Q3 2023 Snap Inc Earnings Call
Good afternoon, everyone and welcome to Snap Inc. 's third quarter 2023 earnings conference call. At this time participants are in a listen only mode.
I would now like to turn the call over to David Ohmmeter head of Investor Relations.
Thank you and good afternoon, everyone.
Welcome to snap third quarter 2023 earnings conference call.
With us today are Evan Spiegel, Chief Executive Officer, and co founder and Derek Anderson Chief Financial Officer.
Please refer to our Investor relations website at Investor Snap Dot com to find todays press release slides investor letter and 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.
More information about factors that may cause actual results to differ materially from these 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.
<unk> 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 Kevin.
Hi, everyone and thank you all for joining us our revenue returned to positive growth in Q3, increasing 5% year over year and flowing through to a positive adjusted EBITDA as a re prioritize cost structure demonstrated the leverage in our business model we.
We are focused on improving our advertising platform to drive higher return on investment for our advertising partners and we have evolved our go to market efforts to better serve our partners and drive customer success.
We also made progress toward diversifying our revenue with Snapchat, plus reaching more than 5 million subscribers in the quarter, resulting in Snapchat, plus revenue growing more than 250% year over year.
Our focus on visual communication between friends and family as a strategic advantage that has enabled us to build engaging in regenerative products and services across our platform.
Our community grew to 406 million daily active users in Q3, and we are working to further deepen content engagement by focusing on three key areas.
Investing in our ml models to improve content ranking and personalization across all of our content surfaces growing our creator community in diversity of content by supporting and rewarding creators and using content to start conversations and build relationships across our service.
We continue to leverage AI technology to deliver new products and features to our community since launching my AI more than 200 million people have spent more than 20 billion messages, which we believe makes my AI one of the most used AI chatbot available today.
More than $250 million Tam chatters engage with our experiences on our platform every day on average on November nine we will be live streaming our sixth annual but we're thrilled to have the opportunity to bring together the vibrant snap a community of developers and creators that are collaborating with us to push boundaries redefine what's possible with augmented reality and build businesses along the way.
Operator: Good afternoon, everyone, and welcome to Snapch's third quarter, 2023 earnings conference call. At this time, participants are in a listen-only mode.
David Ometer: I would now like to turn the call over to David Ometer, Head of Investor Relations. Thank you and good afternoon, everyone. Welcome to Snapch's third quarter, 2023 earnings conference call.
Hey.
Given the progress we've made with our AD platform. The leadership team. We have built the work we've done to re prioritize our cost structure and the strength of our balance sheet. We believe we are well positioned to continue making progress on our top strategic priorities.
As we move forward into Q4 and 2024, we remain focused on investing in our platform for sustained community growth investing heavily in our direct response business to deliver measurable return on AD spend and cultivating new sources of revenue to diversify our top line growth to build a more resilient business.
David Ometer: Whether today are Evan Spiegel, Chief Executive Officer and co-founder, and Derek Andersen, Chief Financial Officer. Please refer to our Investor Relations website at investor.knapp.com to find today's press release, slides, investor letter, and 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'd make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from these forward-looking statements, please refer to the press release we issued today, as well as risks described in our most recent form 10Q, particularly in the section titled Risk Factors.
I want to thank Jerry Hunter, our Chief operating officer for seven years of service that's now.
Jerry has notified us of his intention to retire and will be transitioning his responsibilities by the end of the month.
I am deeply grateful to Jerry for the meaningful contributions. He has made over his many years at SAP has worked to improve our advertising platform serve our community and build a strong team has helped to lay the foundation for our future growth.
Thank you and with that we will begin our Q&A session.
Thank you we will.
We'll now begin the question and answer session.
Ask a question you May press Star then one on your touch Samsung.
David Ometer: Today's call will include both gap and non-gap measures. Reconciliation 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 non-recurring charges. Please refer to our filings with the FEC to understand how we calculate any of the metrics discussed on today's call.
You are using a speakerphone please pick up your handset before pressing the keys.
You withdraw your question. Please press Star then two in the interest of time, we ask that you. Please limit yourself to one question. After your initial question is asked your line will be muted.
At this time, we will pause momentarily to assemble our roster.
Evan Spiegel: With that, I'd like to turn the call over to Evan. Hi, everyone, and thank you all for joining us. Our revenue returns to positive growth in Q3, increasing 5% year-over-year and flowing through to positive adjusted EBITDA as our reprioritized cost structure demonstrated the leverage in our business model. We are focused on improving our advertising platform to drive higher return on investment for our advertising partners, and we have evolved our go-to-market efforts to better serve our partners and drive customer success.
Our first question comes from Doug Anmuth with J P. Morgan.
Thanks for taking the questions. Your <unk> revenue guide, mostly implies a deceleration versus <unk> and I think thats coming on much easier comps, but just hoping you could provide some color on October performance, especially given the war in the Middle East and we know that <unk> is back end weighted and I think the brand comps in.
Evan Spiegel: We also made progress toward diversifying our revenue with Snapchat Plus reaching more than 5 million subscribers in the quarter, resulting in Snapchat Plus revenue growing more than 250% year-over-year. Our focus on visual communication between friends and family is a strategic advantage that has enabled us to build engaging and retention product and services across our platform. Our community grew to 406 million daily active users in Q3, and we are working to further deepen content engagement by focusing on three key areas.
