Snap Q1 2025 Earnings Report

Snap EPS Results

• Actual EPS: -$0.08
• Consensus EPS: $0.04
• Beat/Miss: Missed by -$0.12
• One Year Ago EPS: $0.03

Snap Revenue Results

• Actual Revenue: $1.36 billion
• Expected Revenue: $1.35 billion
• Beat/Miss: Beat by +$14.88 million
• YoY Revenue Growth: +14.10%

Snap Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, April 29, 2025
• Conference Call Time: 5:00PM ET

Snap (NYSE:SNAP) is a social media company operating globally. The company was founded in September 2011 by Evan Spiegel and Bobby Murphy. Originally known as Snapchat, the company changed its name to Snap in order to represent its offerings better as it grew over the years. The company’s headquarters are in Santa Monica, California and it is a very tightly held company. The original founders, Evan Speigel and Bobby Murphy own a combined 45% of non-dilutable shares with ownership transferable to the other upon death. The two remain active in the company today serving on the board and acting as CEO (Speigel) and CTO (Murphy).

The company was formerly known as Snapchat, Inc. and changed its name to Snap Inc. in September 2016. Snap Inc. was founded in 2010 and is headquartered in Santa Monica, California. Over the years it has been courted by most of the big tech companies including Facebook and Google but has always opted to remain a standalone company. The business went public in 2017 and raised $30 billion on its opening day which is about 10 times the expected amount.

Today, Snap operates as a camera company internationally. The company’s main revenue streams are Snapchat, a mobile app for cameras and communications, and Spectacles, a wearable augmented reality device. Snapchat is a camera app that allows users to take pictures and tell stories, the platform also permits ad sales which is an integral part of the revenue and earnings. The company’s mission? To empower people to express themselves in today’s digital world.

Spectacles is a hardware device that can connect with Snapchat to deliver pictures and video from a point-of-view perspective. The company has since made three upgrades to the original version and has a Next Generation model available too. The Next Generation of Spectacles are not intended for sale but will be made available to creators who wish to push the boundaries of video and digital communications.

In October 2022 the company reported it had more than 347milion daily active users with more than 250 million engaging with AR each day. The platform had more than 250,000 Lens creators (Lenses are AR experiences) with more than 2.5 million lenses created. There were more than 6 billion lens plays each day and more than 75% of 13-34-year-olds in 20 countries were users.

Snap Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, everyone, and welcome to Snap Inc. First Quarter twenty twenty five Earnings Conference Call. At this time, participants are in a listen only mode. I would now like to turn the call over to David O'Mear, Head of Investor Relations. You may proceed.

[David Ometer, Head, Investor Relations at Snap]

Thank you, and good afternoon, everyone. Welcome to Snap's first quarter twenty twenty five 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, earnings slides and investor letter. This conference call includes forward looking statements, which are based on our assumptions as of today.

[David Ometer, Head, Investor Relations at Snap]

Actual results may differ materially from those expressed in these forward looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from 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 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.

[David Ometer, Head, Investor Relations at Snap]

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.

[Evan Spiegel, CEO and Co-Founder at Snap]

Hi, everyone, and thank you for joining our call. Q1 marked an important milestone for Snap as we reached more than 900,000,000 monthly active users on the way to our goal of 1,000,000,000 monthly active users. Our focus on visual communication between friends and family is a strategic advantage that has enabled us to build engaging and retentive services. In Q1, our community grew to four sixty million daily active users, an increase of 38,000,000 year over year and content viewers and total time spent watching content grew year over year. Q1 revenue increased 14% year over year to $1,360,000,000 driven by the progress we have made with our direct response advertising solutions, continued momentum in driving performance for small and medium sized businesses and the growth of our Snapchat Plus subscription business.

[Evan Spiegel, CEO and Co-Founder at Snap]

The benefits of our more focused investments are now evident in our improved profitability and free cash flow generation. In Q1, the combination of top line progress and expense discipline translated to $108,000,000 of adjusted EBITDA and $114,000,000 of free cash flow. Since the launch of our fifth generation Spectacle Smart Glasses six months ago, we have expanded our AR platform with new features for developers, introduced innovative Lens experiences, and created new opportunities for AR developers to be rewarded for their creations. Key feature updates include global positioning system integration, advanced hand tracking capabilities, an improved keyboard, and in game leaderboards that are enabling new and engaging Spectacles AR use cases. Our large hard to reach audience, brand safe environment and perform an advertising platform have made us a valuable partner for businesses that want to grow and reach the next generation of Snapchatters.

