Snap Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 29, 2024

Key Takeaways

  • Daily Active Users reached 443 million in Q3, up 37 million year-over-year, while content viewers and total time spent watching content grew 25% year-over-year thanks to Spotlight and Stories engagement.
  • Revenue rose 15% year-over-year to $1.37 billion, driven by a 10% increase in advertising and a doubling of Snapchat Plus subscription revenue to $123 million.
  • Profitability milestones were hit with $132 million of adjusted EBITDA and $72 million of free cash flow in Q3, reinforcing the path toward GAAP profitability.
  • Product innovations included the rollout of “Simple Snapchat” to streamline the UI, the introduction of Sponsored Snaps and Promoted Places ad formats, generative AI tools in Lens Studio, and the launch of 5th-generation Spectacles for AR.
AI Generated. May Contain Errors.
Earnings Conference Call
Snap Q3 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good afternoon, everyone, and welcome to Snap Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, participants are in a listen only mode.

Operator

I would now like to turn the call over to David Ulmieder, Head of Investor Relations.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to Snap's Q3 2024 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.com to find today's press release, earnings slides and investor letter.

Speaker 1

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

Speaker 2

to update our disclosures.

Speaker 1

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 10 ks 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 2 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.

Speaker 1

With that, I'd like to turn the call over to Evan.

Speaker 2

Hi, everyone, and thank you for joining our call. In Q3, we continued to make progress on our core priorities of growing our community and improving depth of engagement, driving top line revenue growth and diversifying our revenue sources and building toward our long term vision for augmented reality. Daily active users reached 443,000,000 in Q3, an increase of 37,000,000 year over year. We continue to deepen engagement with our content platform with the number of content viewers and total time spent watching content growing year over year. The progress we have made with our direct response advertising business and the growth of our Snapchat Plus subscription business contributed to total revenue increasing 15% year over year to $1,370,000,000 We continue to make meaningful progress with our lower funnel Doctor business as total active advertisers more than doubled year over year in Q3.

Speaker 2

In an effort to grow our lower funnel Doctor business faster, we are innovating on our advertising products, investing in machine learning and evolving the way we go to market to better serve our advertising partners. We hosted our annual Snap Partner Summit in Q3, bringing together partners, creators and Lens developers to introduce a number of new initiatives. We announced a new and simplified version of Snapchat that we believe will further our initiative to grow our community and deepen engagement. We also announced 2 new ad placements, sponsored Snaps and Promoted Places that will provide incremental reach to our advertising partners as they engage with Snapchatters across our service. To further our vision for augmented reality computing, we launched the 5th generation of Spectacles, our AR glasses powered by Snap OS and introduced a series of generative AI innovations for our AR developer platform.

Speaker 2

Developers are already building amazing lenses and we can't wait to see the new experiences they create for our community. We believe the rapid pace of innovation set by our team demonstrates the impact of a leaner organizational structure that is more focused on our core strategic priorities. The benefits of our more focused set of priorities is also evident in our financial results where we have cleared a path to generate meaningful adjusted EBITDA profitability and positive free cash flow, both of which are critical stepping stones to future GAAP profitability. In Q3 specifically, the combination of top line progress and expense discipline translated to $132,000,000 of adjusted EBITDA $72,000,000 of free cash flow. Moving forward, we will continue to calibrate our investments carefully to build on our top line momentum, while realizing the operating leverage necessary to drive improved financial performance.

Speaker 2

In Q3, we introduced a new and simplified version of Snapchat organized into 3 core experiences focused on communicating with friends, using the camera and watching entertaining content. For Snapchatters, this updated layout offers a more personal, relevant and easy to use interface. For creators, Simple Snapchat unlocks greater discovery and enhances the ability for content to reach new audiences. Currently, there are approximately 10,000,000 Snapchatters using Simple Snapchat across dozens of countries. Broadly speaking, Simple Snapchat is driving the greatest content engagement gains among more casual users, which is an important input to community growth and advertising inventory.