<unk> get easier through the quarter, just hoping you could talk about what's embedded there. Thank you.
Okay.
Hi, there Doug it's Derek speaking I'll take that one for you first.
First and foremost.
Evan Spiegel: Investing in our ML models to improve content ranking and personalization across all of our content services, growing our creator community and diversity of content by supporting and rewarding creators, and using content to start conversations and build relationships across our service. We continue to leverage AI technology to deliver new products and features to our community, since launching my AI more than 200 million people have spent more than 20 billion messages, which we believe makes my AI one of the most used AI chatbots available today. More than 250 million snapchatters engage with AR experiences on our platform every day on average.
Youre right, we had a quarter in Q3 that were pretty pleased with on the progress we made on top line.
There's a lot that went into that we had a number of drivers to that outcome.
<unk> the progress we've made on our direct response ad platform.
Continue to make really significant investments in the AD ranking and optimization incurred of creating a much broader range of signals into the AD platform in driving much larger models and we've also instituted a much faster pace of experimentation all of that freedom to more precise conversion predictions improved ROI for advertisers.
Evan Spiegel: On November 9th, we will be live streaming our six annual lens fest. We're thrilled that the opportunity to bring together the vibrant snap AR community of developers and creators that are collaborating with us to push boundaries, redefine what's possible with augmented reality and build businesses along the way. Given the progress we've made with our ad platform, the leadership team we have built, the work we have done to re-prioritize our cost structure and the strength of our balance sheet, we believe we are well positioned to continue making progress on our top strategic priorities.
And as we noted in the letter in particular, seven zero has been a bright spot in the quarter.
Terms of driving pixel purchase behavior, and the year over year and quarter over quarter growth. We saw in lower funnel and are also note that part of the strength in Q3 was around brand advertising, where we saw really good uptake on our hurdle takeover products, including first story that launched in the period. So really pleased with the momentum that we saw there.
Evan Spiegel: As we move forward into Q4 and 2024, we remain focused on investing in our platform to sustain community growth, investing heavily in our direct response business to deliver measurable return on ad spend, and cultivating new sources of revenue to diversify our top line growth to build a more resilient business.
And I think as you look into Q4.
We talked about a little bit in the letter but to share some high level color.
We believe we're on the right plant apparel for the VR platform. So we're pleased with the continuous progress, we're making there working with our partners on making their privacy safe integrations with our platform.
Evan Spiegel: I want to thank Jerry Hunter, our Chief Operating Officer for seven years of service at Snapchatter. Jerry has notified us of his intention to retire and will be transitioning his responsibilities by the end of the month. I am deeply grateful to Jerry for the meaningful contributions he has made over his many years at Snapch. His work to improve our advertising platform, serve our community and build a strong team has helped to lay the foundation for our future growth.
Higher quality and more performance for them and driving performance. We're also pleased with what we're seeing on our scaled solutions for small and medium sized businesses and what that drove out in terms of quarter over quarter growth in Q3 of 11% and aggregating the Dr business.
Returning to year over year growth.
Evan Spiegel: Thank you and with that we will begin our Q&A session. Thank you.
So we're really pleased with fundamentally what we're seeing there and what we're executing against into the new quarter I think on the brand side in particular coming off of the progress. We saw in Q3 with those new brand product seeing really good uptake.
Operator: We will now begin the question and answer session. To ask a question, you may press star and one on your touch home phone. If you are using a speaker phone, please pick up your handset before pressing the keys.
Operator: To withdraw your question, please press star and two. In the interest of time, we ask that you please limit yourself to one question. After your initial question is asked, your line will be muted.
Youre right as we move into Q4.
Q4 is a little bit different as of quarter historically, we've seen.
Little bit larger share of the revenue coming from brand products in Q4.
And then to the Q4 business being a little bit more backend weighted.
Operator: At this time, we will pause momentarily to assemble our roster.
In other quarters, historically as well so both of those things sort of impacting visibility and brand having grown at a slower rate in Q3.
And being a larger share of the business in Q4 sort of brings a little bit of a mix shift headwinds and then lastly, the point that you raised very specifically, which is what we've seen since the onset of the war in the Middle East as we have had a number of <unk>.
Primarily brand oriented campaigns are paused spending.
Doug Amius: Our first question comes from Doug Amius with JPMorgan. Thanks for taking the questions. Your 4Q revenue guide mostly implies the deceleration versus 3Q.
In the early period after the onset of the war there in the Middle East I will say that we have seen.
A lot of those campaigns resume spending.
Doug Amius: I hope you provide some color on October performance, especially given the war in the Middle East. We know that 4Q is back and weighted and the brand comps in particular get easier through the quarter. I hope you can talk about what is embedded there. Thank you.
And the impact to our daily run rate has reduced significantly as a result of that but we also have seen a very small amount of incremental campaign pauses triple in more recently and so one of the things that we've tried to do here when we're thinking about giving forward looking information for Q4 is the number one be transparent about what we.
Seen quarter to date on that side.
Derek Andersen: Hi there, Doug. It's Derek speaking. I'll take that one for you.
And then I think when we look back historically for example to what we all experienced at the onset of the war in Ukraine.
Derek Andersen: You know, first and foremost, you're right. We had a quarter in Q3 that were pretty pleased with on the progress we made on top line. There's a lot that went into that. We had a number of drivers to that to that outcome. You know, including the progress we made on a direct response ad platform, we've continued to make really significant investments in the ad ranking and optimization. In court of creating a much broader range of signals into the ad platform and driving much larger models.