[Evan Spiegel, CEO and Co-Founder at Snap]

Given the progress we have made with our advertising platform and the pace of execution against our 2025 strategic priorities, we believe we are well positioned to deliver improved business performance and meaningful positive free cash flow as we make further progress towards GAAP profitability. We continue to make progress growing our global community reaching $460,000,000 DAU in Q1, an increase of $7,000,000 quarter over quarter and $38,000,000 or 9% year over year. DAU in North America was $99,000,000 compared to $100,000,000 in the prior quarter and $100,000,000 in the prior year. DAU in Europe was $99,000,000 compared to $99,000,000 in the prior quarter and $96,000,000 in the prior year. DAU in Rest of World was $262,000,000 compared to $254,000,000 in the prior quarter and $226,000,000 in the prior year.

[Evan Spiegel, CEO and Co-Founder at Snap]

We continue to see robust growth in our global community driven by ongoing adoption of visual communication in less mature markets. To continue to grow our community in North America and Europe, we are prioritizing innovation in three key areas: enhancing our core product value of visual communication investing in our AI and ML models for better content ranking and personalization and strengthening our creator ecosystem. 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 Q1, we launched new features designed to boost creative expression and deepen connections through snapping, including streamlined group creation for messaging and the ability to replay a snap a Snapchatter has sent to their friends. These updates reflect our ongoing commitment to enhancing the Snapchat experience through visual communication.

[Evan Spiegel, CEO and Co-Founder at Snap]

We are inspired by all of the innovative ways our community continues to adopt conversational AI, and we've rolled out enhanced multimodal capabilities through Gemini as we continue to expand image understanding to more geographies. These improvements in MyAI responsiveness resulted in an increase of more than 55% year over year in the number of MyAI daily active users in The U. S. Global time spent watching content increased year over year in Q1, reflecting the continued investment in our AI and ML models for better content ranking and personalization. To further deepen content engagement, we implemented fresher, more responsive machine learning models, doubling the pace at which they integrate new trends and user interaction signals.

[Evan Spiegel, CEO and Co-Founder at Snap]

While we anticipate that it will take several quarters to reach our ultimate goal of near real time model refreshes, we are encouraged by the results we have achieved to date. The number of views on Spotlight posts less than twenty four hours old doubled year over year, which contributes to a more engaging, timely, and fresh viewer experience and accelerates the creator posting flywheel. We have been testing a simplified version of Snapchat designed to help new and casual users of our service better understand and navigate the app. We found that elements like a more prominent spotlight experience and friend stories within the chat experience contributed to increases in daily content viewers and total content views, particularly among more casual users. Our most engaged Snapchatters consistently demonstrated a preference for a five tab layout, favoring the familiarity of tile based content discovery and a dedicated map tab.

[Evan Spiegel, CEO and Co-Founder at Snap]

Informed by these insights, we have begun testing a refined five tab interface that combines the best of both approaches, bringing more stories to the messaging experience and adding easier access to Spotlight now placed directly to the right of the camera. As always, we are iterating thoughtfully to deliver the most seamless experience for Snapchatters, creators, and our advertising partners. We are committed to growing our creator community, and we are prioritizing Snap native creators who bring fresh original content to Snapchat, fostering a dynamic and engaging content ecosystem. Over the past year, we onboarded thousands of creators to our Snapstar program, driving strong momentum with the number of spotlight posts by Snapstar is growing more than 125% year over year in North America in Q1. While we have onboarded thousands of established creators and celebrities, we've also seen significant growth in creators that have achieved Snapstar status by growing their following in business organically on Snapchat.

[Evan Spiegel, CEO and Co-Founder at Snap]

For example, Brigitte Ugarpe, a 25 year old advocate for body positivity and mental health has grown her followers tenfold over the past six months by posting daily to stories and spotlight. Augmented reality continues to empower creativity on Snapchat fueled by the growth of our vibrant ecosystem. We have supported more than 400,000 AR creators, developers and teams worldwide who have built over 4,000,000 Lenses using Lens Studio. Q1 marks six months since the launch of our fifth generation of Spectacles. To celebrate the occasion, we introduced innovative Lenses and platform enhancements, including three advanced hand tracking capabilities, a phone detector that recognizes when a Snapchatter is holding their phone, a new grab gesture for intuitive control, and improved targeting intent to minimize false positives while typing.

