Q1 2024 Snap Inc Earnings Call

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Operator: Good afternoon, everyone, and welcome to Snap Incorporated's first quarter 2024 earnings conference call. At this time, participants are in a listen-only mode. I would now like to turn the call over to David Ometer, Head of Investor Relations.

Speaker Change: Good afternoon, everyone and welcome to snap incorporated first quarter 'twenty 'twenty four earnings conference call.

Speaker Change: At this time participants are in a listen only mode.

David Ometer: I would like to turn the call over to David Ohmmeter head of Investor Relations.

David Ometer: Thank you and good afternoon, everyone. Welcome to Snap's first quarter 2024 earnings conference call. With us 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.snap.com to find today's press release, slides, investor letter, and investor presentation. This conference call includes forward-looking statements that are based on our assumptions as of today. However, actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosure.

David Ometer: Thank you and good afternoon, everyone welcome to snap as first quarter 2024 earnings conference call with US today are Evan Spiegel, Chief Executive Officer, and co founder and Derek Anderson Chief Financial Officer.

David Ometer: Please refer to our Investor relations website at Investor Snap Dot com to find todays press release slides investor letter in Investor presentation.

David Ometer: 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.

David Ometer: 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 the risks described in our most recent Form 10-K or 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 certain other items. 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.

David Ometer: 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 the risks described in our most recent Form 10-K or Form 10-Q, particularly in the section titled risk factors.

David Ometer: Today's call will include both GAAP and non-GAAP measures.

David Ometer: Reconciliations between the two can be found in today's press release.

David Ometer: 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 certain other items.

David Ometer: Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today's call.

David Ometer: With that I'd like to turn the call over to Evan.

Evan T. Spiegel: Hi everyone, and thank you all for joining us. I'm excited to share the progress we are making on our strategic priorities and the momentum we are building to capitalize on the long-term potential of our business. I'm deeply inspired by the dedication and effort so many of our team members have put into serving our community and our partners. It is gratifying to see our efforts beginning to bear fruit. On our call today, I'll open with some observations about our strategic direction and key developments, and then you'll hear from Derek. The full financial detail is in our investor letter, but going forward, we'll also be giving more context on the earnings call.

Evan T. Spiegel: Hi, everyone and thank you all for joining us I'm excited to share the progress we are making on our strategic priorities and the momentum we are building to capitalize on the long term potential of our business I am deeply inspired by the dedication and effort. So many of our team members, who put into serving our community and our partners and it is gratifying to see our efforts beginning to bear.

Evan T. Spiegel: Fruit.

Evan T. Spiegel: On our call today I'll open with some observations about our strategic direction and key developments and then Youll hear from Derek.

Derek Andersen: The full financial detail is in our Investor letter, but going forward, we'll also be giving more context on the earnings call.

Evan T. Spiegel: We remain committed to executing against our three strategic priorities, accelerating and diversifying our revenue growth, growing our community and deepening their engagement, and leading in augmented reality. The most important strategic priority we set out for 2024 is accelerating and diversifying revenue. We have made significant progress to start the year with revenue growing 21% year-over-year, an acceleration of 16 percentage points over the prior quarter growth rate, which was driven by improvements we have made to our advertising platform and an increase in demand for our advertising solutions, while also benefiting from the impact of an improved operating environment.

Evan T. Spiegel: We remain committed to executing against our three strategic priorities accelerating and diversifying our revenue growth growing our community and deepening their engagement and leading in augmented reality.

Evan T. Spiegel: The most important strategic priority, we set out for 2024 is accelerating and diversifying revenue growth. We have made significant progress to start the year with revenue growing 21% year over year and acceleration of 16 percentage points over the prior quarter growth rate, which was driven by improvements we have made to our advertising platform and an increase in demand for our advertising solutions.

Evan T. Spiegel: While also benefiting from the impact of an improved operating environment.

Evan T. Spiegel: Our large, hard-to-reach audience, brand-safe environment, and continued innovation and progress on our advertising platform have made us a valuable partner for businesses that want to reach the next generation. Our second strategic priority, designing innovative products and services that enhance people's relationships with their friends, family, and the world, continues to drive the growth of our global community. In Q1, we reached 422 million daily active users, an increase of 39 million, or 10% year-over-year.

Evan T. Spiegel: Our large hard to reach audience brand safe environment, and continued innovation and progress on our advertising platform have made us a valuable partner for businesses that want to reach the next generation.

Evan T. Spiegel: Our second strategic priority designing innovative products and services that enhance people's relationships with their friends family and the World continues to drive the growth of our global community. In Q1, we reached 422 million daily active users an increase of $39 million or 10% year over year, we continued to broaden and deepen engagement with our content.

Evan T. Spiegel: We continue to broaden and deepen engagement with our content platform, with the number of viewers and total time spent watching content growing globally year-over-year. Our focus on visual communication between friends and family is a strategic advantage that has enabled us to reach more than 75% of 13- to 34-year-olds in over 25 countries, with these countries representing more than 50% of the global advertising market. Relationships are what drive the depth of engagement on our platform.

Platform with the number of viewers and total time spent watching content growing globally year over year.

Evan T. Spiegel: Our focus on visual communication between friends and family as a strategic advantage that has enabled us to reach more than 75% of 13 to 34 year olds and over 25 countries with these countries representing more than 50% of the global advertising market.

Relationships are what drive the depth of engagement on our platform.

Evan T. Spiegel: Our goal is to ensure that Snapchat helps enhance relationships with the people who matter most. These relationships lead to increased daily active usage of our platform and happier members of our community. Four out of five Snapchatters believe that connecting with friends is the simplest way to feel better. This year, we are particularly focused on helping lightly engaged new and resurrected Snapchatters build relationships on our platform. Building just one or two close relationships on Snapchat can dramatically increase the number of active days for these cohorts while simultaneously leading to a happier and healthier community. Over 90% of Snapchatters say they feel comfortable, happy, and connected when they use Snapchat. And Snapchat is ranked as the number one happiest platform when compared to other apps.

Evan T. Spiegel: Our goal is to ensure that Samsung helps enhance relationships with the people who matter. Most these relationships lead to increased daily active usage of our platform and happier members of our community four out of five snap Chatters believe that connecting with friends of the simplest way to feel better this.

Evan T. Spiegel: This year, we are particularly focused on helping lightly engaged new and resurrected snap chatters build relationships on our platform building just one or two close relationships on Snapchat can dramatically increase the number of active days for these cohorts, while simultaneously leading to a happier and healthier community over.

Evan T. Spiegel: Over 90% of snap chatters, so they feel comfortable happy and connected when they use Snapchat Snapchat is ranked as the number one happiest platform when compared to other apps.

Evan T. Spiegel: We've been working hard to improve our advertising platform by helping our partners transition to new ways of measuring and optimizing their advertising spends in order to provide improved ROAS. In Q1, ongoing momentum with our 7.0 Pixel Purchase Optimization Model led to a more than 75% increase in purchase-related conversions year-over-year. In addition, we are excited by the progress we're seeing with our small and medium-sized advertising partners. Today, small and medium-sized businesses and creators can promote their services, content, or products and reach new audiences, all with just a few taps within the Snapchat application.

Evan T. Spiegel: We've been working hard to improve our advertising platform by helping our partners transition to new ways of measuring and optimizing their advertising spend in order to provide improved ROE as in Q1 ongoing momentum with our seven zero pixel purchase optimization model led to a more than 75% increase in purchase related conversions year over year.

Evan T. Spiegel: In addition, we are excited by the progress, we're seeing with our small and medium sized advertising partners today small and medium sized businesses and creators to promote their services content or products and reach new audiences. All with just a few taps within the Snapchat application. This has been instrumental in significantly accelerating the number of SMB advertisers on Snapchat, which increased.

Evan T. Spiegel: This has been instrumental in significantly accelerating the number of SMB advertisers on Snapchat, which increased 85% year-over-year. As we look forward, the deliberate actions we've taken with our cost structure have cleared a path to meaningful adjusted EBITDA profitability and positive free cash flow. We have invested heavily in cloud infrastructure over the past year in order to improve the performance of our advertising products and deepen engagement on our platform. We will continue to calibrate our investments carefully moving forward to ensure we build on this momentum while also realizing the operating leverage necessary to drive improved financial performance. We believe that a strong financial foundation and track record of innovation are critical inputs in fulfilling our vision of computing overlaid on the world. This is our third strategic priority.

Evan T. Spiegel: 85% year over year.