And the impact that that had on Fox business and the operating environment I think we realized.
Realize that.
Where is fundamentally unpredictable and as a result, it would be imprudent to provide a formal guide in that kind of an environment. However, we did do for the sake of transparency.
Derek Andersen: And we've also instituted a much faster pace of experimentation. All of that's leading to more precise conversion predictions, improved ROI for advertisers. And as we noted in the letter in particular 7 zeros that a bright spot in the quarter, you know, in terms of driving pixel purchase behavior and the year over year and quarter over quarter growth that we saw in lower funnel. And they're also note that part of the strength in Q3 was around brand advertising where we saw really good uptake on our cool takeover products, including first story, the launch in the period. So really pleased with the momentum that we saw there.
For the investment community to share our internal forecasting that internal forecast.
It assumes an acceleration at the top end.
But we have attempted to incorporate everything that we know as of today about the impact of those pauses into the fullness of the range of revenue. So that you can see that.
And then of course that obviously flows right through to the adjusted EBITDA range as well because we have a very high rate of flow through on that.
So.
I think just stepping back fundamentally we're pleased with the progress we're making on the Dr business and we're pleased we think we're on the right path with our platform and we're also pleased with the uptick that we saw from those new brand products in Q3 as well so I think the.
Derek Andersen: And I think as you look into Q4, you know, I think we talked about a little bit in the letter, but to share some high level color. We believe we're on the right path for the DR platform. So we're pleased with the continuous progress we're making there. Working with our partners on making their privacy safe integrations with the platform. Higher quality and more performance for them and driving up performance for also pleased with what we're seeing on our scaled solutions for small and medium sized businesses.
With the.
Harvest berries, we just wanted to make sure that people are aware of that one headwind we've seen to begin the quarter and hopefully that gives you a little bit of color on how we frame Doug. Thank you.
Thank you.
Our next question is from Ross Sandler with Barclays.
Great Hey, guys. So.
Derek Andersen: And what that drove out in terms of quarter of a quarter growth in Q3 of 11% in aggregate and the DR business in returning to year over your growth. So we're really pleased with fundamentally what we're seeing there and what we're executing against into the new quarter. I think on the brand side in particular coming off of the progress to be saw in Q3 with those new brand products, seeing really good uptake.
You recently changed the leadership team in North America AD sales.
And that seems like the area that has not yet caught up with the rest of the business, which is performing quite well. So I guess, how do you feel about that change how confident are we that north.
North America larger accounts are going to step up and commit to more budget with snap in 2024.
Derek Andersen: You're right, as we move into Q4, Q4 is a little bit different as a quarter. Historically, we've seen a little bit larger share of the revenue coming from brand products in Q4. And then to the Q4 business being a little bit more back end weighted than other quarters historically as well. So both of those things for impacting visibility and brand having grown in a slower rating Q3. And being a larger share of the business in Q4 sort of brings a little bit of a mixed shift headwind.
When do you expect that growth rate to kind of converge with the international business.
If you can help us there thanks a lot.
Okay.
Hey, Ross. Thanks, so much for the question Yeah, we are making some progress in North America.
Fastest growing region quarter over quarter, but obviously, a long way from where we'd like it to be.
In General North America has a number of large customers that are simply just more complex to work with so we.
Derek Andersen: And then last, the point that you raised very specifically, which is what we've seen. Since the onset of the war in the Middle East is we have had a number of primarily brand oriented campaigns pause spending in the early period after the onset of the war there in the Middle East. I will say that we have seen a lot of those campaigns resume spending and the impact to our daily run rate has reduced significantly as a result of that.
Made a lot of progress with some of the simpler integrations are seven zero optimization.
And whatnot for smaller advertisers, it's just taken more of a focus in more in the details work to drive customer success.
With larger advertisers so I'm pleased with the progress that we're making we're fixing stuff every day in.
Getting advertisers closer to hitting their kpis are in many cases above their kpis, which should translate into improved spend so making progress there, but definitely more complex customers and we're excited about Patrick's leadership the team is.
Derek Andersen: But we also have seen a very small amount of incremental campaign pauses trickle in more recently. And so one of the things that we've tried to do here when we're thinking about getting forward looking information for Q4 is number one, be transparent about what we've seen quarter to date on that side.
Got it got a wealth of experience to Brian.
Thank you.
Our next question from rich Greenfield with lifestyle.
Derek Andersen: And then you know, I think when we look back historically, for example, to what we all experienced at the onset of the war in Ukraine and the impact that that had on folks business in the operating environment, I think we've, you know, very realized that war is fundamentally unpredictable. And as a result, you know, it would be imprudent to provide a formal guide in that kind of an environment. However, what we did do for the sake of transparency for the most community sharing internal forecast and that internal forecast, you know, assumes an acceleration at the top end.
Hi, Thanks for taking the question one question and then a housekeeping any employee memo that leak a couple of weeks ago. We stated a goal of 80% of your daily active users interacting with content trying to get a handle on how ambitious goal that is for <unk>.
24 is content engagement would it seem to be a pretty critical driver of our advertising revenue potential thinking about where ads are embedded.
I don't have any idea of really where you are in terms of how many da use touch content today, and what would be driving the growth to 80% of overall <unk>. So any color you can give us on.