Speaker 2

We are seeing particularly positive impacts on Android devices, including increased time spent with content, increased story views and more replies to friends' stories, which is an important conversation starter that helps foster close relationships. We are also seeing an increase in content active days on iOS, but the impacts to other top engagement metrics are not yet as broadly positive as on Android due in part to the differences in engagement across these platforms. We are encouraged by this early progress as it reinforces our conviction that this user experience will further our goals of inspiring creation, enhancing communication and delivering a more engaging content experience. We recognize that any significant change in user experience brings risk of disruption to our community and advertising business. Further, the impact on engagement may vary as we expand our testing to new cohorts.

Speaker 2

As a result, we will be intently focused on testing and iterating in the months ahead to optimize the experience for our community and our business. We continue to make meaningful progress in growing our global community, reaching 443,000,000 daily active users in Q3, an increase of 11,000,000 quarter over quarter. Daily active users in North America was 100,000,000, approximately flat year over year, but up quarter over quarter as our initiatives to increase user engagement begin to show early signs of progress. Daily active users in Europe was 99,000,000 compared to 97,000,000 in the prior quarter and 95,000,000 in the prior year. DAU and rest of world was 244,000,000 compared to 235,000,000 in the prior quarter and 211,000,000 in the prior year.

Speaker 2

Snapping with friends and family is the core of our service and the primary driver of the continued growth and long term retention of our global community. In Q3, we introduced new AI enabled features to inspire creations, spark conversations and help our communities strengthen their relationships through snapping. For example, we introduced AI and Snapchat memories, which enables Snapchatters to share AI generated collages and video mashups with friends. In addition, we announced an expanded strategic partnership with Google Cloud to leverage the multimodal capabilities of Gemini on Vertex AI to power Snapping with MyAI, our AI powered chatbot. In Q3, the number of snaps sent to MyAI in the U.

Speaker 2

S. More than tripled quarter over quarter. Our content platform continues to strengthen relationships on Snapchat with a number of people sharing spotlight content with friends up more than 60% year over year in Q3. To further deepen content engagement, we are investing in our ML models to improve ranking and personalization. In Q3, we enhanced our spotlight recommendation system to better represent each Chatter's interests and preferences based on historical signals, launched models optimized for new Snapchatters and deployed multimodal ML models to improve recognition of video, text and audio and content submitted by creators.

Speaker 2

To expand our content supply, we are focused on growing our creator community by supporting them with content creation tools and monetization opportunities. In Q3, we began testing a new AI video generation tool that enables creators to generate engaging videos with a simple text or image prompt. Our efforts to support creators have contributed to the number of creators posting content growing approximately 50% year over year in Q3. The combined impact of these initiatives have helped to drive improvements in global time spent watching content, which increased 25% year over year and 6% quarter over quarter in Q3. In North America, time spent watching content was relatively stable, down 1% year over year while increasing 2% quarter over quarter.

Speaker 2

The relatively higher rate of growth outside North America is due in part to the greater mix of content viewing being driven by spotlight in these regions, as spotlight reach and depth of engagement continues to grow rapidly across all regions. Augmented reality continues to inspire creation and drive engagement on Snapchat. More than 375,000 AR creators, developers and teams from nearly every country in the world have built over 4,000,000 lenses. For example, our past and future me AI lens, which enables Snapchatters to transform into their younger and older self, was viewed over 650,000,000 times in Q3. To build on this momentum, we created a number of generative AI capabilities in one studio, including Easy Lens, a new Gen AI tool that makes it possible to create an AR experience within minutes.

Speaker 2

We are also rolling out a slate of new Gen AI suite features in Lens Studio, including new animation tools that automatically blend different animations together to easily generate full 3 d characters. The response to our new tools in Lens Studio has been inspiring and reinforces our belief that long term success in AR requires a vibrant developer and creator ecosystem. We believe our efforts to build a global AR ecosystem are critical to enabling new experiences brought to life through Spectacles. In Q3, we introduced the 5th generation of Spectacles, our see through standalone AR glasses that enable developers to use AR lenses and experience the world together with friends in new ways. Spectacles are powered by Snap OS, our new operating system designed to reflect how people naturally interact with their hands and voice.