[Evan Spiegel, CEO and Co-Founder at Snap]

We also announced Spectacles community challenges, offering prizes to developers for submitting new Lenses or enhancing existing ones. 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. In Q1, we made significant progress across our three core advertising platform initiatives, advancing our ML capabilities, enhancing the use of privacy safe signals and optimizing ad formats to drive performance for our advertising partners. We improved the freshness of our models and the scale of training data, which increased the rate of model learning by six times and grew the volume of historical interaction data used for training by over five times.

[Evan Spiegel, CEO and Co-Founder at Snap]

The advancements in training speed and increased volume of data is helping to deepen the level of personalization we can provide to our community. In addition, we significantly advanced our app based advertising models by consolidating several disparate models into a larger integrated and more powerful implementation that better optimizes for app conversion events. This change aligns model learning objectives with advertiser goals by using a broader range of performance signals, moving beyond a narrower view of conversion data that had previously been utilized. Together, these foundational advancements are delivering more relevant ads to Snapchatters and more conversions for advertisers, which contributed in part to SKAdNetwork reported app purchases growing more than 30% year over year in Q1. Our investments in automation and lower funnel optimization tools are delivering value for our advertisers.

[Evan Spiegel, CEO and Co-Founder at Snap]

For example, improvements to our automated target cost bidding strategy helps advertisers scale efficiently by dynamically adjusting bids to meet their desired cost per action. As a result, early adopters are seeing strong gains. Advertisers using target cost bidding strategies on seven zero pixel purchase and seven zero pixel sign up report a 32% drop in cost per purchase and a 16% lift in return on advertising spend, respectively. For example, Headspace, a popular meditation mindfulness app, saw a two times increase in conversion volume with a 47% more efficient cost per action after shifting their bid strategy to target cost. To further improve return on ad spend, we launched new high intent formats for dynamic product ads in Q1, enabling advertisers to move beyond generic catalog images to create richer and more engaging ad experiences.

[Evan Spiegel, CEO and Co-Founder at Snap]

These new multiproduct ad formats combine storytelling with performance, showcasing a curated range of products in a visually compelling way that drives stronger down funnel results. We also continue to invest in our global partnerships ecosystem by building and strengthening relationships with leading marketing technology partners to deliver automation solutions to our advertisers. For example, marketing tech partner ROI Hunter and leading fashion lifestyle retailer sixthsixthStreet.com leveraged Snap's dynamic product ads delivering the most relevant and high performing products to the right customers. This resulted in a 76% increase in return on ad spend and a 22% reduction in cost per action. We're continuing to strengthen the foundation of our ad platform by improving advertiser signal quality readiness, ensuring advertisers have the actionable signals needed for better optimization and measurement.

[Evan Spiegel, CEO and Co-Founder at Snap]

Our foundational ML work this quarter included data centric optimizations throughout the engineering stack, where we audited, optimized and improved signals to enhance their timeliness and fidelity. In Q1, the number of advertisers with strong signal setups increased 29% for large advertisers and 48% for midsized advertisers, laying the groundwork for improved performance. In addition, the number of advertisers that have adopted our Conversions API continues to grow with over 60% of all Direct Response ad revenue having now completed Conversions API integrations. We are now working closely with top advertisers to further enhance their signal infrastructure as those with deeper conversions API integrations are seeing even stronger outcomes. For example, Foot Locker realized a 49% decrease in cost per action and a more than 100% increase in return on advertising spend by implementing Conversions API and leveraging seven zero optimization per pixel purchase.

[Evan Spiegel, CEO and Co-Founder at Snap]

In Q4 twenty twenty four, we launched Sponsored Snaps to provide advertisers with a unique and impactful way to engage the Snapchat community. In Q1, we began limited testing of Sponsored Snaps as a biddable product in our auction. We began this testing by leveraging our pixel purchase optimization. We are encouraged by the performance outcomes we are seeing in these tests. However, the impact to revenue in Q1 was less than $10,000,000 given the limited scale of this testing.