Derek Andersen: But we've attempted to incorporate everything that we know as of today about the impact of those pauses into the fullness of the range of revenue so that you can see that. And then of course that obviously flows right through to the adjusted evital range as well because we have a very high rate of flow through. So, you know, I think stepping back fundamentally, we're pleased with with the progress we're making on the DR business and we're pleased we think we're on the right path with that platform and we're also pleased with the uptake that we saw from those new brand products in Q3 as well.
On that goal and where you are today and changes would be great and then just on that also in that memo you mentioned that 20% revenue growth goal for 2020 for Evan is that really hard to do like what's your confidence on getting 20% growth next year. Thanks.
Thanks, Rich yeah, that's an internal memo really designed to motivate and inspire the team around whats possible when it comes to the content.
Derek Andersen: So, I think, you know, the progress there is good. We just want to make sure that people are aware that that one had when we seem to begin the quarter and hopefully that gives you a little bit of color on how we frame that.
Operator: Thank you.
And attrition.
That's really going to be driven by emerging countries, where.
In some cases our growth there is earlier in its cycle and so folks are just ramping up with our communications products and I've, yet to really transition to the content focused products. So when we talk about 80% of the au in aggregate, what we're really trying to accomplish is drive depth of content, sorry breadth of content engagement in some of the.
Ross Sandler: Our next question is from Ross Sandler with Barclays. Great, hey guys.
Evan Spiegel: So Evan, you recently changed the leadership team in North America ad sales. And that seems like the area that's not yet caught up with the rest of the business, which is performing quite well. So I guess how do you feel that change? How confident are we that North America larger accounts are going to step up and commit to more budget with Snap in 2024? And what do you expect that growth rate to kind of converge with the international business, if you can help us there? Thanks a lot.
Emerging.
Entries, and then really depth of engagement in the more developed countries, where we do have a very high rate of.
<unk> engaging with content already so thats really how that strategy, how we're thinking about the content strategy.
The 20% revenue, that's really about making more progress in terms of customer success, especially with the lower funnel. We are excited about the progress.
That we're seeing so.
We're hoping we can just keep our heads down and keep making more progress there.
Evan Spiegel: Thanks so much for the question. Yeah, we are making some progress in North America. You know, the fastest growing region, quarter over quarter, but obviously a long way from where we'd like it to be. You know, in general, North America has a number of large customers that are simply just more complex to work with. So while we've made a lot of progress with some of the simpler integrations, you know, our 70 optimization and what not for smaller advertisers, it's just taken, you know, more of a focus and more, you know, in the details work to drive customer success with larger advertisers.
Okay.
Thank you. Our next question is from Mark Shmulik with Bernstein you May proceed.
Yes, thanks for taking the question Evan I would love to hear just a little bit more color on my AI like around usage or folks using the daily what do they really asking their AI companion and then is there any like real commercial intent that youre seeing there and kind of like a follow up.
Whether you can share.
That Microsoft partnership that go in there would be fantastic.
Evan Spiegel: So I'm pleased with the progress that we're making, you know, we're fixing stuff every day and getting advertisers close to hitting their KPIs or in many cases about their KPIs, which should translate into improved spend. So making progress there, but definitely more complex customers. And you know, we're excited about Patrick's leadership and the other team. He's got a wealth of experience to bring. Thank you.
Yes.
We're excited about the progress we're seeing with my I don't think its.
Really a daily use case, yet I think we hope that it's really a weekly use case for now because there are some gaps it doesn't yet have access to real time information and those sorts of things. So our primary focus right. Now is just improving response quality as you can imagine it's a little hard to measure because the responses can be unpredictable. So we.
Rich Greenfield: Our next question is from Rich Greenfield. Hi, thanks for taking the question. One question and then housekeeping.
We think we've built a pretty good way of understanding if the response is people are getting are satisfactory and we're seeing some of the work we're doing to improve those responses lead to higher retention with the product overall, but I would say, it's just very very early.
Rich Greenfield: In the employee memo that leaked a couple of weeks ago, it stated a goal of 80% of your daily active users interacting with content, trying to get a handle on how ambitious of a goal that is for 2024 is content engagement would seem to be a pretty critical driver of advertising revenue potential thinking about where ads are embedded. I don't have any idea really where you are in terms of how many DAUs touch content today and what would be driving this growth to 80% of overall DAUs. So any color you can give us on that goal and where you are today and changes would be great.
With this product and we're going to keep the vast majority of our focus on the on response quality, which we think can drive more engagement and long term retention and there is certainly plenty of commercial intent. We are taking steps to integrate that for example into our models to help folks see more relevant content and advertising so.
Making some progress there as well.
Okay.
Thank you. Our next question is from Justin Post with Bank of America.
Yes, maybe I'll ask us to lots of third party data out here on engagement and time spent I'm just wondering how you'd characterize engagement on the platform and the drivers from here and then I think you gave some guidance suggests a modest slowdown what are you seeing as far as da use in north in North America and rest of world in Q4.
Evan Spiegel: And then to just on the, you know, also in that memo, you mentioned a 20% revenue growth goal for 2024. Evan, is that really hard to do? Like, what's your confidence goal on getting 20% growth next year? Thanks. Thanks, Rich. Yeah, that's an internal memo really designed to motivate and inspire the team around what's possible. You know, when it comes to the content penetration, that's really going to be driven by emerging countries where, you know, in some cases, our growth there is earlier and it's cycle and so folks are just ramping up with our communications products and have yet to really transition to the content focus product.
