth of our business, while making continued progress towards sustained positive free cash flow generation.
Adjusted operating expenses were $586 million in Q1 up 60% year over year, reflecting a combination of our ongoing rate of investment in the business as well as several factors that are further elevating our adjusted operating expense growth rate in the near term.
As expected our rate of hiring stepped up in Q1, while our rate of attrition remains low total personnel costs were up 52% year over year, driven by a 52% increase in full time head count.
This reflects ongoing investments in our team as well as the integration of acquisitions completed over the last year, which contributed approximately nine percentage points of the year over year growth in full time head count in Q1.
Marketing was the next largest driver of year over year, adjusted operating expense growth with total marketing spending more than doubling year over year in Q1.
Do you in part to the timing of marketing campaigns and events relative to the prior year.
We estimate the timing of marketing expenses elevated our overall adjusted operating expense growth rate by approximately four percentage points in Q1.
In addition, we continue to see cost returned to our cost structure, there were otherwise diminished during the pandemic period, including travel events and certain operations costs, which collectively contributed approximately three percentage points to the year over year growth rate in Q1.
Finally, we incurred approximately $5 million in costs to support our team members impacted by the war in Ukraine. During Q1, which further contributed to the elevated year over year growth in adjusted operating expenses.
Adjusted EBITDA was $64 million in Q1, an improvement of $66 million year over year, we delivered adjusted EBITDA leverage of 23% 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 income was negative $360 million in Q1 compared to a loss of $287 million in Q1 of the prior year.
The current quarter results include a $100 million year over year decline in other income driven primarily by a $92 million unrealized loss on investments that became public in the second half of 2021.
Excluding the impact of Mark to market losses on this investment net income would have improved by $19 million or 7% year over year to reach negative $267 million, which is due primarily to the flow through of the $66 million improvement in adjusted EBITDA, partially offset by 90.
$18 million and higher stock based compensation.
$18 million higher depreciation and amortization $7 million in higher taxes, and $6 million and other net expenses.
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 grew four 8% year over year in Q1 with the vast majority of this growth driven by a $1 1 billion of early conversions of our outstanding convertible notes completed in 2021.
Excluding dilution related to convertible notes the rate of growth was one 3% in Q1 compared with one 2% in the prior quarter and two 6% in the prior year.
While we are pleased with the progress we have made on this metric and is important to note that the dilution rate in particular as it relates to SBC tends to move inversely with our stock price and thus can be subject to market forces overtime.
Free cash flow for Q1 was positive $106 million and we ended the quarter with $5 billion in cash and marketable securities.
Up from $2 6 billion in the prior year with the increase reflecting the proceeds of convertible notes and cash generated from operations as.
As we look forward to Q2, we are pleased with the momentum we have observed in our community and our guidance for the quarter assumes <unk> will be approximately $343 million to $345 million in Q2.
On the revenue side forward looking visibility is difficult today or perhaps more difficult than at any point in recent memory.
While the 116% revenue growth we experienced in Q2 of the prior year makes the comparisons more difficult. This quarter. We believe the bigger challenge to forward looking visibility is the uncertain operating environment.
Macro headwinds, we observed in Q1, including supply chain disruptions labor shortages inflationary pressures and the impact of rising interest rates on the overall economic environment remain challenges as we enter Q2.
We believe the impact of the war in Ukraine on input costs marketing budgets and overall economic confidence has been significant.
And then it is difficult to predict its impact on a forward looking basis.
Given the uncertainty caused by these challenging circumstances.
We have opted to share that our growth rate. Thus far in Q2 is approximately 30% year over year or just below the approximately 32% growth rate. We observed following the invasion of Ukraine in Q1.
That said, we are concerned that the operating environment ahead could be even more challenging leading to further campaign pauses or advertiser budget reductions.
As I noted earlier, our prior year comparisons are more difficult in Q2 than in Q1.
Given this we believe that revenue guidance of 20% to 25% year over year revenue growth in Q2 is reasonable.