Evan T. Spiegel: As we look forward the deliberate actions, we've taken with our cost structure have cleared a path to meaningful adjusted EBITDA profitability and positive free cash flow.

Evan T. Spiegel: We have invested heavily in cloud infrastructure over the past year in order to improve the performance of our advertising products and deepen engagement on our platform.

Evan T. Spiegel: We will continue to calibrate our investments carefully moving forward to ensure we build on this momentum while also realizing the operating leverage necessary to drive improved financial performance.

Evan T. Spiegel: We believe that our strong financial foundation and track record of innovation are critical inputs into fulfilling our vision of computing overlaid on the world.

Evan T. Spiegel: This is our third strategic priority.

Evan T. Spiegel: We have never worked on anything as profound and meaningful as augmented reality. AR enables us to seamlessly integrate digital experiences into the world around us, transforming the way we use computing in our daily lives. Our AR products and services are driving major impact at scale today. For example, on average, over 300 million people engage with augmented reality every single day on Snapchat. Our community plays with AR lenses billions of times per day on average, and our AR creator community has built millions of lenses using our Lens Studio software.

Evan T. Spiegel: We have never worked on anything is profound and meaningful as augmented reality enables.

Evan T. Spiegel: Enables us to surface digital experiences seamlessly in the world around us transforming the way we use computing in our daily lives.

Evan T. Spiegel: Our our products and services are driving major impact at scale today on average over 300 million people engage with augmented reality every single day on Snapchat are community plays with London billions of times per day on average in our creator community has built millions of lenses using our lens studio software.

Evan T. Spiegel: Having a large, engaged AR audience and creator community enables us to innovate rapidly. This unique position has allowed us to develop a lead in augmented reality over the last decade by leveraging one of the world's most used cameras, developing highly advanced technology and tools, and growing a vibrant AR creator ecosystem. We believe that our large and growing community, an innovative and engaging service that continues to evolve, and a strong balance sheet with positive free cash flow position us well to achieve our long-term vision for augmented reality, which we believe will be one of the most meaningful advancements in computing that the world has ever seen. With that, I'd like to turn the call over to Derek to speak about our finances.

Evan T. Spiegel: Having a large engaged audience and creator community enables us to innovate rapidly. This unique position has allowed us to develop a lead in augmented reality over the last decade by leveraging one of the world's most used cameras developing highly advanced technology and tools and growing a vibrant creator ecosystem.

Evan T. Spiegel: We believe that our large and growing community and innovative and engaging service that continues to evolve and a strong balance sheet with positive free cash flow positions us well to achieve our long term vision for augmented reality, which we believe will be one of the most meaningful advancements in computing that the world has ever seen.

Evan T. Spiegel: With that I'd like to turn the call over to Derek to speak about our financials.

Derek Andersen: Thanks, Evan, and good afternoon, everyone. For the first quarter, revenue and adjusted EBITDA exceeded our expectations as a result of increased demand for our advertising solutions and an improved cost structure that enabled us to generate greater operating leverage. Q1 revenue grew 21% year-over-year to $1.195 billion, driven by a 14 percentage point acceleration in advertising revenue, which grew 16% year-over-year in Q1. The direct response, or DR, portion of advertising revenue increased 17% year-over-year, up from 3% growth in the prior quarter, as we began to see improved ROAS for our advertising partners translate into accelerating demand for our ads. Small and medium-sized advertisers, in particular, grew quickly in Q1, with active advertisers in this segment up 85% year-over-year.

Derek: Thanks, Kevin and good afternoon, everyone.

Derek Andersen: For the first quarter revenue and adjusted EBITDA exceeded our expectations as a result of the increased demand for our advertising solutions.

Derek Andersen: And an improved cost structure that enabled us to generate greater operating leverage Q1 revenue grew 21% year over year to one one <unk> 5 billion driven by the 14 percentage point acceleration in advertising revenue, which grew 16% year over year in Q1.

Derek: The direct response or Dr portion of advertising revenue increased 17% year over year up from 3% growth in the prior quarter as we began to see improved ROE as for our advertising partners translate into accelerating demand on our platform.

Derek: Small medium sized advertisers in particular grew quickly in Q1 with active advertisers in this segment up 85% year over year.

Derek Andersen: Brand-oriented advertising revenue increased 12% year-over-year, driven by strong demand for our takeover products in Q1, and an improved operating environment. We also continue to make progress towards diversifying our revenue sources, with other revenue up 194% year-over-year to reach $87 million. Other revenue includes all non-advertising revenue and consists almost entirely of Snapchat plus subscription revenue. Snapchat plus subscribers reached 9 million in Q1, more than tripling year over year

Derek: Brand oriented advertising revenue increased 12% year over year, driven by strong demand for our takeover products in Q1, and an improved operating environment.

Derek Andersen: We also continued to make progress towards diversifying our revenue sources with all their revenue up 194% year over year to reach $87 million.

Derek: Other revenue includes all non advertising revenue and consists almost entirely of Snapchat plus subscription revenue.

Derek Andersen: <unk> plus subscribers up $9 million in Q1 more than tripling year over year.

Derek Andersen: From a regional perspective, we observed acceleration in both DR and brand-related advertising revenue growth across all regions in Q1. We were particularly pleased to see the improvements we have made to our ad platform translate to improved revenue growth in North America, where revenue grew 16% year-over-year in Q1, an acceleration of 14 percentage points over the prior quarter growth rate. Brand-oriented demand in the rest of the world and Europe accelerated at a relatively faster pace in Q1, as these regions were more significantly impacted by the war in the Middle East in the prior quarter.

Derek Andersen: From a regional perspective, we observed acceleration in both Dr and brand related advertising revenue growth across all regions. In Q1, we were particularly pleased to see the improvements we have made to our AD platform translate to improved revenue growth in North America, where revenue grew 16%.

Derek Andersen: Percent year over year in Q1, and acceleration of 14 percentage points over the prior quarter growth rates.

Derek Andersen: Brand oriented demand in rest of world and Europe accelerated at a relatively faster pace in Q1 as these regions were more significantly impacted by the war in the middle East in the prior quarter.

Derek Andersen: We observed the highest rate of acceleration in total advertising revenue growth in the rest of the world in Q1, driven in part by strong seasonal demand during the Ramadan holiday, which was further amplified by the timing of the holiday season shifting into Q1 of the current year. Total adjusted cost of revenue was $570 million in Q1, up 31% year-over-year. Infrastructure costs were the largest driver of the year-over-year increase, driven in large part by the ramp in ML and AI investments to support our DRM platform and content engagement that we implemented in Q2 and Q3 of the prior year.

Derek Andersen: We observed the highest rate of acceleration in total advertising revenue growth in rest of world in Q1, driven in part by strong seasonal demand during the Ramadan holiday, which was further amplified by the timing of the holiday season shifting into Q1 of the current year.

Derek Andersen: Total adjusted cost of revenue was $570 million in Q1 up 31% year over year.

Derek Andersen: Infrastructure costs were the largest driver of the year over year increase driven in large part by the ramp in ml and AI investments to support our DRM platform and content engagement that we implemented in Q2 and Q3 of the prior year.

Derek Andersen: The level of investment in ML and AI was relatively stable across Q4 of 2023 and Q1 of 2024, and we have continued to improve our cloud infrastructure unit costs through a combination of engineering efficiency and pricing improvements. In addition, we benefited from higher-than-average service provider credits in Q1 that helped to further reduce infrastructure costs in Q1.

Derek Andersen: The level of investment in ml and AI was relatively stable across Q4 of 2023 in Q1 of 2024, and we are continuing to improve our cloud infrastructure unit costs through a combination of engineering efficiency and pricing improvements in.

Derek Andersen: In addition, we benefited from higher than average service provider credits in Q1 that helped to further reduce infrastructure costs in Q1.

Derek Andersen: As a result, infrastructure costs per GAU declined from $0.84 in Q4 of 2023 to $0.80 in Q1 of 2024. The remaining components of adjusted cost of revenue, including content, developer, advertising, and other partner costs, were $232 million in Q1, or 19% of revenue, compared to 20% in the prior quarter and 21% in the prior year. The adjusted growth margin was 52% in Q1, compared to 55% in the prior quarter and 56% in the prior year.

Derek Andersen: As a result infrastructure cost per <unk> declined from 84 in Q4 of 2023 to 80 in Q1 of 2024.

Derek Andersen: The remaining components of adjusted cost of revenue, including content developer and advertising and other partner costs were $232 million in Q1, or 19% of revenue compared to 20% in the prior quarter and 21% in the prior year.