Speaker 2

Spectacles enable developers to create immersive AR experiences, interact with MyAI, browse the internet or lay out multiple screens to get work done anywhere. AR developers and partners are already creating AR experiences for Spectacles, including Bricktacular by the Lego Group and Peridot, a including Bricktacular by the Lego Group and Peridot, a friendly and unique AR pet from Niantic. We aspire to be the most developer friendly platform in the world and we are excited to offer our new generation of Spectacles to developers as an invitation and inspiration to create new experiences. Looking ahead, we are focused on innovating and enhancing our core product experience while continuing to invest in the future of augmented reality. We believe continued progress on these initiatives is a critical input to serving our community and expanding our long term monetization opportunity.

Speaker 2

We continue to make progress on 3 foundational advertising platform initiatives, including better and larger ML models, improved privacy safe signals and more performant ad formats in order to deliver improved campaign performance for our advertising partners. The expansion of 7 0 optimization to app install and app purchase is driving better performance for advertisers with early results showing cost per install decreasing 24% and cost per purchase decreasing 27% compared to 28.1 optimization. For example, Nexers, an international game development company and creator of hit title Hero Wars, leveraged 7 0 optimization for app install and app purchase and saw a 19% increase in installs with an 18% lower cost per install and a 56% increase in purchases at a 36% lower cost per purchase. Recently, we introduced our new landing page view optimization goal to help advertisers drive high quality traffic to their websites. Through improvements in our ML models that optimize for this specific objective, we observed lower costs for some advertisers versus traditional click engagement models.

Speaker 2

For example, with the guidance of their digital agency Tenuity, Wrangler leveraged landing page view optimization and saw a 34% increase in CPM efficiency and a 3 80% increase in conversions, leading to a 2 12% higher ROAS compared to previous benchmarks. The combination of more performant Doctor products, go to market operations optimized for SMB customers and easier onboarding and integration tools are helping to rapidly expand our SMB customer base. As a result of these efforts, total active advertisers more than doubled year over year in Q3. Today with our Snap promote offering, SMBs and creators alike can promote their services, content or products, reach new audiences and measure ad performance all within Snapchat on their mobile devices. We also continue to enhance the advertiser onboarding experience by personalizing and automating the buying process from end to end, so that SMBs can optimize their campaigns faster and enhance performance.

Speaker 2

Recently, we launched automated in flight campaign recommendations, adaptive templates for campaign setup and scaled creative editing to further improve our go to market strategy for SMBs. For example, U. S. Based cookie franchise Crumble leveraged our new seven-zero optimization for app install and app purchase and completed their CAFE integration, resulting in a 32% quarter over quarter increase in ROAS and a 2 42% quarter over quarter increase in purchases. We are also focused on reaccelerating upper funnel brand revenue growth by delivering innovative and performant advertising products, while supporting brands and agencies with resources and unique insights.

Speaker 2

In Q3, we launched First Lens Unlimited, which offers advertisers the first impression of the day in the first slot of their AR Lens Carousel, allowing them to reach our community at greater scale. During testing, First Lens Unlimited drove an average increase of over 35% in incremental impressions for advertising partners. We also launched state specific First Story, which allows U. S. Advertisers to target First Story takeover campaigns to individual states or to reach the entire country with different creative for each state.

Speaker 2

We are also experimenting with 2 new ad placements, Sponsored Snaps and Promoted Places. Importantly, both of these placements are designed to leverage our existing full screen vertical video Snap ad format, so that advertisers can automate placement across our service without having to develop bespoke creatives. Sponsored Snaps will empower advertisers to communicate visually with the Snapchat community, making the core functionality of Snapchat accessible to advertisers. Promoted Places enables businesses to use the Snap map to suggest sponsored places of interest to Snapchatters. Sponsored Snaps and Promoted Places will help businesses reach Snapchatters in engaging ways across our differentiated service, and we believe these new ad placements will contribute meaningful incremental advertising inventory over time.

Speaker 2

We are on track to launch Sponsored Snaps and Promoted Places in certain geographies in Q4. With that, I'd like to turn the call over to Derek to discuss our financial results.

Speaker 3

Thanks, Evan. In Q3, total revenue was 1,370,000,000 dollars up 15% year over year and 11% quarter over quarter. Advertising revenue was $1,250,000,000 up 10% year over year driven primarily by growth from Doctor advertising revenue which increased 16% year over year. Doctor ad revenue growth was driven by continued strong demand for our 7.0 pixel purchase optimization that was up more than 160% year over year as well as a growing contribution from app purchase optimization. Brand oriented advertising revenue was down 1% year over year as we continued to see weak demand from certain consumer discretionary verticals, including technology, entertainment and retail.