Given the abundance of opportunities, we see to invest productively in our business. We continue to expect a 2022 would be a significant investment year when.
When the impact of new investments in 2022 are combined with the full year impact of investments made in 2021, we.
We expected a smaller share of incremental revenue will flow through to adjusted EBITDA and net income in 2022.
While the operating environment is currently challenging we believe that the progress we have made to deliver positive free cash flow over the trailing 12 months and the strength of our balance sheet with $5 billion in cash and marketable securities on hand have positioned us well to invest through the current environment.
<unk>.
Continuing to invest through the current headwinds will allow us to build on the momentum we have established in our business in order to ensure we capture the immense long term upside we see in the future of augmented reality and we believe we can do so responsibly as we continue to thoughtfully prioritize.
Gossamer.
Given our revenue guidance and our planned level of investment, we expect adjusted EBITDA to be between breakeven and $50 million in Q2.
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.
The first question comes from Ross Sandler with Barclays. Please go ahead.
Oh, Hey, guys. Just one question on the <unk> outlook and then.
One question on fingerprinting so the.
The first one it sounds like your run rate is 30%, but you're expecting it to drop off as we progressed through the quarter. So can you maybe just unpack a little more on what you are you are seeing or hearing out there in the industry that.
Kind of explain that further reduction as we move through the quarter I know, it's kind of tough with the macro right now, but any any additional color. There would be helpful. And then the second one is I think some folks on this call are just worried about another potential revenue hit from fingerprinting. Later this year. So can you maybe help us better understand.
How you've reworked the measurement.
Targeting.
On your platform and are in a privacy centric manner, as Jeremy mentioned and whether or not you see that as a risk. Thanks a lot.
Hi, there Ross, it's Derek speaking I will take the first part of your question then I'll hand, it over to Jeremy to help with the second part so.
A high level on what we're seeing as we look forward into Q2, the operating environment remains challenging and forward looking visibility as I noted earlier is more difficult than probably any point in recent memory.
We have shared that our business has grown at a rate of approximately 30% quarter over quarter to date, but we're concerned that the operating environment could be even more challenging going forward more specifically the headwinds that impacted our business in Q1 have persisted into Q2, and we believe the impact of the war on Ukraine has been.
Again, and this impact is particularly difficult to predict going forward. As a result, we're concerned we could see additional campaign positives or advertiser budget reductions in the future.
The comparisons as I noted are also getting tougher as a reminder, our topline growth accelerated by 50 percentage points in Q2 of last year to return, 60%. So all of these factors together have informed our guide of 20% to 25% year over year in Q2, and importantly, though I would say the fundamentals of our business remain intact.
We're pleased with what we're seeing on the strong growth and we continue to have deep penetration of hard to reach demos and the most important advertising markets and of course, you've got a sophisticated AD pie formula deliverables measurable returns on resolved. So we're focused on investing in our teams our products and delivering measurable return on advertising investment to our effort.
Switching partner, so hopefully that gives you some background and context on how we're seeing the outlook going forward and whats uncertainty what's uncertain about that I will turn it over to Jeremy to take the second part there.
Hi, Ross. Thank you for the question so just to be specific around fingerprinting for opt out there we do not use meaning it's really identify any user who opt out of tracking and we do not have air France.
There is no personally identifiable information that is.
Directly linked to the customer.
But given the platform changes, we have experienced technological including IVF and some IP addresses and we expect that trend to continue but if we take a step back there are two different types of users or the opt in ones that may opt out users as well.
Either we have deterministic measurement solutions that allow us to definitively match the conversion, that's taking place and that forms the basis of our measurement our privacy preserving measurement solutions, though are built to adapt the thing a lot like that which is any of the combination of often use our data and models of estimated conversion to provide advertisers with us that would be that.
I need to make decisions to grow their business.
These changes, though or are there long they take time, they put a serious one if an advertiser to adapt and reset their advertising campaigns across not just snap on all platforms, we empathize the family or working with them through these changes and we expect to continue to do that with relentless focus on delivering ROI.