[Evan Spiegel, CEO and Co-Founder at Snap]

Given the encouraging results we have observed to date, we intend to expand Sponsored Snaps to additional regions and bidding goals in the months ahead. Finally, our leadership in augmented reality remains a strategic differentiator. A recent multiphase research study with Tinuity found that 81% of US Snapchatters agree augmented reality is a fun way to discover new products, and they are 1.6 times more likely than users of other apps to use AR to shop with friends, creating a key opportunity for brands. With this in mind, in q one, we launched sponsored AI Lenses, bringing our generative AI powered AR technology to advertisers and enabling shareable AR experiences on Snapchat. Looking ahead, we see significant opportunity to continue improving return on advertising spend for our partners through deeper investment in AI and ML models, high quality signals and innovative formats across the funnel.

[Evan Spiegel, CEO and Co-Founder at Snap]

With that, I'd like to turn the call over to Derek to discuss our financial results.

[Derek Andersen, Chief Financial Officer at Snap]

Thanks, Evan, and good afternoon, everyone. In Q1, total revenue was $1,363,000,000 up 14% year over year and up 15% year over year on a constant currency basis. Advertising revenue was $1,211,000,000 up 9% year over year, driven primarily by growth from Doctor advertising revenue, which increased 14% year over year. Brand oriented advertising revenue was down 3% year over year due to a combination of softness in upper funnel demand across all regions as well as the ongoing shift in the mix of our advertising business toward performance oriented advertising solutions. This mix shift is evident in the fact that Direct Response advertising revenue contributed 75% of our total advertising revenue for the first time in Q1.

[Derek Andersen, Chief Financial Officer at Snap]

We continue to drive robust top line growth from our SMB client segment, and this segment contributed in part to total active advertisers growing by 60% year over year in Q1, even as we lapped the launch of Snap Promote in Q1 of the prior year. Other revenue, which is driven primarily by Snapchat Plus subscription revenue, increased 75% year over year to reach $152,000,000 in Q1 or just over a $600,000,000 annualized run rate, with Snapchat Plus subscribers reaching nearly 15,000,000 in Q1, an increase of $5,000,000 or 59% year over year. North America revenue growth accelerated to 12% year over year in Q1, up from 8% in the prior quarter, with a faster growth rate in Q1 driven primarily by a higher rate of direct response advertising revenue growth. Europe revenue grew 14% year over year and Rest of World revenue grew 20% year over year with softer brand oriented advertising demand in these regions, partially offsetting continued strong growth in direct response advertising revenue and continued momentum in the SMB customer segment, in particular, in these regions. Global impression volume grew approximately 17% year over year, driven in large part by expanded advertising delivery within Spotlight as well as Creator Stories.

[Derek Andersen, Chief Financial Officer at Snap]

Total eCPMs were down approximately 7% year over year as inventory growth exceeded advertising demand growth in Q1. Adjusted cost of revenue was $637,000,000 in Q1, up 12% 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 last year. Infrastructure cost per DAU was $0.82 in Q1, which came in at the low end of our full year guidance range of zero eight two dollars to $0.87 as we anticipated entering the quarter. The remaining components of adjusted cost of revenue were $260,000,000 in Q1 or 19% of revenue, which is in line with the prior quarter and within our full year cost structure guidance range of 19% to 20%.

[Derek Andersen, Chief Financial Officer at Snap]

Adjusted gross margin was 53% in Q1, up from 52% in the prior year. Adjusted operating expenses were $618,000,000 in Q1, up 7% year over year. Personnel costs increased 2% year over year, driven by a 5% year over year increase in full time headcount. Additional drivers included increases in legal costs, including litigation and regulatory compliance related costs and higher product related research and development costs. Adjusted EBITDA was $108,000,000 in Q1, up from $46,000,000 in Q1 of the prior year, which exceeded our expectations entering the quarter, reflecting higher revenue growth and operating expense discipline.