Derek: Adjusted gross margin was 52% in Q1 compared to 55% in the prior quarter and 56% in the prior year.

Derek Andersen: The quarter-over-quarter decline in adjusted growth margin is driven entirely by seasonally lower revenue in Q1 compared to Q4, partially offset by the sequential decline in infrastructure cost per DAU. The year-over-year decline in adjusted gross margin reflects higher infrastructure investments that began to ramp up in Q2 and Q3 of the prior year, which was partially offset by operating leverage from accelerating revenue growth in Q1. Adjusted operating expenses were $579 million in Q1, up 5% year-over-year.

Derek Andersen: Quarter over quarter decline in adjusted gross margin is driven entirely by seasonally lower revenue in Q1 compared to Q4, partially offset by the sequential decline in infrastructure cost per DAA.

Derek Andersen: The year over year decline in adjusted gross margin reflects higher infrastructure investments that began to ramp up in Q2, and Q3 of the prior year, which was partially offset by operating leverage from accelerating revenue growth in Q1.

Derek Andersen: Adjusted operating expenses were $579 million in Q1 up 5% year over year.

Derek Andersen: Personnel costs increased 4% year over year in Q1, driven primarily by the impact of higher personnel costs per regular full-time employee, which was partially offset by reductions in team size as a result of the restructuring. We implemented the restructuring in phases throughout the quarter, resulting in a 3% decline in average headcount year-over-year. We ended Q1 with 4,835 full-time headcount, which was down 7% year-over-year and down 27% from our peak headcount in mid-Q3 of 2022.

Derek Andersen: Personnel costs increased 4% year over year in Q1, driven primarily by the impact of higher personnel cost per regular full time employees, which was partially offset by reductions in team size as a result of the restructuring initiatives, we implemented the restructuring in phases throughout the quarter, resulting in a 3% decline in average.

Derek Andersen: Head count year over year, we ended Q1 with 4835 full time head count, which was down 7% year over year and down 27% from our peak headcount in mid Q3 of 2022.

Derek Andersen: Adjusted EBITDA was $46 million in Q1, up from $1 million in Q1 of the prior year, reflecting both accelerating revenue growth and operating expense distribution. Net loss was $305 million in Q1, compared to $329 million in Q1 of the prior year. The improvement in net loss on a year-over-year basis reflects the flow-through of higher-adjusted EBITDA, as well as a $60 million reduction in stock-based compensation and related expenses, or FBC, partially offset by transition costs of $70 million related to our restructuring initiative. The impact of past refresh grants on the GAAP accounting of SBC expense has now fully dissipated from the cost structure.

Derek Andersen: Adjusted EBITDA was $46 million in Q1 up from $1 million in Q1 of the prior year, reflecting both accelerating revenue growth and operating expense discipline net.

Derek: Net loss was 305 million in Q1 compared to $329 million in Q1 of the prior year.

Derek Andersen: The improvement in net loss on a year over year basis reflects the flow through of higher adjusted EBITDA as well as a $60 million reduction in stock based compensation and related expenses or SPC, partially offset by transition costs of $70 million related to our restructuring initiatives.

Derek Andersen: The impact of Paris refresh grants on the GAAP accounting of SBC expense is now fully dissipated from the cost structure. This was the largest driver of the year over year decline in SPC in Q1, followed by the impact of reduced head count as a result of the recent restructuring.

Derek Andersen: This was the largest driver of the year-over-year decline in SBC and Q1, followed by the impact of reduced headcount as a result of the recent restructuring, delusion or growth in our share count was 3.8% in Q1, down from 5.7% in the prior quarter. As part of our efforts to responsibly manage the impact of SBC on our share count, we repurchased 21 million shares at a cost of $235 million in QI, reflecting an average repurchase price of $11.19.

Derek Andersen: Delusion or growth in our share count was three 8% in Q1 down from five 7% in the prior quarter.

Derek Andersen: Part of our efforts to responsibly manage the impact of SBC on our share count, we repurchased 21 million shares at a cost of $235 million in Q1.

Derek Andersen: Reflecting an average repurchase price of $11 19.

Derek Andersen: Since we began opportunistically managing our share count through share repurchases in Q3 of 2022, we have repurchased 145 million shares, representing 8% of fully diluted shares outstanding, at an average price of $9.86 per share and a total cost of $1.4 billion. Free cash flow was $38 million in Q1, as we continued to strategically prioritize our investments to drive sustained and meaningful positive free cash flow. We ended Q1 with $2.9 billion in cash and marketable securities.

Derek Andersen: Since we began opportunistically managing our share count through share repurchases in Q3 of 2022, we have repurchased 145 million shares representing 8% of fully diluted shares outstanding at an average price of $9 86 per share and a total.

Derek Andersen: Cost of $1 4 billion free.

Derek Andersen: Free cash flow was $38 million in Q1, as we continued to strategically prioritize our investments to drive sustained and meaningful positive free cash flow. We ended Q1 with $2 9 billion in cash and marketable securities on hand in.

Derek Andersen: In addition, in Q1, we repurchased $100 million of our outstanding 2025 Convertible and $351 million of our outstanding 2026 convertible notes at prices below par value. Through these transactions, we have further reduced the level of debt maturing in the years ahead while also eliminating the risk of future dilution from the repurchased convertible notes.

Derek Andersen: In addition in Q1, we repurchased $100 million of our outstanding 2025 convertible notes and $351 million of our outstanding 2026 convertible notes at prices below par value.

Derek Andersen: Through these transactions, we have further reduced the level of debt maturing in the years ahead, while also eliminating the risk of future dilution from the repurchased convertible notes.

Derek Andersen: Turning to our outlook, we anticipate continued growth in our global community, and our Q2 guidance is built on the assumption that DAU will be approximately $431 million in Q2. Our Q2 guidance range for revenue is $1.225 billion to $1.255 billion, implying year-over-year revenue growth of 15 to 18 percent. This would represent a 3 to 6 percentage point deceleration in growth rate compared to Q1, which we attribute to the three percentage point quarter over quarter acceleration and revenue growth experienced in the prior year and a further estimated three percentage point headwind due to changes in seasonality factors, including the timing of the Ramadan holiday season shifting toward Q1 in the current year and the impact of the leap day in Q1 of 2024.

Derek: Turning to our outlook, we anticipate continued growth of our global community and our Q2 guidance is built on the assumption that <unk> will be approximately $431 million in Q2.

Derek Andersen: Our Q2 guidance range for revenue is one point to two 5 billion to one to $5 5 billion, implying year over year revenue growth of 15% to 18%.

Derek Andersen: This would represent a three to six percentage point deceleration in growth rate compared to Q1.

Derek Andersen: Which we attribute to the three percentage point quarter over quarter acceleration in revenue growth experienced in the prior year and a further estimated three percentage point headwind due to changes in seasonality factors, including the timing of the Ramadan holiday season shifting toward Q1 in the current year and the impact of the leap day and <unk>.

Evan Spiegel: One of 2024.

Derek Andersen: Our investment plans for Q2 include modest incremental investments in infrastructure, personnel, and marketing to sustain the momentum we have established in our business, as well as the impact of an increasing legal and regulatory burden on our costs. Given the revenue range above and our investment plans for the quarter ahead, we estimate that adjusted EBITDA will be between $15 million and $45 million in Q2. We have made significant progress to optimize our cost structure and believe it will be productive to provide forward-looking insight into our estimated full-year 2024 cost. We currently estimate that quarterly infrastructure costs per DAU will be in the $0.83 to $0.85 range for the remainder of 2020.

Derek Andersen: Our investment plans for Q2 include modest incremental investments and infrastructure personnel and marketing to sustain the momentum we have established in our business as well as the impact of an increasing legal and regulatory burden cost structure.

Derek Andersen: Given the revenue range above and our investment plans for the quarter ahead, we estimate that adjusted EBITDA will be between $15 million and $45 million in Q2.

Derek Andersen: We have made significant progress to optimize our cost structure and believe it will be productive to provide forward looking inside into our estimated full year 2020 for cost structure.

Derek Andersen: We currently estimate that quarterly infrastructure cost per day, you will be in the 83 to 85 range for the remainder of 2024.