Thank you.
But derek speak to the guidance question, but overall healthy engagement trends, we certainly see an opportunity in more developed regions like North America, where we where we do reach a very large percentage of the smartphone population to drive more daily.
Serge with monthly active users there are plenty of folks who are monthly active but maybe not daily active who have messages that are unread from friends or stories available and so we do see an opportunity to drive more frequency of use with monthly active users in regions like North America of course plenty more headroom in the Rev.
Evan Spiegel: So when we talk about 80% of DAU and aggregate what we're really trying to accomplish is drive, you know, depth of content, or sorry, breadth of content engagement in some of the emerging countries and then really depth of engagement in the more developed countries where we do have a very high rate of DAUs engaging with content already. So that's really how that strategy, how we're thinking about the content strategy.
A world region in terms of incremental new users.
We're also excited by what we're seeing on the content side. So we saw a year over year acceleration in.
Time spent growth globally, and some positive trends in the U S as well with U S content and time spent growing quarter over quarter. So I'd say in terms of overall engagement. We're pleased we see opportunity to continue growing it.
Evan Spiegel: You know, the 20% revenue, that's really about making more progress in terms of customer success, especially with the lower funnel. We are excited about the progress that we're seeing. So we're hoping we can just keep our heads down and keep making more progress there. Thank you.
Yes.
And just to pick up the second part of that on the <unk>.
Okay.
Sure for Q4, which is or 10% to $412 million.
Mark Shmulik: Our next question is from Mark Shmulik, with Bernstein. You made this. Yes, thanks for taking the question.
Just for.
Context year over year growth rate, there is about $35 million to $37 million year over year, So still seeing really significant year over year growth I think you've got to look at this a little bit market by market in North America in particular, as an example, and some of our other more mature markets we're reaching.
Evan Spiegel: Evan, we'll let you hear just a little bit more color on my AI, like around usage, or folks using this daily, you know, what are they really asking their AI companions? And then, you know, is there any like real commercial intent that you're seeing there and kind of like a sub follow up? You know, any color you could share in how that Microsoft partnership is going there would be fantastic thing. Yeah, but you know, we're excited about the progress we're seeing with Maya.
High percentages of 13 to 34 year olds and over 25 countries and that would include of course North America in many western European countries. So we're already at a very very high penetration there North America for example over $100 million DAA.
Evan Spiegel: I don't think it's, you know, really a daily use case yet. I think, you know, we're, we hope that it's really a weekly use case for now, because there are some gaps, you know, doesn't yet have access to real time information and those sorts of things. So our primary focus right now is just improving response quality. As you can imagine, it's a little hard to measure because the responses can be unpredictable.
You and I think the latest number we shared on MAU was $1 50. So.
The reach there is really really deep.
Our focus in much of the growth in the <unk> number in total.
<unk> has been coming from the rest of World region. That's been the biggest driver of growth we had a very good quarter in the prior year as the comp there and so youre seeing that a little bit impacted.
Evan Spiegel: So we think we've built a pretty good way of understanding if the responses people are getting, you know, our satisfactory and you know, we're seeing some of the work we're doing to improve those responses, which is lead to higher retention with the product overall, but I would say it's just very, very early with this product and we're going to keep, you know, the vast majority of our focus on the on response quality, which we think can drive, you know, more engagement and long term retention. There's certainly plenty of commercial intent. We are taking steps to integrate that, for example, into our models help, you know, folks see more relevant content and advertising, so making some progress there as well. Thank you.
The year over year right there.
But otherwise continuing to see substantial year over year growth.
Internal forecast range again, implying 35% to 37 million additional da you on a year over year basis. So hopefully that provides a little color.
Okay.
Thank you. The next question is from Brian Nowak with Morgan Stanley.
Thanks for taking my questions I have two the first one little housekeeping.
Eric can you help us out as limits over the the.
The amount of subscription revenue in <unk> and then what are you assuming on subscription revenue contribution in your in your fourth quarter guide it at the midpoint or one of the areas and then the second one.
Justin Post: Our next question is from Justin Post with Think of America. Yeah, maybe I'll ask us to lots of third party data out here on engagement and time spent, just wondering how you characterize engagement on the platform and the drivers from here. And then I think you gave some DAU guidance that some modest slow down, what are you seeing as far as DAU's in North America and restaurant world in Q4?
Youre starting to make some progress on the performance strategy can you give us a few more tangible examples.
Categories or verticals, where you've made the most progress and how you think about the snacks categories to really sort of improve that performance for advertisers.
Okay.
Evan Spiegel: Thank you. Let Derek speak to the guidance question, but overall, you know, healthy engagement trends, we certainly see an opportunity and, you know, more developed regions like North America. Where we do reach a very large percentage of the smartphone population to drive more daily usage with monthly active users, there are plenty of folks who are monthly active, but maybe not daily active, who have messages that are unread from friends or stories available.
Sure Hey, I'll take the first part of that they're.
In terms of the breakdown on how we're doing on Snapchat, plus I think first we're really excited about what we're seeing there that's our product.
Is not very old since we launched it we.
Reached more than 5 million subscribers in the period. So we've had really nice momentum there I think if you go back to the Investor day at the beginning of the year. We were I think we shared that we were running about close to $100 million annualized run rate than you have seen the subscription number grow about 60%.