Speaker 3

We continue to make progress toward diversifying our revenue sources with other revenue more than doubling year over year to reach $123,000,000 in Q3. Other revenue includes all non advertising revenue, the majority of which is Snapchat Plus subscription revenue and Snapchat Plus subscribers more than doubled year over year to exceed $12,000,000 in Q3. In Q3, North America revenue grew 9% year over year with a relatively lower rate of growth in this region due to the impact of weaker brand oriented demand being relatively concentrated in North America. Europe revenue grew 24% year over year as continued progress on our Doctor ad platform fully offset the impact of more challenging prior year comparisons. Rest of world revenue grew 32% year over year driven by the continued progress with our Doctor ad platform.

Speaker 3

Global impression volume grew approximately 19% year over year driven in large part by expanded advertising delivery within Spotlight and Creator Stories. Total eCPMs were down approximately 7% year over year as inventory growth exceeded advertising demand growth in Q3. Adjusted cost of revenue was $637,000,000 in Q3, up 16% year over year. Infrastructure costs were the largest driver of the year over year increase due in large part to the ramp in ML and AI investments over the past year. Infrastructure cost per DAU was $0.84 in Q3, which is up from $0.81 in the prior quarter and within our expected range of $0.83 to $0.85 The remaining components of adjusted cost of revenue were $263,000,000 in Q3 or 19% of revenue, which is in line with the prior quarter and at the lower end of our full year cost structure guidance range of 19% to 21%.

Speaker 3

Adjusted gross margin was relatively stable at 54% in Q3, up from 53% in the prior quarter, but in line with 54% in the prior year. Adjusted operating expenses were $604,000,000 in Q3, up 1% year over year. Personnel costs decreased 9% year over year driven by an 11% year over year decline in full time headcount. This was partially offset by higher marketing costs related to our ongoing More Snapchat campaign as well as the impact of our Snap Partner Summit which incurred in Q3 this year compared to Q2 in the prior year. Increases in legal related costs year over year including the impact of complying with an increasingly complex global regulatory environment were also a key factor in offsetting lower personnel costs in Q3.

Speaker 3

Adjusted EBITDA was $132,000,000 in Q3, up from $40,000,000 in Q3 of the prior year, reflecting higher revenue and operating expense discipline. Adjusted EBITDA flow through or the share of incremental year over year revenue that flowed through to adjusted EBITDA was 50% in Q3 as we continue to carefully prioritize our investments to drive top line growth and deliver improved financial performance. Net loss was $153,000,000 in Q3 compared to a net loss of $368,000,000 in Q3 of the prior year. The $215,000,000 or 58% improvement in net loss year over year largely reflects the flow through of a $92,000,000 improvement in adjusted EBITDA, a $94,000,000 or 26 percent reduction in stock based compensation and related expenses and the impact of $19,000,000 of restructuring costs in the prior year. The reduction in SBC to $266,000,000 in the current quarter reflects reduced headcount and the diminished impact of refresh equity grants relative to the prior year.

Speaker 3

Free cash flow was $72,000,000 in Q3, while operating cash flow was $116,000,000 Over the trailing 12 months, free cash flow was $147,000,000 and operating cash flow was $347,000,000 as we continue to balance investments with top line growth to deliver sustained positive cash flow. Dilution or the year over year growth in our share count was 0.6% in Q3, down from 1.9% in the prior quarter. We ended Q3 with $3,200,000,000 in cash and marketable securities on hand and no debt maturing in the current year, which reflects our ongoing commitment to maintaining a conservative balance sheet with ample liquidity for our operations. As we enter Q4, we anticipate continued growth of our global community and our Q4 guidance is built on the assumption that DAU will be approximately $451,000,000 in Q4. We are excited about the potential for Simple Snapchat, Sponsored Snaps and Promoted Places to contribute to top line growth over time.