Our next question comes from Brian <unk> with Morgan Stanley . Please go ahead.
Great. Thanks for taking my questions I have two maybe Derek I appreciate the quarter to date color on the business could you help us understand a little more how fast is the North America add business growing quarter to date and it's part of the guide are you assuming that the North America business gets worse and are you are you hearing that from advertisers yet.
Part one and then part two I may have missed it but what was the impression versus pricing growth in the quarter. Just so we can sort of put together those two factors. Thanks.
And then Brian it's Derek speaking.
On the first question when we looked at the pre and post period in Q1, where we saw the DSL and the revenue growth rate post the invasion in Ukraine.
Look at that across a number of different cuts and as I said in my prepared remarks, we saw that deceleration.
And the brand side of our business regions.
Well its across.
Are different.
Advertising partner vertical so it was relatively broad based so.
I don't have any additional color to breakdown, what we've seen quarter to date, but.
As I said earlier, what we saw was pretty broad based.
When we saw the initial slowdown probably gives you a little bit of context, so that in terms of breaking down pricing and impression growth. We did see <unk> rise in the current quarter of Q1, we're up around 40, 41% quarter over quarter.
We have seen most of the revenue growth translated through on the pricing side as we've continued to focus on the experience for the community.
So hopefully that gives you a little bit of a perfect.
Both of those factors thanks for the questions.
Our next question comes from Rich Greenfield with <unk> partners. Please go ahead.
Hi, first question for Evan the use of <unk> EBIT mochi avatars in the prepared remarks, the commentary that I think you've all made on maps today. It just feels quite clear that maps. Please.
A central role in the future of Snapchat.
I was just hoping you could take a minute and get out of the minutia of the quarter and kind of step up to 50000 feet and give us sort of the ebb and our Snapchat vision for five years from now.
And success what is maps look like and then maybe just a follow on for Jeremy to tie to this assuming evident team can execute broadly on this map vision.
Where do brands and advertisers fit in and what are they asking you for vis vis the map right now.
Hey, rich. Thanks, so much for the question and I always love to talk about the long term. So we're really excited about the math opportunity, especially because our map represents a totally different way to explore the world map historically have been built for transportation to help people get from <unk>.
<unk> in our map is really designed to see what your friends are up to you to answer the question.
Whereas somebody when are they going to be home. What are my friend is doing and of course to help people explore the world through near real time content on our map around the world and now with places to learn more about all sorts of interesting popular and trending places around them, where we're so excited that we just recently rolled out a new ticketmaster layer that also.
<unk> helps people see upcoming events at venues nearby and even share those with friends and buy tickets. So the way that our map is transforming the way that our community is understand the world around them and connecting with friends, It's super exciting and a huge opportunity over the long term and of course, we love the role that <unk> plays in all of this in our action <unk> on the map that.
So when people are applying are driving so you can see.
Where are your friend is in transit, so definitely a big and exciting opportunity for us.
Long term I think.
As it pertains to the way that businesses participate on the map a lot of our recent focus has been around places so bringing businesses onto the map, allowing chain for example to claim their businesses and actually now we're testing just to hit the very very early stages of testing folks running advertising against those places to drive people to.
Okay shins nearby so that'll be an interesting experiment and of course our layers.
We're also aware that businesses can interact with the snap map and that'll be an exciting place for us to invest going forward.
Our next question comes from Mark Shmulik with Bernstein.
Please go ahead.
Yes, hi, Thanks, a couple questions the first for Robyn.
These are guys that I think you mentioned the the magic words like product market fit in markets internationally. We know India is one of those markets, but are there any other stories are markets you could share we have historically been underpenetrated that youre excited about the progress that you're seeing and then second question for Jeremy.
Talk last quarter about some of the re org, taking place and the push to expand kind of to more verticals. Both here and abroad. I know you shared the kind of the top of the call you are seeing some successful financials in streaming.
Are there any other is there any other traction youre seeing and perhaps non traditional vertical either here or abroad.