Evan Spiegel: And so we do see an opportunity to drive more frequency of use with monthly active users in regions like North America. Of course, you know, plenty more headroom in the rest of world region in terms of incremental new users. We are also excited about what we're seeing on the content side, so you know, we saw a year over year acceleration in time spent growth globally and some positive trends in the US as well with US content time spent growing quarter over quarter.
So to give you some sort of a ballpark of where we're trending to in the most recent quarter on progress with our products. So certainly becoming a much more meaningful contributor and we shared in the letter that it grew at a rate of more than 250% in the most recent quarter. So.
Pleased with what we're seeing there in terms of uptake and what that's contributing to the business.
Evan Spiegel: So I'd say in terms of overall engagement, we're pleased we see opportunity to continue growing it. And just to pick up the second part of that on the DAU forecast that we share for Q4, which is 410 to 412 million, you know, first just for context context year over year growth right there is about 35 to 37 million DAU year over year. So still seeing, you know, really significant year of year growth.
Both from a topline and margin perspective.
We don't have obviously, you're going to break down our forward look for Q4 between different types of revenue, but we would expect to continue.
The momentum on the subscription business into Q4, just has to be weighed on the advertising business as well. So hopefully that gives you a little bit of an idea.
I'll talk about a little bit about where we're seeing some strength with advertisers and then.
If ever wants to chime in with more detail on what where we expect to go from here.
Evan Spiegel: I think, you know, you've got to look at this a little bit, you know, market by market in North America in particular is an example and some of our other more mature markets. We're reaching, you know, really high percentages of 13 to 34 year olds in over 25 countries and that would include of course North America and many Western European countries. So we're already at a very, very high penetration there, you know, North America, for example, over 100 million DAU and I think the latest number we shared on now was 150.
Really what we're seeing is we've been focusing very heavily on getting our go to market efforts and where we're seeing success in the progress of the App platform really well aligned and so making sure that we're selling through the products and the optimizations that are going to work for our advertisers and help them grow their business.
To see success with a pretty large a variety of sectors, but some of the ones that we've talked about recently that I can share with you as we are seeing good traction with CPG.
Evan Spiegel: So the reach there is really, really deep. You're focused in much of the growth in the DAU number in total, you know, recently has been coming from the rest of world region. That's been the biggest driver of growth. And we had a very good quarter in the prior year is a comp there. And so you're seeing that a little bit impacted in the year over year right there. But otherwise continuing to see substantial year over year growth that internal forecast range again, applying 35 to 37 million additional DAU on a year over year basis. So hopefully that provides a little color.
Restaurants, and travel or categories that have been doing well on the platform and combinations.
Operator: Thank you.
E Com business is also doing well and that's kind of align well to both.
I talked about earlier, which is the really good progress we've seen on seven zero pixel purchase optimization and what that's meant for lower funnel revenue growth year over year and quarter over quarter, and then also a little bit of the success that we've seen with those new brand takeover products and the traction that we got with those in Q3 that was helpful to the sequential improvement in revenue there. So.
Hopefully that gives you a little bit of a sense of what we're seeing both on the subscription side and the traction with different verticals of advertisers.
Brian Nowak: The next question is from Brian Nowak with Morgan Stanley. Thanks for taking my questions. I have two, the first one, a little housekeeping.
Can speak just briefly to the progress we've been making on the tech side of things.
We're making a lot of headway with our ml platform youre being able to run bigger models that have more feature so I think that I feel I feel good about our progress there obviously more more to do I think kind of the atomic unit of our.
Derek Andersen: Derek, can we help us out a little bit sort of the amount of subscription revenue in 3Q, and then what are you assuming on subscription revenue contribution in your in your fourth quarter guide at the midpoint or one of the areas? Then the second one, you know, something you're starting to make some progress on the performance strategy. Can you give us a few more tangible examples of categories or verticals where you've made the most progress and how you think about the next categories to really sort of improve the performance for advertisers.
Our performance business right now is seven zero purchase optimization, that's working well for a lot of advertisers and so really what we've been trying to do is then build on top of that to solve slightly more sophisticated.
Advertiser needs. So for example, with our App business, we've been beta testing event optimization for App advertisers, so rather than just optimizing around an install optimizing around something like completing a level or something like that in a game and those sorts of.
Derek Andersen: Thanks. Sure, hey, I'll take the first part of that there. In terms of the breakdown on how we're doing on Snapchat Plus, I think first we're really excited about what we're seeing there. That's a product that, you know, is not very old since we launched it. We reached more than 5 million subscribers in the period, so you've had a really nice moment in there. I think if you go back to the investor day at the beginning of the year, we were, I think we shared then that we were running about a close to 100 million annualized run rate, then you've seen the subscription number grow about 60% then.
Optimizations are really important for certain performance advertisers. So I think taking that for a fundamental building block that's working with <unk> zero and then iterating on top of that.
To meet more advertiser needs is really important right. Now I also think there is more we can do in terms of advertiser cold start start for the long tail of advertisers.
It takes maybe a little too long and maybe a bit too much spend for these smaller advertisers to get ramped up and to finally.
Derek Andersen: So to be some sort of a ballpark of where we're trending to in the most recent quarter on progress without product. So certainly becoming a much more meaningful contributor. And we shared in the letter that it grew at a rate of more than 250% in the most recent quarter. So really pleased with what we're seeing there in terms of uptake and what that's contributing to the business. Both from the top line and margin perspective.