Speaker 3

In particular, we are encouraged by early testing results that show content engagement gains among less frequently engaged users of Snapchat as we believe this can be an important input to impression growth and incremental reach for advertisers. While we believe growth in content engagement and demand for the new ad placements may build over time, many of the changes associated with Simple Snapchat occur immediately as Snapchatters transition to the new user experience, which presents the risk of near term disruption. While we do not currently anticipate a broad rollout of Simple Snapchat at our most highly monetized markets until Q1 at the earliest, we have now begun limited testing in these markets and may further expand this testing as we move through Q4. In addition, upper funnel advertising from large enterprise clients has historically been an important component of demand in Q4 and this portion of the business has been underperforming our overall ads business in recent quarters. Given these factors, our Q4 guidance range for revenue is $1,510,000,000 to 1,560,000,000 dollars implying year over year revenue growth of 11% to 15%.

Speaker 3

From a cost structure perspective, we are tracking well against our full year cost structure guidance. For infrastructure, our guidance was for quarterly costs of $0.83 to $0.85 per DAU. We hit the midpoint of this range in Q3 and with growing ML and AI capacity utilization being partially offset by the benefit of recent pricing improvements, we anticipate being near the top end of this range in Q4. For all other cost of revenue, our guidance range was 19% to 21% of revenue. We came in at the low end of this range in Q3 and anticipate being within the range again in Q4.

Speaker 3

For adjusted operating expenses, we provided full year guidance of 2,425,000,000 dollars to $2,525,000,000 In Q3, our annualized run rate was consistent with the low end of this range and with modest sequential growth forecasted for Q4, we expect to be near the low end of the range for the full year. For SBC and related expenses, we guided for a range of $1,130,000,000 to $1,200,000,000 for the full year. In Q3, the annualized run rate of our SBC expense was below the low end of this range. We anticipate modest sequential growth in SBC expense in Q4 and therefore anticipate we will come in 4% to 5% below the low end of our guidance range for the full year. Given the revenue range above and the progress we have made to optimize our cost structure, we estimate that adjusted EBITDA will be between $210,000,000 $260,000,000 in Q4.

Speaker 3

Given the strength of our balance sheet, our progress towards sustained free cash flow generation and our desire to opportunistically manage our share count for the benefit of our long term shareholders, we have authorized a new share repurchase program in the amount of $500,000,000 As we move forward, we will remain focused on prioritizing our investments carefully to drive top line growth alongside improved financial performance. Thank you for joining our call today and we will now take your questions.

Operator

Thank you. We will now begin the Q and A session. Our first question today comes from Dan Salmon with New Street Research. Your line is now open.

Speaker 4

Okay, great. Good afternoon, everyone. I mean, you highlighted the potential risk of simple Snapchat transition in your comments. Derek walked through the sort of timing of testing, both mentioned over a dozen markets and mentioned that you're being cautious on how you move testing into higher monetizing markets. So the high level makes a lot of sense.

Speaker 4

Could you maybe take us a layer deeper on how you and the team are monitoring and managing that risk on a regular basis, including how you're ensuring you don't see a monetization headwind from the changes?

Speaker 2

Thanks. Thanks, Dan. We're definitely excited about the long term opportunity for Simple Snapchat. And that's especially with new and less engaged users where we've seen some of the biggest increases in content engagement. But we definitely have a lot of work to do to iterate and test before we begin a broader rollout.

Speaker 2

So that will include things like better understanding the shifts in inventory and potential impacts to monetization. And for example, we'll be working to move more of the story ad delivery into interstitial placements rather than tile based ads in the current Discover feed. So certainly changes of scale have the potential to be disruptive, which is why we're taking this test and learn approach. And ultimately, we really want our community and our partners to benefit from these changes.

Operator

Our next question comes from Rich Greenfield with LightShed Partners. Your line is now open. Rich, your line is now open.

Speaker 5

Sorry about that. Sorry about that. Just want to follow-up on Simple Snapchat.

Speaker 2

When you said you started to roll

Speaker 5

it out in some major markets this quarter, have you done that in the U. S, U. K, France, Germany, like some of your big ad markets? The reason I ask is, obviously, the product looks great. It's driving engagement.

Speaker 5

But I think what we're all trying to understand is, are you willing to take some near term disruption revenue wise next year to roll out the superior product? Or will you wait until it's a revenue neutral shift to wait to roll it out? Like we're just trying to understand what will happen to make you roll it out more broadly, if that makes sense.