Derek Andersen: We will continue to assess our infrastructure investment levels based on what is in the best long-term interest of our business. We expect the remaining components of cost of revenue, including content and developer partner costs, as well as advertising partner and other costs, to remain relatively stable as a percentage of revenue, at a combined 19 to 21% of revenue, which is within the range we have reported over the trailing four quarters. We currently anticipate that headcount and personnel costs will grow modestly as we move through 2024, resulting in full-year adjusted operating expenses of approximately $2.425 billion to $2.525 billion. You see limited opportunity to productively reduce adjusted operating expenses below this. And if we are able to sustain higher rates of revenue growth into the second half of 2024, we will invest prudently to support that growth. For SBC, we anticipate modest sequential growth as we move through With that, I'll kick it back to Evan for his closing remarks.

Derek Andersen: We will continue to assess our infrastructure investment levels based on what is in the best long term interest of our business.

Derek Andersen: We expect the remaining components of cost of revenue, including content and developer partner costs as well as advertising partner and other costs to remain relatively stable as a percentage of revenue at a COVID-19% to 21% of revenue, which is within the range. We have reported over the trailing four quarters.

Derek Andersen: We currently anticipate that the head count and personnel costs will grow modestly as we move through 2024, resulting in full year adjusted operating expenses of approximately 242 5 billion to $2 $5 5 billion.

Derek Andersen: See limited opportunity to productively reduced adjusted operating expenses below this range and if we are able to sustain higher rates of revenue growth into the second half of 2024, we will invest prudently to support that growth.

Derek Andersen: The SPC, we anticipate modest sequential growth as we move through 2024, resulting in an estimated full year SBC expense of $1, one 3 billion to $1 2 billion.

Derek Andersen: With that I'll kick it back to Evan for closing remarks.

Evan T. Spiegel: Thanks, Derek. As we continue to execute in the quarters ahead, we remain focused on serving our community with innovative and responsible products, investing in our direct response business to deliver measurable ROAS for our advertising partners, cultivating new sources of revenue to diversify our top-line growth, and scaling our investment levels prudently to deliver meaningful and sustained profitability and positive free cash flow. The most critical input to delivering on these strategic initiatives we laid out is innovation.

Evan: Thanks, Derrick as we continued to execute in the quarters ahead, we remain focused on serving our community with innovative and responsible products investing in our direct response business to deliver measurable rollout for advertising partners cultivating new sources of revenue to diversify our topline growth and scaling our investment levels prudently to deliver mean.

Evan T. Spiegel: <unk> and sustained profitability and positive free cash flow.

Evan T. Spiegel: The most critical input to delivering on these strategic initiatives. We laid out is innovation that includes innovating on our products, our advertising platform and the future of augmented reality.

Evan T. Spiegel: That includes innovating on our products, our advertising platform, and the future of augmented reality. We believe that our demonstrated track record of innovation over the last 12 years positions us well to deliver on this for our community, our partners, and our investors. While there is still a lot of work to be done, we are pleased that this focus has translated into improved results in Q1. We will now begin our Q&A session. We will now begin the Q&A session.

Evan T. Spiegel: We believe that our demonstrated track record of innovation over the last 12 years positions us well to deliver on this for our community our partners and our investors. While there is still a lot of work to be done. We are pleased that this focus is translated into improved results. In Q1, we will now begin our Q&A session.

Speaker Change: Thank you.

Evan T. Spiegel: We will now begin the Q&A session.

Operator: To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Evan T. Spiegel: To ask a question you May Press Star then one on your Touchtone phone.

Operator: If youre using a speakerphone please pick up your handset before pressing the keys.

Operator: To 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. Our first question comes from Doug Anmuth with JPMorgan. Please proceed.

Operator: To withdraw your question. Please press Star then two.

Douglas Till Anmuth: And the answers of time, we ask that you. Please limit yourself to one question.

Douglas Till Anmuth: After your initial question is asked your line will be muted.

Douglas Till Anmuth: At this time, we will pause momentarily to assemble our roster.

Operator: Our first question comes from Doug Anmuth with J P. Morgan. Please proceed.

Derek Andersen: Thanks so much for taking the question. Could you just help us understand the drivers, and you've listed a number of things, but just help us kind of frame and maybe prioritize the drivers of the DR acceleration in one cue and just kind of how you think about linearity and progression through 24? And then, if you could comment just on the slight detail that you're guiding us to in the second quarter as well. Thank you.

Douglas Till Anmuth: Thanks, So much for taking the question can you just help us understand that.

Derek Andersen: Drivers you've listed a number of things, but just help us kind of frame and maybe prioritize the drivers of the Dr. Acceleration Q1and just kind of how you think about linearity and progression through 'twenty four.

Derek Andersen: And then if you could comment just on the.

Derek Andersen: The slight DSL that youre that youre guiding to in the second quarter as well. Thank you.

Derek Andersen: Hey Doug, it's Derek. Thanks for the question. I think, you know, look, at the first outset, I would say that probably the most important takeaway or theme of the top line results was how broad-based the acceleration was on top. You know, you mentioned DR specifically, but we did see each of brand and DR and those two pillars across all three of our regions accelerate in the quarter. We also saw that the S&B customer base, you know, grew quite quickly. Active advertisers, they're up 85%.

Derek Andersen: Hey, Doug it's Derek Thanks for the question.

Derek Andersen: Look at the first outside I would say that probably the most important takeaway or theme of the topline results is just how broad based the acceleration was on the topline.

Derek Andersen: You mentioned, Dr. Specifically, but we did see each of brand and Dr and those two pillars across all three of our regions accelerated in the quarter.

Derek Andersen: We also saw that the SMB customer base grew quite quickly active advertisers theyre up 85%.

Derek Andersen: And also, looking over at, you know, the Snapchat Plus business, also tripling or more year over year to 9 million. So we did see a really broad-based improvement in the top line, on the DR side specifically.

Derek Andersen: And also then looking over at the Snapchat plus business also.

Derek Andersen: Subs tripling or more a year over year to $9 million. So we did see a really broad based improvement in the topline on the Dr side specifically.

Derek Andersen: I think you've probably seen that we've been making really significant investments in that line of business over the last year. And we made a lot of investments in infrastructure to help improve their, um, number one, leveraging more of our privacy-safe signals for ranking and optimization. And then continuing to evolve our models to incorporate more of those signals, making larger models and refreshing them more frequently.

Derek Andersen: I think you've probably seen that we've been making really significant investments in that line of business over the last year.

Derek Andersen: And we've made a lot of investments in infrastructure to help improve there.

Derek Andersen: Number one leveraging more of our privacy say signals for ranking and optimization and then continuing to evolve our models to incorporate more of those signals, making larger models and refreshing them more frequently.

Derek Andersen: And we've, you know, seen really good momentum, particularly on the 7-0 pixel purchase optimization that led to a more than 75% increase in purchase-related conversions in Q1. And we're making progress on some of the nuts and bolts there around, you know, for example, CAPI adoption. You know, we saw more than a 300% increase year over year on that, and we now have coverage there for approximately half of the DR revenue.

Derek Andersen: And we've seen really good momentum in particular on the seven zero pixel purchase optimization that led to a more than 75% increase in purchase related conversions in Q1.

Derek Andersen: And we're making progress on some of the nuts and bolts. There around for example copy adoption, we saw more than 300% increase year over year on that and we now have coverage there of approximately half of the Dr revenue.

Derek Andersen: And made some improvements just in expanding the addressable market there, um, with the rollout of 7-0 optimization for app install and app purchase with additional app goals and coming in Q2 on the, on the roadmap there. So, um, there's a lot of progress on that front, and we're seeing that show up, you know, in improved ROAS.

Derek Andersen: <unk> made some improvements just in expanding the addressable market there.

Derek Andersen: With the rollout of seven zero optimization to App install and our purchase with additional ankles and coming in Q2 on the roadmap there so.

Derek Andersen: There is a lot of progress on that front.

Derek Andersen: We're seeing that show up in improved Rollouts and I think many of you saw in your channel checks even in Q4, they were starting to hear about the return on Rollouts in the advertising community and I think you can see that now showing up in.

Derek Andersen: And I think many of you saw in your channel checks, even in Q4, that you were starting to hear about the return on ROAS in the advertising community. And I think you can see that now showing up in the demand this quarter. So, taken together, I think that each of those is proof points that the DR business is performing much, much better now. And that each of those things is, you know, ROAS-based, return-based, customer success-based, and that speaks to sort of the durability of that basis.

Derek Andersen: And the demand in this quarter. So if you take taken together I think that each of those are proof points that the Dr. Business is performing much much better now and that each of those things are <unk> based return based customer success base and that speaks to sort of the durability.