Conversions quickly. So we've also been iterating, a lot there and making progress there but overall.
Feel good about where the various tech pieces are right now and one of the things. We've just been learning as we go deep with these bigger customers is that it's become a lot more about the way that they are using these different pieces of our platform together, so really auditing signal quality for example, going deep to make sure advertisers are bidding against the right goals for what they're measuring for and.
Derek Andersen: Yeah, we don't have obviously going to break down our forward look for Q4 between different types of revenue, but we would expect to continue some momentum on the subscription business in the Q4, just as we would on the advertising business as well. So hopefully that gives you a little bit of an idea. You know, talk about a little bit about where we're seeing some strength with advertisers and then. If it wants to chime in with more detail on what where we expect to go from here.
I think just taking that customer success lens across all of our teams from product to measurement PMM engineering of course to debug. These more complex setups has yielded a lot of.
Positive momentum as well.
Okay.
Thank you.
Our next question is from blade Wamsley with UBS.
Derek Andersen: Really what we're seeing is we've been focusing very heavily on getting our go to market efforts. And where we're seeing success in the progress of the ad platform really well aligned. And so making sure they were we're selling through the products and the optimizations that are going to work for advertisers and help them grow their business. That's to let us see success for the pretty large variety of sectors. But some of the ones that we've talked about recently that I can share with you is we're seeing good traction with CPG restaurants and travel or categories that have been doing well on the platform and combinations of any calm businesses also doing well.
Hi, Thanks, a couple of parts to Mike.
On the ads within my AI search can you can you talk about how those are performing.
For you all for advertisers are those all powered by Bing.
Some of them your own ads.
And have you integrated that signal and the targeting across the platform and I guess just broadly while we're on the topic. How do you think about turning to partners like Microsoft paying or others.
Just in general to enhance monetization across the platform more broadly similar to what we've seen at Pinterest is that something you guys think about doing.
Derek Andersen: And that's going to align well to both, you know, when I talked about earlier, which is the really good progress we've seen on 70 pixel purchase optimizations and what that's meant for lower funnel revenue growth year in quarter quarter. And then also a little bit of the success that we've seen with those new brand take over products and attraction that we got with those in future. So hopefully that gives you a little bit of a sense of what we're seeing, you know, both on the subscription side and the traction with different verticals of advertisers.
Beyond this being paying integration.
It's still it's still early with the partnership I think the click through rates are very healthy when the ads are relevant so the big focus has really been on improving relevance continuing to drive.
Relevant for our sponsor lengths and my AI. So far in terms of signal integration right now we're using it to inform interest categories. I think there is a lot more we can do there, but we sort of taken that initial step again sort of.
Derek Andersen: We could speak just briefly to the progress we've been making on the tech side of things. We're making a lot of headway with our ML platform, being able to run bigger models that have more features. So I feel good about our progress there, actually more to do. I think the atomic unit of our performance business right now is 70, purchase optimization, that's working well for a lot of advertisers. And so really what we've been trying to do is build on top of that to solve, you know, slightly more sophisticated, you know, advertiser needs.
The test and learn perspective, so we think about this more as a longer term investment, especially because the immediate work we're doing on that platform is yielding really meaningful.
So, we'll keep focusing on the product experience and of course.
Experimenting with the partnership but.
There are more important priorities I think in terms of the AD platform right now.
Oh.
Thank you.
Our last question comes from Mark Mahaney with Evercore.
Derek Andersen: So for example, with our app business, we've been beta testing, event optimization for app advertisers. So, you know, rather than just optimizing around an install, you know, optimizing around something like completing a level or something like that in a game. And that's those sorts of, you know, optimizations are really important for a certain performance advertiser. So I think taking that sort of fundamental building block that's working with 7-0 and then iterating on top of that, you know, to meet more advertiser needs is really important right now.
Okay. Okay, I, just wanted to get into in a nuts and bolts issue on <unk> question on <unk>.
You had the two kind of interesting trends here Europe European Arb to kind of jumped a lot and I know this is an output indicator, but could you just maybe explain why that why that data and it looks like a 15% year over year growth and then sequentially North American <unk> jumped a lot and it's kind of the biggest sequential growth we've seen in a while so just any color behind those two.
Derek Andersen: I also think there's more we can do in terms of advertiser cold start for the long tail of advertisers. You know, it takes maybe a little too long and maybe a bit too much spend for these smaller advertisers to get ramped up and to find conversions quickly. So we've also been iterating a lot there and making progress there. But overall, you know, I feel good about where the various tech pieces are.
And again I understand that your output metrics, but any color would be appreciated.
Hey, Mark it's Derek Thanks for the question.
Look I think I'm part of what Youre seeing there is is the fundamental improvements that we're making to the AD platform in the AD products and our go to market.
So for example, when Youre looking at the year over year growth.
Derek Andersen: Right now in one of the things we've just been learning is we go deep with these bigger customers is that it's become a lot more about the way that they're using these different pieces of our platform together. So really auditing signal quality, for example, going deep to make sure advertisers are bidding against the right goals for what they're measuring for. And, you know, I think just taking that customer success lens across all of our teams, you know, from product to measurement PMM engineering, of course, to debug these more complex setups has yielded a lot of positive momentum as well.
In the Europe European region.
We're seeing there is that the.