Speaker 2

Thanks, Rich. Yes, we're still early in the journey on understanding the monetization dynamics and some of those inventory shifts and how that could impact revenue. We certainly want to take the time to work through those sorts of changes and make sure advertisers and our partners, for example, are prepared for those sorts of changes. So all that to say, I think it's pretty early right now. And while we are excited about some of the engagement shifts we've seen with new and less engaged users, we're going to take our time to really understand the monetization dynamics and work through some of those changes.

Speaker 2

So our goal is really to take our community and our partners along for that journey. And so we're going to keep testing and learning here and potentially even explore something like a phased rollout, for example, over an extended period of time.

Operator

Our next question comes from Justin Post with Bank of America. Your line is now open.

Speaker 1

Great. Thank you. Just wanted to ask about sponsored snaps and Promoted Places. I know you mentioned you're pretty excited about the long term opportunity. Can you help us just understand the usage those services get and how you're thinking about, inserting ads and how that could look for you in the very long term?

Speaker 1

Thank you.

Speaker 2

Thanks, Justin. Yes, we're really excited about these 2 new ad placements that will really be leveraging the foundation we built for performance advertising over the past couple of years with really the vision that Snap Ads can be fungible across many different placements across Snapchat that leverage the unique and differentiated ways that our community engages across our platform. I think in the case of Promoted Places, we've gotten some great early feedback. We've run some initial tests, although I think it's a bit too early to share the data there. But in general, we're just seeing a lot of businesses really focused on driving more people in store into their retail locations to try and strengthen that customer relationship.

Speaker 2

I think many brands are feeling like they've been disintermediated with their digital relationship with customers. And so being able to bring people into their retail establishments and really strengthen that relationship with their customers, something that's important to them. So the feedback there has been great. And we have some sponsored SNAP tests forthcoming in the quarter. So once we have some more data back there, we'll be eager to share that as well.

Operator

Our next question comes from Ken Garelski with Wells Fargo. Your line is now open.

Speaker 6

Thank you. Appreciate it. When you think about the key objectives for the simplified app launch, When you think about the opportunities and engagement versus monetization, if you could kind of weigh the 2 and if there's one that kind of is more important than the other. And the second one is, how do you think what will it take to get advertisers to spend more broadly, not only always on, which is more of a direct response or SME behavior, but also spend kind of give you a budget and allow you to allocate across the different products and services on Snap, which we've seen to be very successful at both Google and Meta? Thank you.

Speaker 2

Yes. Thanks, Ken. I think as we look at the evolution with Simple Snapchat, our North Star has always been creating the best possible product experience for our community, and a product experience that they really love. I think there are some challenges today, as we've innovated over the years and created all these new ways to engage, with Snapchat, the app has become, quite complex. And even basic things like watching Stories or watching Spotlight, that's something that people have to do in 2 different screens right now.

Speaker 2

And so being able to unify the content experience, I think is something that's going to be a really important step in the right direction for us. Same goes for content discovery, for example. I think today, the tile based content discovery is just not as effective as full screen content discovery. And so I think that's a big opportunity that will not only benefit folks using Snapchat, but also creators who are working really hard to reach our audience with really compelling content. So I think in general, this North Star of our community and of course our partners like creators is really important to us.

Speaker 2

And then what we found is that that over the long term tends to create more opportunity for advertising partners as well as they're able to reach our audience through these different parts of our service. So I think the North Star is going to be the community engagement and then thinking about how we can best manage this transition so that our advertising partners and our content partners can benefit from it as well.

Operator

Our next question comes from Mark Schmulich with Bernstein. Your line is now open.

Speaker 7

Hi, I'm Louisa speaking on behalf of Mark Schmulich. So I have a question we have a question on spotlight engagement. Is spotlight viewership behavior outside of North America different? Can you provide some more color on that?

Speaker 2

We've seen really strong growth in Spotlight engagement globally. I think North America, as we shared in the letter, we've essentially been offsetting some declines with the Stories content engagement, while we've seen growth in Spotlight. So I think you're just seeing a bit of a mix shift there. But overall, the growth of Spotlight and the depth of engagement has been a big driver of content view time growth for us.