Great. Thank you.
Yeah. So on the user growth side, certainly a ton of opportunity around the world, especially especially in the rest of world region and in Europe , and what we're really excited about is this value that snapchat hasnt connecting close friends and family through visual communication just continues to be really strong people love sharing.
They're up to visually it's much more expressive, it's obviously much faster than text messaging and so as we've done a lot of this work to localize our application to improve its performance were really unlocking that core product value for our community around the world. So lots of great progress there are hard to call out one country in particular, certainly India has been a great success story for us.
But that's been a big focus of ours and we've now really organized our teams.
Our processes around scaling that growth around the world.
And I can take the second part of the question. So you had mentioned that we talked about financial services and streaming being particularly strong categories are we believe that that is true largely because their success isn't predicated on external factors like supply chain as much or labor labor shortages of labor disruptions in these kinds of things.
Unpack that a little bit more globally, when we take a look at just at the attainment more broadly youre starting to look at an ecosystem, where things are being released in that theater and then also on streaming creating two separate and distinct marketing budgets from each of the studios that used to have one in Idaho theatrical only or during the pandemic streaming only and so that opens up.
Wide variety of budgets for it globally as a lot of these movies like we saw with the Batman.
Fighter Ma'am films are coming back to theaters in droves in the Snapchat generation. That's certainly is interested in them and then when it comes to the financial services, you mentioned traditional category that its true with financial services, but even more broadly when you come and when it comes to things like like apps for financial services in these kinds of things despite the overall condition.
Regarding app downloads when it comes to Huntington in general those are picking up steam as well. So we're seeing all of those trends globally, and we think worth kind of continue to see those trends globally and are continuing to invest in those categories and we're really excited about it.
Our next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.
Thanks, So much for taking the question Evan met to front run the partners Summit next week, but can you give us a little sense of what you're most excited about on the product initiative side with respect to commerce, and how you think broadly and philosophically about commerce, rather than media consumption as being the future of snap and how that might even.
Insulate you from future policy changes on some of the mobile platform. So we've talked about already thanks, so much.
Yeah.
Yes, I think what we're most excited about and of course that will have to wait for a partner summit next week for specifics, but what we're most most excited about is really the intersection between augmented reality and commerce. So what we found as we've been growing our business over the years that people use all sorts of accessories and fashion items to express themselves through augmented reality and we found that by partner.
During with retailers and fashion brands that if we can actually use their real products and augmented reality it dramatically improves our conversion for those businesses and so can lead to higher sales and we've also done some work on fit and size to try and help people find the right size, which we found it can really improve the rate of returns for our merchants.
As well and so we have this strategy really to use augmented reality to both improve the top and bottom line for retailers and of course radically improve the customer experience I mean, the idea that you can try on all these different looks and styles without ever changing or close it is really a transformational I'm really hoping it will make an impact in our household.
For sure so.
That I think has been a really exciting place for us to invest and you'll have to have to wait until next week for specifics.
Our next question comes from Brent Thill with Jefferies. Please go ahead.
Great. This is James on for Brian . Thanks for taking my questions last quarter, you called out lower story posting is a headwind to your growth did you see a noticeable uptick in posting activity coming out of Omaha I'm curious if that's had any meaningful impact on your advertising revenue this quarter and just what youre assuming for Q2.
And then the second part of my question is just around your head count growth. It's been accelerating every quarter could you just talk about where youre allocating most of those new employees any particular geographies or products that are gaining the bulk of those new ads. Thanks.
Hey, there start speaking I can take those I'll start with the head count growth one.
We've seen the rate of hiring accelerated as you noted and I mentioned on the prepared remarks, while our attrition rate has remained very low and this has driven the growth in personnel costs and you saw Q1 total personnel cost curve up 52% in Q1, driven by a 52% increase in head count sort of in lockstep. There I would note that the growth in personnel costs from head.