Derek Andersen: So, you asked a little bit about the transition of the growth rate into Q2. And, you know, we do expect the progress that we've made with the DR business to continue. But we do have some unique items just on seasonality. I pointed to a couple in the letter, you know, one in particular. We did have an improvement in the growth rate in the prior year of about three percentage points, quarter over quarter.

Derek Andersen: That basis so.

Derek Andersen: You asked a little bit about the transition of the growth rate into Q2, and we do expect the progress that we've made with the Dr business to continue.

Derek Andersen: But we do have some unique items just on seasonality I pointed to a couple in the letter one in particular, we did have an improvement in the growth rate in the prior year of about three percentage points quarter over quarter. So that contributes to comps a little and then theres. Some unique seasonality factors as we transition from Q1 to Q2 this year, notably the leap.

Derek Andersen: So that contributes to COMS a little. And then there are some unique seasonality factors as we transition from Q1 to Q2 this year. Notably, the leap day in Q1 of this year that contributed to the higher growth in Q1, as well as the timing of the Ramadan holiday season moving more so into Q1 this year relative to Q2 last year. And that further contributes to some of the transitions there. But none of those factors really speak to the fundamentals of the improvement in the business that we're seeing. So hopefully, that gives you a little bit of a sense of what we're seeing and the momentum that we've established on that line of the business. Thank you.

Derek Andersen: <unk> in Q1 of this year that contributed to the higher growth in Q1 as well as the timing of the Ramadan holiday season, moving more so into Q1. This year relative to Q2 last year and then further contributes to some of the the transitions there, but none of those factors really speaking to the fundamentals of the improvement in the business that we're seeing so.

Derek Andersen: Hopefully that gives you a little bit of a sense of what we're seeing and the momentum that we've established on that line of the business. Thank you.

Derek Andersen: Okay.

Evan T. Spiegel: Our next question comes from Ken Grofsky with Wells Fargo. Please proceed.

Derek Andersen: Our next question comes from Ken Garosci with Wells Fargo. Please proceed.

Evan T. Spiegel: Thank you. Evan and Derek, you discussed on the fourth quarter earnings call a shift in the company's resources to grow engagement in North America and EMEA. Can you talk about any early progress? I know North American DAUs were flat quarter over quarter in one Q, but maybe any early thoughts on future North American growth for 2Q and beyond? And maybe what's incorporated in the early look at 2Q DAUs, please?

Kenneth James Gawrelski: Thank you.

Kenneth James Gawrelski: Afternoon, Derek you discussed on the fourth quarter earnings call.

Evan T. Spiegel: Shifting company resources to grow engagement.

Evan T. Spiegel: In North America, and EMEA can you talk about any early progress I don't know.

Evan T. Spiegel: North America, <unk> were flat quarter over quarter in <unk>, but maybe any early thoughts on future North America growth for <unk> and beyond and maybe what's incorporated in that.

Evan T. Spiegel: Early look at <unk> do you use please thank you.

Evan T. Spiegel: Thanks, Ken. Yeah, we certainly have been shifting more of our resources and focus to growth in North America and Europe. It's a different opportunity set. You know, historically, we were more focused on new users and developing markets who are typically on Android devices. This is really about focusing more on re-engagement with users who have downloaded Snapchat before and who may not be, you know, using it as often as some of their friends. And those users are typically on iOS.

Evan T. Spiegel: Thanks, Ken Yes, we certainly have been shifting more of our Resourcing and focus to our growth in North America and Europe. It's a different opportunity set historically, we were more focused on new users and developing markets who are typically on Android devices. This is really about focusing more on reengagement with users.

Evan T. Spiegel: Yes.

Evan T. Spiegel: Downloaded snapchat before and who may not be using it as often as some of their friends and those users are typically on iOS. So I'd say that the opportunity set overall is different and in our early explorations, we're finding a lot of opportunity to improve that product experience. So you know the near term and month over month trends have been pretty construct.

Evan T. Spiegel: So I'd say the opportunity set overall is different, and in our early explorations, we're finding a lot of opportunities to improve the product experience. So, you know, the near term month over month trends have been pretty constructive, growth from February to March and, you know, March to April, month to date in North America has been positive. So we're making progress here. It is early, but we are seeing a lot of opportunity and are eager to improve the product for our community in North America and Europe.

Evan T. Spiegel: Growth from February to March and March to April month to date in North America has been positive. So we're making progress here. It is early but we are seeing a lot of opportunity and eager to improve the product for our community in North America and Europe.

Evan T. Spiegel: Yeah.

Evan T. Spiegel: Our next question comes from Rich Greenfield with LightShed Partners. Please proceed.

Evan T. Spiegel: Our next question comes from Rich Greenfield with <unk> partners. Please proceed.

Evan T. Spiegel: Yeah.

Evan T. Spiegel: Hi, thanks for taking the question. You know, look, I think the, you know, Evan, when I look at the time spent watching content globally, it was up, but North America was, you know, relatively, you sort of signaled the last couple of quarters, it's flattish, but you keep calling out spotlight momentum. And I feel like, you know, if I think about how you shift time spent on the platform or grow time spent on the platform.

Richard Greenfield: Hi, Thanks for taking the question.

Evan T. Spiegel: Look I think the.

Evan T. Spiegel: Even when I when I look at the time spent watching content globally.

Evan T. Spiegel: But north America was relatively.

Evan T. Spiegel: Sort of signaled the last couple of quarters, it's flattish, but you keep calling out spotlight momentum and it feels like.

Evan T. Spiegel: About.

Evan T. Spiegel: How you shift time spent on the platform or grow time spent on the platform it seems like spotlights.

Evan T. Spiegel: It seems like Spotlight, the key to unlocking meaningful growth. Yes, creator stories are growing, but especially as you unify the feed, it feels like the spotlight is so important. And I guess, because as you look across the landscape, real shorts, TikTok, versus spotlight, how do you evaluate where spotlight is today on a relative basis versus the choices consumers have for a similar, I realize it's not exact, but a similar experience? And how aggressively are you investing to take share with Spotlight?

Evan T. Spiegel: The key to unlocking meaningful growth, yes, creator stories are growing but especially as your unified the feed it feels like spotlight, so important and I guess could.

Evan T. Spiegel: Could you just as you look across the landscape real Schwartz tictoc versus spotlight, how do you evaluate where spotlight is today on a relative basis versus the choices consumers have very similar I realize it's not exact but a similar experience.

Evan T. Spiegel: And how aggressively are you investing take share with spotlight. Thanks.

Evan T. Spiegel: Thanks, Rich. Yeah, you know, as we look at Spotlight and Creator Stories, they've definitely been bright spots in terms of time spent. As you mentioned, we are really working to simplify and unify the experience, both in terms of, you know, the user perspective. So, you know, one unified feed of content, but also the ranking stack, which is going to enable us to really share signals, engagement signals between Stories and Spotlight, which we just haven't done historically.

Speaker Change: Thanks, Rich yeah, as we look at spotlight and creator stories. They have definitely been bright spots in terms of time spent as you mentioned, we are really working to simplify and unify the experience both in terms of the user perspective, so one unified.

Evan T. Spiegel: Feet.

Evan T. Spiegel: Content, but also the ranking stack, which has enabled us to really share signals engagement signals between stories and spotlight, which we just haven't done historically, so we think that'll really helping to personalize the experience overall I'd say looking at the feedback from our community one area, where we can really improve isn't making the content feel more timely and topical.

Evan T. Spiegel: So we think that'll really help, you know, personalize the experience overall. And I'd say, looking at the feedback from our community, one area where we can really improve is in making the content feel more timely and topical. We have a lot of great signals from our community about, you know, things that are trending, things that they're interested in in a given moment, but we haven't done a very good job surfacing the corresponding content that we also have as well, because people are making billions of snaps every day on Snapchat.

Evan T. Spiegel: We have a lot of great signal from our community about things that are trending things that they're interested in a given moment, but we havent done a very good job of surfacing the corresponding content that we also have as well because people are making billions of snaps every day on Snapchat. So I think there's work to be done to make our content experienced steel more timely and top.

Evan T. Spiegel: So I think there's work to be done to make our content experience feel, you know, more timely and topical. And then, you know, we're spending a lot of focus on the creator journey overall, that journey from using Snapchat to communicate with 100 friends to, you know, growing a following of millions and really making sure that people are creating great Stories or great Spotlight content can be discovered and then grow that following and ultimately, you know, build a business over time.

Evan T. Spiegel: Nickel and then we're spending a lot of focus on the creator journey overall that journey from using Snapchat to communicate with 100 brands growing up following a millions and really making sure.