Operator

Our next question comes from James Heaney with Jefferies. Your line is now open.

Speaker 8

Great. Thank you for taking the question. Can you talk about the results that you're seeing from the new app install product? And what needs to happen for app install clients to become a more meaningful driver of your top line results? And then just curious if you can comment on the revenue growth that you're seeing so far in Q4 that helped inform your 11% to 15% guide?

Speaker 8

Thank you.

Speaker 3

Hey there, James. It's Derek speaking. Thanks for the question. On the app side, I think one of the things that we've seen is an ongoing trend is that we've sort of walked new optimizations and products through the process of testing with initial existing clients on a limited basis, getting to a point where we can see really good results for those customers and then expanding that in go to market, evangelizing those results and driving broader adoption, which tends to then lead to general availability and then eventually a bigger contribution to the actual revenue growth over time. So if I look in particular over this year, in Q3, we saw app purchase optimization start to become a growing contributor to the top line growth.

Speaker 3

So that's something that we launched much earlier in the year. It went through that testing phase and expansion in go to market and now is becoming a contributor, which is wonderful to see. If we think about app install and app purchase, those are things that we extended our 7 0 optimization framework to and we've seen clear performance improvements for advertisers. We've shared some case studies there. But from a metrics point of view, for example, we've seen cost per install is down 24% and cost per purchase is down 27%.

Speaker 3

So those are really exciting results to see for our customers and then give us results that we can evangelize to others. So I think the key here is to keep rolling out the adoption of those, expand the testing, evangelize those results and case studies to the customer verticals where we have really good product market fit and continue to drive that through the elevation, the execution in the go to market. If we look back further, the first optimization on the rebuild of the Doctor business that we rolled out well more than a year ago was the 7 0 pixel purchase optimization. And that's really one that's gone through the entire evolution of the launch, test, evangelize and grow, and we saw that up 160% year over year in the most recent quarter. So hoping to drive continued results there and build on the momentum that we have with the overall Doctor business.

Speaker 3

Thanks for the question. Hopefully that helps. When we're thinking about your other question around the guide into Q4 and what's informing that, Obviously, Q4 has historically been a pretty back end weighted quarter and so limited to read through to the back half is always challenging. I think one of the things we're focused on is the momentum that we're seeing in different parts of the business. So I just talked a lot about the Doctor business.

Speaker 3

We're focused on continued execution there, continued cappy adoption, continued rollout of the app optimizations and client performance. On the brand side, we're not expecting any significant recovery there. We've been down 1% year over year in each of the last two quarters, not anticipating a major shift there as we go into Q4. And obviously, that's an important component of revenue in the final quarter of the year. Our product execution is the key that we're focused on there in terms of igniting growth long term.

Speaker 3

So you did see us roll out some product optimizations in the most recent quarter, including First Lens Unlimited, which allows our advertisers to reach folks with the 1st impression of the day and the 1st slot in the lens care. So that's seen some really nice early results, drove 30% 35% actual increase in incremental impressions. And we also launched the state specific First Story, which is a product that allows advertisers to target individual creative to specific states or to target the entire country with different creative for different states. So there's a lot of product innovation going in there and that's the key to improving that growth over the longer term, but not expecting a big improvement on the brand side, in particular in Q4. So those are some of the dynamics we're seeing that alongside the very limited testing of Simple Snapshot that are informing the range there and hopefully that gives you a little color.

Operator

Our next question comes from Sweta Kajuria with Wolfe Research. Your line is now open.

Speaker 7

Thank you so much for taking my question. I guess, regarding top line growth. So when you think about the trajectory of your revenue growth and excluding, I guess, Snapchat plus subscription, just the advertising growth. What gives you most confidence in your ability to deliver faster than overall digital ad market growth? I mean, you have a lot of product initiatives going on from CAAPI integrations ongoing with app optimizations and then the announcements that you had during your partner summit.

Speaker 7

And that includes simple Snapchat and sponsored snaps and Promoted Places, even if that takes a little bit longer in your mind for monetization. So could you help us think through how what gives you confidence as you think about maybe near to midterm in terms of ad revenue growth? Thank you.