<unk> includes the impact of acquisitions integrated over the past year, many of which were completed in the second half of last year, which contributed approximately 9% for the year over year growth rate in the current quarter. So we've been hiring against a number of priorities. We've mentioned in previous quarters that we've accelerated our investment in our sales and sales support.
And our priority monetization markets, where we already have deep penetration of hard to reach demographic. In addition, we have been investing heavily in our engineering and product teams to build on the momentum we've established in our community and our business, which have helped to drive a rapid pace of innovation on our platform and we look forward to sharing more of that at our partner summit.
Which has just mentioned which is coming out soon and then last but definitely not least we've been investing aggressively in building the future of augmented reality in order to capture what we believe is the immense long term upside there in the future of this new computing platform.
Now for our Investor deck, many of the acquisitions, we have integrated in recent years have been in service of pulling forward, our AAR roadmaps among other roadmaps for the benefit of our community and our advertising partners. So anyway, hopefully that mixture of factors gives you a little better sense of what's happening with the growth there.
As well as.
The cost base.
And then in terms of your second question.
On the story parsing question, specifically the number of story posters grew year over year in Q1, but as it relates to the revenue outlook looking forward. The primary factor here by far is what we're seeing on the demand side and the challenges we're seeing in the operating environment and how those factors may impact demand going forward in Q2, so that's the.
<unk> influence on the guide.
Talked about that in some detail earlier, so I won't repeat that there, but hopefully that gives you a better sense of the mix of what's impacting before what kind of revenue into future.
Our next question comes from Lloyd Walmsley with UBS. Please go ahead.
Hi, Thanks, a couple of questions if I can first.
Just following up on Ross's question on the outlook for <unk>, if we look specifically.
<unk> sounds like it was at least to date is pretty solid if we look to may and June the comps actually get harder relative to April from here.
And then second one.
You mentioned I think 70% of our revenues now delivered via the self serve platform with.
A growing mix of Dr advertisers.
Can you kind of help us contextualize. The magnitude is advertising is it 5% of revenues at 15 like ballpark how meaningful is it in.
And ultimately are we at a place where it's resonating enough on the Dr side that it can really scale up and move the overall needle.
This year and next year any way you can share there would be helpful. Thanks.
Thanks, Sara I'll take the first part of that and I'll turn it over to Jeremy to talk about the second part just in terms of the guide just looked at quarter to date number of being approximately 30% year over year is a reasonably good start to the quarter relatively consistent with what we've seen in the back half of Q1.
In terms of the comps obviously, the 15 percentage point acceleration in the prior year means the costs throughout this quarter are very difficult and of course to continue growing our business at the rate we have there.
The comps get tougher in general over time, we have to be able to grow the business sequentially throughout the year. So.
It is tough throughout the quarter, obviously, our guidance reflects our concerns about the operating environment and some of the factors that I mentioned earlier that caused us to be concerned that the operating environment could become even more difficult as we move through the quarter going forward.
Hopefully that gives you a sense of how we thought about that and some of the texture of the quarter I will turn it over to Jeremy for the second part of your question.
Yeah as you heard from even earlier in the call. We are extremely excited about the long term opportunity that <unk> advertising has for our business.
We see a or as a consumer centric chefs to our community of shopping and experiencing new products. When you look at things like virtual try on that are being utilized by our community people are really wanting to visualize how things look on that not just on our website or on our model or something like that and provide them the opportunity in general we have 250.
Millions the only engaging with every single day and when you start to see consumer trends lead like that.
It's really just a matter of time until advertising dollars Paulo, although that will continue to take time and work and effort. So we believe it's our biggest opportunity for the long term, we're really excited about it and as brands are starting to build there always on ar's strategies, even more important that we continue to invest heavily in building the tools to make that easier for them.
Making it easier to create manage and deploy our experiences and then give them places like public profiles for those they are experiences to live evergreen you start to see businesses, we mentioned last quarter like Mac and Alta.
Makeup brands that are already finding incredible success by leveraging our 11th well web builder tool and we know that that utility is going to be something that's incredibly important for our businesses going forward, we talked about Nike in the prepared remarks as well we believe that AI represents the shifts as I mentioned, which I think is really important and then it will help increase conversion.