Evan T. Spiegel: People are creating great stories are bright spotlight content can be discovered and then grow that.

Evan T. Spiegel: Following and ultimately build a build a business over time, so that's been a big focus as well as certainly a big opportunity for us and we're working away at it.

Evan T. Spiegel: So that's been a big focus as well. Certainly a big opportunity for us, and you know, we're working away at it. Our next question comes from Ross Sandler with Barclays. Please proceed. Yeah, hey guys. Um, so it sounds like you're upgrading and revamping the app.

Evan T. Spiegel: Yeah.

Evan T. Spiegel: Our next question comes from Ross Sandler with Barclays. Please proceed.

Ross Adam Sandler: Yeah, Hey, guys. So.

Ross Adam Sandler: So it sounds like you're upgrading revamping the.

Operator: Our next question comes from Ross Sandler with Barclays. Please proceed. Yeah, hey guys.

Ross Adam Sandler: Install or app kind of transaction category.

Ross Adam Sandler: Within the Dr business can you just remind us like back in the day, how big that category.

Operator: So it sounds like you're upgrading, revamping the app install or app kind of transaction category within the DR business. Can you just remind us, like back in the day, how big that category was? It appears he's lost connection with Ross. Our next question today comes from James Heaney with Jefferies. Please proceed.

James Edward Heaney: And it appears these loss connected with Ross. Our next question today comes from James <unk> with Jefferies.

James Edward Heaney: Please proceed.

James Edward Heaney: Great. Thanks for the question over the last few quarters, you've continued to grow your advertiser count at a pretty healthy clip can you guys. Just talk about this newer cohort of advertisers and what their propensity to spend looks like relative to older Advertiser cohorts.

Derek Andersen: Hey there, thanks. I think, you know, to start... We're growing a newer segment of customers here, and I think that's really exciting for broadening out the overall base of advertisers. So, you know, I shared earlier in response to another question that we've seen the active advertiser count on the small and medium sized customer base up to 85% year-over-year and it being, you know, the fastest growing customer segment. So that is very exciting.

James Edward Heaney: At what point do you feel like your SMB revenue starts to become more material.

Derek Andersen: Hey, there thanks.

Derek Andersen: To start.

Derek Andersen: We're growing our newer segment of customers here and I think that's really exciting to broadening out the overall base of advertisers. So.

Derek Andersen: Third earlier in response to another question that we've seen in the active advertiser count on the small and medium sized customer base up to 85% year over year and it being the fastest growing.

Derek Andersen: Customer segment, so that is very exciting and I think overall, you're seeing a broadening of the base of advertisers. There's a journey I think that youre going to see advertisers go through in <unk>.

Derek Andersen: And I think overall, you're seeing a broadening of the base of advertisers. There's a journey ahead. You know, I think that you're going to see advertisers go through in terms of, you know, one coming onto the platform, initial testing, seeing performance with some of these scaled self-serve products, and then being able to grow and optimize. And, of course, as we continue to bring more privacy-safe signals into our models and invest in bigger models and get better and better at optimization and ranking, those products become more performant.

Derek Andersen: Terms of one coming onto the platform initial testing.

Derek Andersen: Seeing performance with some of these scaled self serve products, and then being able to grow and optimize and of course as we continue to bring more privacy safe signals into our models and invest in bigger models and get better and better at optimization and ranking those products become more performance they deliver a better ROE as to those customers.

Derek Andersen: You know, they deliver better ROAS to those customers, and they give them the ability to bid and expand their budgets. So I do think there's a path here. I think what's really exciting is to see the ad platform delivering the kind of results that can help us grow that customer base because, over the long term, the small and medium sized customer base is going to be an absolutely critical ingredient to reaching the full monetization potential of the business. So after a good start and a lot of work to do to continue helping more of these advertisers on that journey, hopefully that context helps.

Derek Andersen: And to give them the ability to bid and expand their budgets. So I do think there is a journey here.

Derek Andersen: What's really exciting is to see the AD platform delivering the kind of results that can help us grow that customer base because over the long term the small and medium sized customer base is going to be an absolutely critical ingredient.

Derek Andersen: To reaching the full monetization potential of the business so off to a good start and a lot of work to do to continue helping more of these advertisers through that journey hopefully that context helps.

Derek Andersen: Okay.

Operator: Our next question comes from Michael Morris with Guggenheim. Please proceed.

Derek Andersen: Our next question comes from Michael Morris with Guggenheim. Please proceed.

Operator: Thank you. Good afternoon.

Michael Morris: Thank you good afternoon.

Operator: I wanted to ask you about spending and investment. Large companies in the technology sector are certainly increasing their investment in artificial intelligence infrastructure. Can you talk about your level of investment currently, whether you think that's sufficient, and how you think about your size and scale relative to larger players and what it takes for you to continue to be competitive in connecting with your audience? And if I could just have one follow-up on those statistics, Derek, that you reported and just shared about the CAPI integrations and the purchase conversions.

Michael Morris: I wanted to ask you about spending and investment large companies in the technology sector are certainly increasing their investment in artificial intelligence infrastructure.

Operator: Can you talk about your level of investment.

Operator: Currently whether you think that's sufficient and how you think about your size and scale.

Operator: Relative to larger players and what it takes for you to continue to be competitive and connecting with your audience and if I could just ask one follow up on those statistics Derek that you reported in just shared about.

Operator: The capex integrations in the purchase conversions.

Operator: The numbers are very large, far ahead of where your revenue growth is. Can you just talk about what it takes to get more of your customer base engaged with those? And can that drive acceleration in that revenue in the coming quarters and years?

Operator: The numbers are very large.

Operator: Far ahead of where your revenue growth is can you just talk about what it takes to get more of your customer base engaged with those and can that drive acceleration in that in that revenue in the coming quarters and years. Thanks.

Operator: Thanks.

Derek Andersen: It's like I can start around the, you know, the scale and scope of the infrastructure investments, and you're going to see those show up in really a couple of places. Number one, we shared last year that we scaled up our ML and AI infrastructure spending into the range of about 100 million a quarter starting in Q2 and Q3. And then we shared that, you know, that investment, larger investments, have been relatively stable over the last two quarters.

Speaker Change: Yes, so I can start around the.

Derek Andersen: The scale and scope of the infrastructure investments and Youre going to see those show up in really a couple of places number one we shared last year that we scaled up our ml and AI infrastructure spending into the range of about $100 million a quarter, starting in Q2 and Q3 of last year.

Derek Andersen: Let me share that that investment larger investments and relatively stable over the last few quarters.

Derek Andersen: Obviously, with the full-year range on infrastructure for Dow stepping up from 80 cents in Q1 to 83 to 85 in the remaining quarters of the year, we've given ourselves room to invest more there. I think the important thing, there are a couple of important things I would say just to put our investment in perspective. One is that we're investing, you know, in a different model. Rather than CapEx, it's showing up as a cloud infrastructure cost that's running through the cost of revenue.

Derek Andersen: Obviously with the full year range on infrastructure for Dow stepping out from <unk> in Q1 to $83 to 85 in the remaining quarters of the year, we've given ourselves room to invest more there I think the important there's a couple of important things I would say just to put our investment in perspective.

Derek Andersen: One is that we're investing.

Derek Andersen: On a different model rather than capex.

Derek Andersen: It's showing up as a cloud infrastructure costs, that's running through cost of revenue but to.

Derek Andersen: But two, you know, there's a multiplier on that spend as an ongoing operating expense relative to the underlying CapEx it represents. So, while we might be spending hundreds of millions of dollars a year currently on this type of infrastructure, the underlying capital is multiples of that, and the scale of the infrastructure that we have access to to run our models is obviously much, much larger.

Derek Andersen: There is a multiplier on that spend as an ongoing operating expense relative to the underlying capex that represents so while we might be spending hundreds of millions a year. Currently on this this type of infrastructure the underlying capital is multiples of that.

Derek Andersen: The scale of the infrastructure that we have access to to run our models.

Derek Andersen: Is obviously much much larger and so that's giving our business.

Derek Andersen: And so that's giving the business, you know, access to a lot of capacity. And I think second, and perhaps really, you know, over the long term, the most important thing is whether or not, you know, we're seeing the returns on that investment that are going to allow us to continue to scale that investment profitably for the business, that those investments that we've made in that infrastructure are paying off in significant and accelerating revenue growth and in particular on the DR ad platform, in addition to how it's contributing on the engagement side.