Fundamental improvements that we've made to the VR AD platforms. So some of the things I talked about earlier in terms of the big investments we've made in infrastructure to drive AD ranking and optimization work that we've done to incorporate a broader range of signals and features into those models and then those models themselves becoming much larger.
Derek Andersen: Thank you.
Fast or pace of experimentation that we're seeing on the <unk> platform all of that's driving a much more precise conversion predictions and that's driving improved ROI for advertisers and you can see that as I mentioned earlier and the improvement in lower funnel year over year and quarter over quarter.
Boyd Wandsley: Our next question is from Boyd Wandsley with UBS. I think a couple of parts to my ear on the ads within my eye search, can you can you talk about how those are performing for you all for advertisers are there's all powered by being or some of them your own ads.
And then the other thing is what I also mentioned earlier, which is these new brand products can be launched earlier this year that got very nice traction in Q3.
Including <unk>.
First story and the total takeover products and then of course the go to market improvements that we've been making and I think one thing in particular in Europe and to a certain into an extent in the APAC region is it the new region President for those for those regions came on prior to us making this.
Evan Spiegel: And have you integrated that signal into targeting across the platform and I guess just broadly while we're on the topic, how do you think about turning the partners like Microsoft Bing or others just in general to enhance monetization across the platform more broadly similar to what we've seen at Pinterest, is that something you guys think about doing beyond this being being integration. It's still still early with the partnership, I think you know the the click through rates are very healthy when the ads are relevant so the big focus has really been on improving relevance continuing to drive relevance for sponsored links in my eye so far in terms of signal integration right now we're using it to inform interest categories.
Significant changes to our AD platform in Q1 and prior to launching these products.
So those fundamental improvements to the AD product beyond platform and the go to market.
Those are not just unique to the European region.
The most part they're going to be globally applicable, including some of the really good improvements, we're making a scalable solutions for small and medium size businesses, where you can see some of that is impacting North America, a little later and Thats why North America. For example was the fastest region quarter over quarter at 14% sequentially.
Growth and that's a combination of those fundamental improvements coming to bear on the North America market as well as the improved go to market exercise there. So.
Evan Spiegel: I think there's a lot more we can do there but we've sort of taken that initial step again sort of with the test and learn perspective so we think about this more as you know a longer term investment especially because you know the immediate work we're doing on that platform is yielding really meaningful results so I will keep folks hang on the project experience and of course you know experimenting with the partnership but you know there are more important priorities I think in terms of the platform right now.
I think what Youre seeing is the work starting to show up in the outputs and the fundamental progress, we're making with the AD platform and Thats showing up in <unk>, which is great news for the business.
All around so thanks for the question.
Thank you.
This concludes our question and answer session as well as Snap Inc. Third quarter 2020 earnings Conference call. Thank you for attending today's session. You may now disconnect.
Derek Andersen: Thank you.
Derek Andersen: Our last question comes from Mark Mahaney with Evercourt. Okay, I just want to get into a nuts-and-bolts issue on RPU or question on RPU. You had two kind of interesting trends here. A European RPU kind of jumped a lot. And I know this isn't output indicator because you just may be explained why that did and goes like a 15% year year growth. And then sequentially, North American RPU jumped a lot. That's kind of the biggest sequential growth we've seen in a while.
Derek Andersen: So, just any color behind those two metrics and again, I understand that they're output metrics, but any color would be appreciated. Hey, Marcus Derrick. Thanks for the question. Look, I think part of what you're seeing there is the fundamental improvements that we're making to the ad platform and the ad products and our go-to market. So, for example, when you're looking at the year-over-year growth in the European region, what we're seeing there is that the fundamental improvements that we've made to the VR ad platform.
Derek Andersen: So, some of the things I talked about earlier in terms of the big investments we've made in infrastructure to drive ad ranking and optimization. The work that we've done to incorporate a broader range of signals and features into those models and then those models themselves becoming much larger. The faster pace of experimentation that we're seeing on the VR ad platform, all of that's driving out much more precise conversion predictions and that's driving improved ROI for advertisers.
Derek Andersen: And you can see that, if I mentioned earlier, in the improvement and lower funnel year-over-year and quarter-over-quarter. And then the other thing is what I also mentioned earlier, which is these new brand products that we launched earlier this year, they got very nice traction in Q3, including first story and the total take over products. And then, of course, the go-to-market improvements that we've been making. And I think one thing in particular in Europe and to a certain end to and extend in the APAC region is that the new region presidents for those regions came on prior to us making the significant changes to our ad platform and Q1 and prior to launching these products.
Derek Andersen: And so those fundamental improvements to the ad product, the ad platform and the go-to-market, those are not just unique to the European region. For the most part, they're going to be globally applicable, including some of the really good improvements we're making to scalable solutions for solar and medium-sized businesses. But you can see some of that is impacting North America a little later. And that's why North America, for example, was the fastest region, quarter of a quarter at 14% sequentially in growth.
Derek Andersen: And that's a combination of those fundamental improvements coming to bear on the North America market, as well as the improved go-to-market exercise there. So I think what you're seeing is the work starting to show up in the outputs and the fundamental progress we're making with the ad platform and that's showing up in our poo, which is great news for the business all around. So thanks for the question. Thank you.
Operator: This concludes our question and answer session, as well as not being third quarter 2023 earning conference call.
Operator: Thank you for attending today's session.
Operator: You may now