For retailers, which is really important as well we are getting the products into the proverbial hands of the customers and then converting that into a sale hopefully reducing returns impacting a lot of really great metrics from the retailer side and we believe that this shift towards E. Commerce is that long term secular shift the way that in any way that we can help improve conversion.
And are there shopping experience for the Snapchat community. We are all in and couldn't be more excited about the advertising opportunity ahead of us.
Our next question comes from Mark Mahaney with ISI. Please go ahead.
Alright, Thanks, I'll just I'll just ask one question about spotlight monetization and it sounded like you've recently started introduced mid roll ads in there just talk about the traction you're seeing.
The path to I don't know what is full monetization are there, particularly this is those kind of adds bringing in a new type of advertiser to the to.
To the platform. So just talk about what the traction you've seen so far and any expectations for how long it will take to fully monetize thank you.
Hey, Mark Thanks, so much for the question Yeah, we've definitely begun testing advertising and spotlight, although that testing is still quite limited we've rolled out mid roll ads in stories for creators and we've actually seen something really exciting sort of phenomenon take off on Snapchat, where creators are using the spotlight and posting videos despite like to try to get.
More distribution and attract more subscribers to their story and then they posted their story to build a deeper relationship with our subscribers and share revenue with us on mid roll advertising inserted within that story. So I think this is going to be another great way that we can really serve creators and continue to deepen the content experience on Snapchat and as we mentioned we're really excited about.
Our momentum in growth of spotlight in all of the incredible original content, that's being created by our community. So we will continue to be investing there and of course testing advertising on spotlight, because we think it's going to be a great place for advertisers. Unfortunately, the spotlight format is full screen vertical video, which is a format that we pioneered in that advertisers all over the world of <unk>.
So it does make it quite seamless to transfer that.
Advertisements over to the spotlight platform.
But our last question comes from Maria <unk> with Canaccord. Please go ahead.
Great. Thanks, so much for squeezing me in I just wanted to ask about your privacy changes can you, maybe just talk about improving well.
You talked about improving for <unk> solutions and working towards broad broader utilization can you just talk about where you are in the adoption curve among your advertiser base and from a technical standpoint, what does it take to implement those solutions.
Yeah, Henry I can take on this is Jeremy. Thank you for the question. So I wanted to take a step back here and talk about measurement and optimization, which is an ongoing process as you've probably heard me say in each of the last calls this has been our relentless focus and our priorities as we launched our performance driven it's self serve.
Platform, we have been constantly working to improve ROI for advertisers with new products and solutions that are targeting better optimization and better measurement.
And this is something that will continue.
The reality is as our work here is truly never done and we are again relentlessly focused on ensuring that this measurement and optimization continues to deliver the best ROI for advertisers, we know that when we do deliver that ROI is the most retentive.
Figure that we can we can do is make sure that we get more advertisers on the platform that we develop a reputation for being a performance platform and therefore attract more advertisers we have more than not only quality, but quantity of advertising advertisements to show to our community.
Relevant ads it performs better than sort of flywheel continues and we're pleased with the progress that we're making are prior to the invasion of Ukraine or direct responsiveness with Brian at nearly 50% year over year, and a full quarter with 43% year over here, but when you talk about progress. That's a three step journey. So first we need to enable the solutions, which makes it.
Possible to use these tools than we have been advertising have to actively utilize them and then the third step in that journey is to build trust and confidence in the solution.
First party solutions have been enabled for advertisers that represent 90% of our Dr revenue.
And then lastly, I just realized that earlier in an earlier answer with the opt in and opt out information. So I just wanted to clarify one of my earlier answers.
Is that we have deterministic solutions for either I meant to say opt in but hopefully that helps clarify my earlier remarks, and thank you for the question.
This concludes our question and answer session as well as Snap Inc. 's first quarter 2022 earnings conference call.
You for attending today's session you may now disconnect.