Derek Andersen: Access to a lot of capacity.

Derek Andersen: And I think second and perhaps really over the long term. The most important thing is whether or not.

Derek Andersen: We're seeing the returns on that investment that are going to allow us to continue to scale that investment profitably for the business and I think what youre seeing in the results in Q1 here are proof points that those investments that we've made in our infrastructure are paying off in significant and accelerating revenue growth and in particular on the <unk>.

Derek Andersen: Platform. In addition to how it's contributing on the engagement side and Thats going to position the business to be able to continue to scale those investments.

Derek Andersen: And that's going to position the business to be able to continue to scale those investments, you know, ideally continue to see positive ROI on that, like we have seen, and grow our business over time. So hopefully that gives you a little bit of a perspective of how we're thinking, and we're going to continue to reassess that.

Derek Andersen: Ideally would continue to see positive ROI on that like we have seen and grow our business over time. So hopefully that gives you a little bit of a perspective of how we're thinking of it we're going to continue to reassess that we've been really pleased with the ROI on those investments to date and we've made room to scale them and we'll continue to do that based on the data that we're getting back.

Derek Andersen: We've been really pleased with the ROI on those investments to date, and we've made room to scale them, and we'll continue to do that based on the data that we're getting. On your second question related to CAPPI integrations, you know, we're really pleased with the momentum on the coverage that we've seen there. I mentioned that we're looking at about 50% demand-weighted coverage of our DR ad revenue, and you know, those integrations are up about 3x, and 300% year over year.

Derek Andersen: On your second question related to copy integrations.

Derek Andersen: Yes, we're really pleased with the momentum on the coverage that we've seen there I had mentioned that we're looking at about 50% demand weighted coverage of our D. Our AD revenue in.

Derek Andersen: Those integrations are up about three X, 300% year over year. So obviously, good momentum and getting not adopted across our D. R advertising customer base and so really important I think to insulating the business going forward and helping our customers to have measurable results.

Derek Andersen: So obviously, you know, good momentum, and getting that adopted across our DR advertising customer base. And so really important, I think, to insulating the business going forward and helping our customers to have measurable results. And, you know, as I said in the answer to the prior question, the recipe here is getting people on board, getting them to adopt the right advertising solution for the objectives they're trying to achieve.

Derek Andersen: As I said and answered the prior question. The recipe here is getting people on board getting them to adopt the right advertising.

Derek Andersen: Solution for the objectives, they are trying to achieve and.

Derek Andersen: And, you know, a good proof point for that is that we are providing targeted offers to small and medium-sized customers based on what we know about their business to recommend the right advertising product for them. And advertisers that adopt those recommendations are seeing much improved results. And that's contributing, you know, in a scaled self-serve way to people being able to meet their ROAS objectives, grow their business, which puts them in a position to invest more on our platform.

Derek Andersen: Proof point on that is we are providing.

Derek Andersen: Providing targeted offers to small and medium sized customers based on what we know about their business to recommend the right advertising product for them and advertisers that adopt.

Derek Andersen: Those recommendations are seeing much improved results and that's contributing.

Derek Andersen: Our scaled self serve way to people being able to meet their <unk> objectives grow their business, which puts them in a position to invest more on our platform. So I think thats. The recipe there in terms of us seeing the advertiser base scale and we shared the 85% growth in the active advertisers in this.

Derek Andersen: So I think that's the recipe there in terms of us seeing that advertiser-based scale. And, you know, we shared that 85% growth in the active advertisers in the segment to let you know that in addition to people making progress on these integrations, it's turning into a flywheel on the actual customer base. So hopefully, that gives you a little bit more context of what we see as the path there and how that's going. Our next question comes from Benjamin Black with Deutsche Bank. Please proceed. Great. Thanks for taking my question. You know, could you talk a little bit more about your build out of that?

Benjamin Thomas Black: Segment to let you know that in addition to people making progress on these integrations.

Benjamin Thomas Black: Turning into our flywheel on on the actual customer base. So hopefully that gives you a little bit more context of what we see as the path there and how that's going.

Derek Andersen: Our next question comes from Benjamin Black with Deutsche Bank. Please proceed.

Benjamin Thomas Black: Great. Thanks for taking my question.

Benjamin Thomas Black: Could you talk a little bit more about your build out of the value optimization, how meaningful could that be.

Operator: Our next question comes from Benjamin Black of Deutsche Bank. Please proceed.

Benjamin Thomas Black: Is there any risk of disruption to the app install business and that progress there and perhaps more broadly what are some of the other initiatives you have on the product roadmap over the next 12 to 18 months that Youre excited about.

Evan T. Spiegel: Yeah, thanks so much for the question. You know, on the app side, the biggest thing we've been working on lately is just landing these model updates. We, I guess, in the last week or so, have updated our app install models, both scan and non-scan. So that's been great. And we now have our app install 7.0 and app purchase 7.0 products in testing.

Evan T. Spiegel: Yeah. Thanks, so much for the question on the App side. The biggest thing we've been working on lately is just landing. These model updates, we I guess in the last week or so.

Evan T. Spiegel: We have updated our our app install models both scan in non scan. So that's been great and we now have our app install seven zero and have purchased seven zero products and testing is it's very early but the results have been promising so far we also have a new scan offering that we're just introducing to our customers so well.

Evan T. Spiegel: It's very early, but the results, you know, have been promising so far. We also have a new scan offering that we're just introducing to our customers. So we'll be excited to get their feedback and see how that can improve their performance. And we have a number of customers testing that already. You know, I think value optimization will follow. We've really just been focused on driving more quick through installs at much lower CPIs for our advertising partners.

Evan T. Spiegel: Excited to get their feedback and see how that can improve.

Evan T. Spiegel: Their performance and we have a number of customers testing that already I think value optimization will follow we've really just been focused on driving more quicker installs at much lower <unk> for our advertising partners and then we will be working more on the value optimization piece.

Evan T. Spiegel: And then we'll be working more on the value optimization piece. I think, you know, just broadly looking at the advertising platform, we have made a lot of progress, as Derek mentioned, on signals and running much larger, you know, unified models, of course, on ad interactions as well in the ad format. I think sort of looking ahead. You know, we've been working on things like product selection for our dynamic product ads product.

Evan T. Spiegel: Just broadly looking at the advertising platform, we have made a lot of progress as Derek mentioned on signals and running much larger.

Evan T. Spiegel: Unified models of course, the AD interactions as well in the AD formats, I think sort of looking ahead, we've been working on things like product selection for our dynamic product ads product, we've been making progress with things like cold start, which is especially relevant for SMB advertisers at lower levels of spend to help them.

Evan T. Spiegel: We've been making progress with things like cold start, which is especially relevant for SMB advertisers at lower levels of spend to help them find success. So I think there's a lot, a lot more work to do. But we're building on a solid foundation now. And, you know, we've been able to do some free wrap.

Evan T. Spiegel: Find success. So I think there's a lot a lot more work to do but we're building on a solid foundation now and we've been able to make some pretty rapid progress.

Operator: Our next question comes from Mark Shmulik with Bernstein. Please proceed.

Operator: Okay.

Mark Elliott Shmulik: Our next question comes from Mark Sheila with Bernstein. Please proceed.

Evan T. Spiegel: The first is on Snapstars, which sounds like it's growing quite well and really contributing to engagement. Just wanted to, you know, kind of ask, how do we think about the philosophy as we think about, you know, onboarding more Snapstars, more Spotlight, more broadcast-style media, and how does that fit in the long-term engagement strategy, kind of balancing it with deepening connections with friends, family, people you care about And then just the second question for Derek, you know, we've heard from others just about the recovery of the digital ad market, certain verticals coming back kind of quicker than others. Any color you can share just about the vertical mix you've seen? Thanks.

Mark Elliott Shmulik: Yeah. Thanks, Thanks for taking the question a couple if I may the first just on snap start.

Evan T. Spiegel: It sounds like it's growing quite well and really contributing to engagement.

Evan T. Spiegel: Can I ask how do we think about the philosophy as we think about Onboarding more snap stars more spotlight more broadcast media and how does that fit in the long term engagement strategy kind of balancing it with like deepening connections with friends. Several people you care about and then the second question for Derek.

Evan T. Spiegel: We've heard from others just on the recovery of the digital AD market certain vertical coming back kind of quicker than others any any color you can share just about the vertical mix you've seen thanks.