[Derek Andersen, Chief Financial Officer at Snap]

Flow through or the percentage of year over year revenue growth that flowed through to adjusted EBITDA was 37% in Q1 as we continue to balance investment with realized top line growth. Net loss was $140,000,000 in Q1, down 54% from a net loss of $3.00 $5,000,000 in Q1 of the prior year. The $166,000,000 year over year improvement largely reflects the flow through of a $63,000,000 improvement in adjusted EBITDA, a $70,000,000 improvement in nonrecurring items due to business restructuring costs incurred in the prior year, a $49,000,000 improvement from the net impact of financing and investment activity driven in large part by gains resulting from repurchasing convertible notes at prices below par in Q1 a $6,000,000 or 2% reduction in stock based compensation related expenses, offset by a $19,000,000 increase in interest expense. Free cash flow was $114,000,000 in Q1, while operating cash flow was $152,000,000 Over the trailing twelve months, free cash flow was $295,000,000 and operating cash flow was $477,000,000 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 just 1.9% in Q1.

[Derek Andersen, Chief Financial Officer at Snap]

As part of our efforts to responsibly manage the impact of SBC on our share count, we repurchased 27,000,000 shares at a cost of $257,000,000 in Q1. In Q1, we issued $1,500,000,000 in senior unsecured notes maturing in 02/1933 with a coupon rate of 6.875% and utilized the vast majority of the proceeds to repurchase $1,440,000,000 of our existing convertible notes maturing at earlier dates, including $45,000,000 of our twenty twenty six convertible notes, dollars $797,000,000 of our twenty twenty seven convertible notes and $800,000,000 of our twenty twenty eight convertible notes. The total cash repurchase price was $198,100,000 below par value and therefore contributed to total debt outstanding declining by $200,000,000 quarter over quarter to $3,500,000,000 as of the end of Q1 twenty twenty five. We ended Q1 with 3,200,000,000 in cash and marketable securities on hand and just $36,000,000 of debt maturing in 2025. We believe the combination of these transactions and our improved free cash flow generation ensure that our business has more than adequate capital and financial flexibility to execute against our strategic priorities.

[Derek Andersen, Chief Financial Officer at Snap]

Given the uncertainty with respect to how macroeconomic conditions may evolve in the months ahead and how this may impact advertising demand more broadly, we do not intend to share formal financial guidance for Q2. While our top line revenue has continued to grow, we have experienced headwinds to start the current quarter, and we believe it is prudent to continue to balance our level of investment with realized revenue growth. As a result, we are updating our full year cost structure guidance to reflect our current investment plans. For infrastructure costs per DAU, we maintain our full year guidance range of $0.82 to $0.87 per quarter and anticipate that we will fall near the midpoint of this range in Q2 with DAU estimated to be $468,000,000 as we continue to prioritize investments in ML and AI infrastructure to drive improvements in our ad platform and depth of content engagement. For all other cost of revenue, we maintain our full year cost guidance at 19% to 20% of revenue and anticipate we will be within this range in Q2.

[Derek Andersen, Chief Financial Officer at Snap]

For adjusted operating expenses, we are lowering our full year cost guidance from the prior range of $2,700,000,000 to $2,750,000,000 to a new range of 2,650,000,000.00 to $2,700,000,000 which implies a $50,000,000 reduction at the midpoint. For stock based compensation, we are lowering our full year cost guidance from the prior range of $1,150,000,000 to $1,200,000,000 to a new range of $1,130,000,000 to $1,160,000,000 which implies a $30,000,000 reduction at the midpoint. While there is uncertainty regarding the macro operating environment, we remain optimistic about the long term prospects for our business. We remain optimistic because of the progress we have made with our ad platform to improve performance for our advertising partners, because of the progress we have made to diversify our advertiser base as well as our revenue sources with the growth of Snapchat Plus because of our demonstrated ability to prioritize our cost structure to balance investment with top line growth over time and because we have built a strong balance sheet with the financial flexibility necessary to maintain strategic focus through volatile macro conditions. Moving forward, we will remain focused on executing against our strategic 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.

[Derek Andersen, Chief Financial Officer at Snap]

Thank you for joining our call today, and we will now take your questions.

[Operator]

Thank you. We will now begin the question and answer session. The first question comes from Tom Champion with Piper Sandler. You may proceed.

[Thomas Champion, Senior Research Analyst at Piper Sandler Companies]

Hi, good afternoon everyone. So guys, looks like a really solid result in North American revenue accelerating four points. Derek, think you had some comments around Doctor there, but can you just elaborate on that improvement in growth? And then if I could sneak a second one in around SimpleSnap, I think there were 25,000,000 users of the test as of 4Q. It seems like you've gone in a new direction.