Speaker 3

Hey there, it's Derek speaking. I think the answer here is multilayered. To start, I think over the long term, we are most focused on the execution of the direct response business and specifically the lower funnel Doctor business in terms of rolling out product optimizations. And then on top of that, we're very focused on growing the small and medium sized customer segment and making sure that we build on the momentum there. So as I talk through each one of those, I'd say there's a multilayered approach here where we're executing against a number of different initiatives to be able to drive that sustained and higher rate of growth on that those components of the business.

Speaker 3

So specifically, first is the continued ongoing build out of the ML and AI architecture at the company that feeds into our ability to have better personalization and recommendation of ads, getting the right ad in front of the right person. We continue to make progress on having more signals coming into the platform and harvesting more of the privacy signals that exist on the platform, getting more of that harnessed into much larger models and our ability to refresh those more frequently. Then you can see the steady drumbeat of us delivering, rolling out and then optimizing new goals for advertisers. We talked earlier about the really strong growth we're seeing with 7.0 pixel purchase, how we rolled that out and extended that framework to some of the app objectives and how that's starting to deliver growth. And then go to market efforts, on all client sizes, to basically deliver those optimizations to folks where we have great product market fit.

Speaker 3

One of the muscles that we're really learning to build here is go to market on SMC and there's a lot of learnings there and a lot of work to do. So for example, we've number 1, been able to roll out Snap Promote as a great way for advertisers to get started with just a couple of clicks right in the app, so the lowest friction way to get started. We've also, for folks using Ad Manager, made it a lot easier for them to very quickly onboard there, get started with automated recommendations for campaign setup and optimization. And then we're getting very good at integration partners there that are helping us not only drive direct where we've made it much easier to do direct integrations with CAPI, but then we've got a long and extending list of integration partners that are making it much easier for small and medium sized customers to adopt CAPI and get started with that, feeding their performance with better signals and feedback loops. So there's a lot of work to be done here.

Speaker 3

And I think the sort of simplest answer to your question is, the road map here is very clear. We have a lot of work to do and a lot of things to execute against. We have a very clear idea of what we need to do. And the team's pace of execution has been very solid. And so the focus now is just to continue to execute that road map, deliver for our customers and drive the results.

Speaker 3

Hopefully, that helps a little bit there.

Operator

Our last question comes from Ross Sandler with Barclays. Your line is now open.

Speaker 9

Great. Thanks for squeezing me in. Evan, a question on the Spectacles. So the demo was pretty insane at the Partner Summit compared to once some of us have tried out prior versions of that product. So I guess the question is, what level of investment and what pace or timing of when that could be a consumer product are you expecting?

Speaker 9

And then related to that, now that we've seen what Meta is doing with Orion, how does that impact like both the investment level and the pace by which you're going to get that market to the consumer or get the product to the consumer perhaps quicker than before or not? Just your thoughts on that would be great.

Speaker 2

Thanks, Ross. Yes, we're really excited about the progress we're making with Spectacles. And it's been really exciting to share the 5th generation with so many of our partners and developers. I think right now we're just really focused on helping people build amazing lenses for Spectacles. I think one of the challenges that any new computing platform sort of faces is this chicken and egg problem of people really needing in our case, new lens experiences to use when they first buy AR glasses.

Speaker 2

And so by focusing on really seeding and supporting that developer ecosystem and making sure there are amazing lenses for people to use when they buy the consumer product. I think we're really focused on the key problem we need to solve in advance of widespread consumer adoption. So we're going to stay focused there for now. It's been so exciting to see the amazing ones that people have already built in the weeks since launch. And we think there's just a huge opportunity to transform the way people use computing, grounded in the real world and together with their friends and leveraging natural interactions.

Speaker 2

And this is a vision we've been working towards for over a decade now. And so we have some very unique assets to leverage like Lens Studio, which helps people build these really complex AR experiences and then run them in a really performant way on Lens Core that powers not just the Snapchat application, but also our Spectacles glasses. So that alongside all of our investments in hardware and the progress we've made just makes me really excited about where we are now and of course the potential to get this into customers' hands. So we're going to stay focused on our strategy and keep executing. We're really excited to share more with you soon.

Speaker 7

Thank

Operator

you. This concludes our Q and A session as well as Snap Inc. Q3 2024 earnings conference call. Thank you for attending today's session. You may now disconnect.

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