Derek Andersen: Thanks so much for the question. Yeah, as we look at content on Snapchat, I think the most successful content is really about relationships. And those can be relationships with, you know, your close friends and family, but they could also be relationships with Snapstars. And that's, that's the feedback we hear from Snapstars as well, that the engagement they have, the relationship they're able to build with their audience on Snapchat is really, you know, unparalleled, and one of the reasons why they love investing in our platform.

Speaker Change: Thanks, So much for the question, yes, as we look at our content on <unk> I think the most successful content is really about relationships and those can be relationships with your close friends and family, but it could also be relationships with <unk> and that's the feedback we hear from snap stars as well that the engagement they have the relationships, we're able to build with.

Derek Andersen: Our audience on Snapchat is really unparalleled and one of the reasons why they love investing in our platform as we look at scaling the staff Star program I'd say today, the focus is mostly around.

Derek Andersen: As we look at scaling the Snapstar program, I'd say today, the focus is mostly around, you know, looking at countries, geographies where we were sort of underindexed, investing in Snapstars there, so we can build out more local language content. We're also looking at interests; a lot of Snapstars create content around their interests, you know, food or travel, you know, sports, those sorts of things. And so we're really looking at this intersection of, you know, the geographies, you know, where we have Snapstars, and then the interests as well, and really lining up with that, and that matches up with our community and what they're looking for. So, yeah, I would say overall, to your point, relationships really do drive content consumption on our service, and that's why Snapstars are such an important part of our offer.

Derek Andersen: Looking at countries geographies, where we were sort of under indexed and investing in snap stars. There. So we can build out more local language content. We're also looking at interest a lot of SaaS stars create content around their interests.

Derek Andersen: It could be food or travel.

Derek Andersen: Sports.

Derek Andersen: Sorts of things and so we're really looking at this intersection of the geographies, where we have staff stars and on the interest as well and really lining up with that that up with our community and what they're looking for so I would say overall to your point relationships really do drive that content consumption on our service and that's why snaps ours are such an unimportant part of our offering.

Derek Andersen: Okay.

Operator: There in terms of, you know, color on the board. In terms of color on the verticals and where we're seeing the operating environment generally as we went through Q1, number one, I think we've seen the improvement in the operating environment be fairly broad in Q1 in that we did see certain regions particularly impacted by the war in the Middle East in Q4, and so certainly we've seen demand, as we mentioned in the letter, really improve on that front quarter over quarter.

Speaker Change: Hey, there in terms of color.

Operator: Sorry in terms of color on the verticals and where we're seeing the operating environment generally as we went through Q1.

Operator: Number one I think we've seen the improvement in the operating environment to be fairly broad and into Q1 and that we.

Operator: We did see certain regions particular impacted by.

Operator: We're in the Middle East in Q4, and so that certainly we've seen demand as we mentioned in the letter really improve on that front quarter over quarter, but I think more broadly we saw a much more robust brand environment, which played out in all of our regions in Q1, and then from a Dr perspective, it's really about fit.

Operator: And I think more broadly, we saw a much more robust brand environment, which played out in all of our regions in Q1. And then from a DR perspective, it's really about fit, and of course, with purchase optimization and the scaled self-serve SMB products working really well, we've seen verticals such as CBG, e-commerce, restaurants, and travel, and SMBs broadly working really well. And I think what we're excited about is being able to broaden that out to a wider set of customers as we introduce more of these app-based optimizations and start to address other verticals. A much better environment in Q1, for sure. Thank you for the question.

Operator: And of course with purchase optimization in a scaled self serve SMB products working really well.

Operator: Seen verticals, such as CPG e-commerce, restaurants, and travel and Smbs broadly working really well.

Operator: I think what we're excited about is to be able to broaden that out to a wider set of customers as we introduce more of these sound based optimization and start to address other verticals. So.

Operator: Much better environment in Q1 for sure. Thank you for the question.

Operator: Okay.

Operator: Our last question comes from Dan Salmon with New Street Research. Please proceed.

Operator: Our last question comes from Dan Salmon with New Street Research. Please proceed.

Operator: All right, great. Good afternoon, everybody.

Daniel Salmon: Alright, great Alright.

Daniel Salmon: Afternoon, everybody.

Operator: Yes.

Daniel Salmon: Can you hear me okay.

Operator: Yes, we can. Thank you. Okay, good. Sorry about that.

Daniel Salmon: Yes, we can thank you.

Operator: Okay.

Operator: Okay, good. Sorry about that.

Daniel Salmon: Sorry about that thanks.

Evan T. Spiegel: Thanks. So, two questions. Evan, I'm just curious about any early learnings from your ad partnership with Amazon and whether or not you'd consider more ad partners that can bring incremental demand? Both Amazon and Google are cloud partners, after all.

Daniel Salmon: So two questions Evan I'm, just curious any early learnings from your AD partnership with Amazon.

Evan T. Spiegel: And whether or not you would consider more at partners that can bring incremental demand.

Evan T. Spiegel: Both Amazon and Google are cloud partners after all that.

Derek Andersen: That could be interesting. And second, for Derek, can we just go back to the S&B advertiser growth at 85%? I mean, that's a significant acceleration. Was there something special about that? Or is that the type of level of growth you can expect throughout the year? Thank you.

Evan T. Spiegel: Interesting.

Derek Andersen: Second for Derek can I, just go back to the <unk>.

Derek Andersen: SMB advertiser growth at 85% I think that's it.

Derek Andersen: Significant acceleration was there something like one time in that or is that the type of level of growth. We can expect throughout the year.

Evan T. Spiegel: Thanks, Dan. Yeah, you know, as we look at the Amazon partnership and what they're doing with Handshake, I do think that's a great learning opportunity for us. It's still very early, but I think what's exciting is, you know, being able to bring relevant products to Amazon shoppers inside the Snapchat experience. We know that people now shop where they consume content. And so to be able to offer a relevant product selection in line and allow people to check out with one tap is certainly an exciting product development.

Speaker Change: Thank you.

Evan T. Spiegel: Okay.

Evan T. Spiegel: Thanks, Dan, Yes, as we look at Amazon partnership and what they're doing with the handshake I do think that's a great learning opportunity for us it's still very early but I think what's exciting is being able to bring relevant products.

Evan T. Spiegel: It's Amazon shoppers inside the Snapchat experience, we know that people now shop, where they consume content and so to be able to offer a relevant irrelevant product selection in line and allow people to check out with one tap.

Evan T. Spiegel: Certainly.

Evan T. Spiegel: So we'll, you know, we'll obviously continue to learn there and evolve that product. I do think, separately, that some of these ad partnerships we've done and work we've done with other demand partners have been, you know, important elements of our growth, and we do see, you know, continued

Evan T. Spiegel: An exciting product development. So we will obviously continue to learn there and evolve that product I do think just separately that some of these AD partnerships. We've done work we've done with other demand partners have been important elements of our growth and we do see continued opportunity there.

Derek Andersen: Hey there, and on the question about SMB, you know, I would agree. I mean, that growth among active advertisers is obviously a really important input to building what we hope will be a very big business for us over time, and we're early in the going. So there's a lot of opportunity set here, both in terms of product market fit as we are able to have more optimizations that are going to appeal to a wider and wider audience in that SMB set.

Evan T. Spiegel: Yeah.

Derek Andersen: Hey, there and on the question about the SMB I would agree I mean that growth on the active advertisers is obviously, a really important input to building what we hope will be a very big business for us over time and we're early in the going sorry, there is a lot of opportunity set here both in terms of product market fit as we are able.

Derek Andersen: To have more optimizations that are going to appeal to a wider and wider audience in that SMB side and I think we're learning a lot about how to use integration partners to help make it easier for these advertisers to onboard over time.

Derek Andersen: And I think we're learning a lot about how to use integration partners to help make it easier for these advertisers to onboard over time, as well as the ability to work our funnels, whether that's from awareness to onboarding and acquisition to trial and discovery and through the scaling process of delivering ROAS for these partners.

Derek Andersen: As well as the ability to work our funnels, whether that's from awareness to Onboarding and acquisition to trial and discovery and through the scaling process of delivering raws for these partners. So we're early in the going there, but excited about the progress we're seeing so far and it's something that we hope to build on as we go forward. So thanks for the question hopefully that.

Operator: This concludes our Q&A session as well as Snap Incorporated's First Quarter 2024 Earnings Conference Call. Thank you all for attending today's session. You may now disconnect.

Operator: You're a little more perspective of how we're thinking about it.

Operator: Yeah.

Operator: This concludes our Q&A session as well as snap incorporated first quarter 2024 earnings conference call.

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