[Thomas Champion, Senior Research Analyst at Piper Sandler Companies]

Can you talk about that a little bit? Thank you.

[Evan Spiegel, CEO and Co-Founder at Snap]

Hi. And thanks so much for the question. Evan here. We're really excited about what we've been seeing in North America. We've obviously been very focused on advertiser performance, and we've seen really strong growth in the small and medium customer segment.

[Evan Spiegel, CEO and Co-Founder at Snap]

And and, of course, a healthy contribution from Snapchat Plus as well. So really great to see the the long term investments we've been making in the ad ad platform and particularly in direct response and diversification with small and medium sized customers beginning to pay off there. In terms of the simple Snapchat design, we learned a lot from the three tab design, but ultimately found that it was difficult, especially for, you know, power users, folks who really love Snapchat the way that it is, who use the map and stories all the time to to really adopt the the three tab design, which made it harder to find stories and subscriptions and harder to find the map. So, ultimately, we're taking a bunch of learnings from the three tabs, simple Snapchat design, and evolving the fifth tab design with those learnings. And and I think as a result, you know, we've been seeing some more broad based gains.

[Evan Spiegel, CEO and Co-Founder at Snap]

And, of course, it'll be easier to navigate the the transition on the monetization side because we won't have to deprecate the the the tile ad units. So there's there's a benefit there as well. So overall, you know, we learned a lot, but I think it's really important that we really paid attention to our community and and how they were using the service and ultimately have ended ended up in a place where we're seeing, you know, more more broad based gains. And I think it'll be easier to navigate some of the monetization transition there.

[Operator]

Thank you. The next question comes from Ross Sandler with Barclays. You may proceed.

[Ross Sandler, Analyst at Barclays Capital]

Great. I got to ask the obligatory macro question. So I think everybody is curious what you guys are seeing thus far here in the second quarter on both brand and Doctor. Sounds like you're growing, but you're starting to see some impact. So I guess could you just give us a little more color on what categories or what segments of the business are seeing an impact?

[Ross Sandler, Analyst at Barclays Capital]

And then the second question is just the expense reduction is low single digit percentages here for 2025. So is it fair to assume that, you know, with that small of a reduction, you know, things are kind of softening, but this is all kind of trending in line with, you know, what you're seeing on the revenue side. Thank you very much.

[Derek Andersen, Chief Financial Officer at Snap]

Hey, Ross. Thanks for the questions. This is Derek speaking. At a high level, the macro is changing quickly, and and I think, you know, the path we're concerned here, you know, going forward isn't entirely clear. That obviously impacts visibility on our end.

[Derek Andersen, Chief Financial Officer at Snap]

We've learned from some of the big past macro events that we've experienced and external events to be thoughtful about how this can impact the operating environment and therefore our approach to to guidance generally. We've had a really solid q one. You know, top line growth at the very high end of our guide range and then both adjusted EBITDA and net income, you know, well above those ranges. So we started the year really strong. Thus far in q two, we're still growing, but we've seen some headwinds for our top line growth so far.

[Derek Andersen, Chief Financial Officer at Snap]

You know, it's one example. We've heard from a subset of advertisers that their spending has been impacted by the changes to the de minimis exemption. However, I and I caution you, it's just really difficult to parse the drivers between the various potential factors there. We're just really focused on continuing execute for our customers and to build on the momentum we saw in q one with active advertisers up 60%, Doctor advertising revenue reaching 70% of total ad revenue for the first time. You know, we believe by continuing to shift our mix towards Doctor and lower funnel by continuing to diversify our advertiser base to the growth in the SMB channel and by diversifying our revenue sources with the growth of Snapchat Plus, that we'll build a more resilient and stronger business over time as we continue to execute there.

[Derek Andersen, Chief Financial Officer at Snap]

On the cost side, you know, I think our approach on costs and expenses and investments in the business in general is to carefully prioritize our investments to favor our core priorities and to calibrate the overall level of investment relative to the realized revenue growth that we see in the business. And in order to continue to drive healthy flow through and to continue to make progress towards GAAP profitability over time, we were really pleased with how we did on this in q one. You know, we reached 37% flow through of incremental revenue to adjusted EBITDA in the quarter. And, of course, you know, as I said earlier, you know, above our ranges for both adjusted EBITDA and net income. You know?

[Derek Andersen, Chief Financial Officer at Snap]

But what we're given what we're seeing in the operating environment, we believe it's prudent to update our full year cost structure guidance by lowering the adjusted operating expense expectations by about 50,000,000 at the midpoint and SBC by 30,000,000 at the midpoint. We also reiterated our estimate for all other cost of revenue as a percentage of revenue as we expect that to largely flex with revenue growth rates over time. So we'll stay vigilant on this to maintain reasonable balance and flow through to ensure we keep making financial progress as we have over the last year. Hopefully, that gives you a little more context around those two questions, and and thank you.

[Operator]

Thank you. The next comes from Rich Greenfield with LightShed Partners. You may proceed.

[Rich Greenfield, Partner, Media & Technology Analyst at LightShed Partners]

Hi. Thanks for taking the question. You know, I guess one of the big questions that everyone's trying to understand, you've been sort of in that mid teens ish or low to mid teens ish growth rate for direct response advertising. The comp was definitely harder this quarter than it's been in a long time. But I think as you sort of look at the investments you've been making, the rollout of new products like, sponsored snaps, what will it take to deliver 20 plus percent growth in the Doctor business?

[Rich Greenfield, Partner, Media & Technology Analyst at LightShed Partners]

Like, do you have line of sight to, like, what needs to happen or how long it'll take to sort of get that to be a 20 plus percent growth business? And then just two housekeeping things, Derek. One of the de minimis that you just mentioned, anything

[Rich Greenfield, Partner, Media & Technology Analyst at LightShed Partners]

that

[Rich Greenfield, Partner, Media & Technology Analyst at LightShed Partners]

you could say in terms of how much China based advertisers is a percentage of your revenue? And on the guidance comment, the forward looking that April's continuing to grow, I've got a lot of questions. Is advertising growing? Or is it you know, if you look excluding SnapPlus, is it still growing excluding SnapPlus as you look into April? Because everyone's trying to isolate what's happening in core ad business given everything that's happening with tariffs.

[Rich Greenfield, Partner, Media & Technology Analyst at LightShed Partners]

Thank you.

[Evan Spiegel, CEO and Co-Founder at Snap]

Thanks, Rich. Yeah, we're really excited about the progress we've been making in the direct response business over the past couple of years. We've really invested heavily there. I think just thinking big picture in terms of the contributors to accelerating to 20% from, I think, the about 14% we're at today. You know, of course, we're gonna continue the ongoing ad platform improvements we've mentioned on the call, including larger and fresher models and better signal utilization.

[Evan Spiegel, CEO and Co-Founder at Snap]

I think in terms of the product road map and the product pieces, we've got a a really good road map for our app goal based bidding objectives and for dynamic product ads as well that will land throughout the year. And then I think, you know, bringing direct response goal based bidding objectives to new placements like sponsored snaps will also, you know, be a contributing factor as well. And then I think, you know, one of the areas I'm really excited about is the consolidated go to market leadership under Ajit. We've already seen some improvements there, and I'm really excited about all all the work he's doing with our go to market team. So I think that can be a multiplier on top of all the, you know, foundational platform and product work that we've been doing.

[Derek Andersen, Chief Financial Officer at Snap]

Hey, Rich. And it's Derek speaking on the second parts of your question there. You know, on the in China based advertisers, yeah, we don't really break it down at that level of detail. You know, we've not previously disclosed that market, you know, as a breakout market in our our queues and and case. So, you know, in in some ways, that perhaps is helpful in and of itself.

[Derek Andersen, Chief Financial Officer at Snap]

And, look, we're early in the quarter. We're only a few weeks in. You know, I you were continuing to grow as a business, but we've seen some headwinds thus far. You know, I think it's early. And, of course, there's a lot of quarter ahead ahead of us in the macro uncertainty and and how that's gonna evolve over time.

[Derek Andersen, Chief Financial Officer at Snap]

So we're gonna keep watching it and and monitoring the growth of the business and and and go from there. So, you know, hopefully, that gives you a little bit more color on the on the China based side of things.

[Operator]

Thank you. The next question comes from Mark Smolik with Bernstein. You may proceed.

[Mark Shmulik, MD, Senior Analyst at AB bernstein]

Yes. Thanks for taking the questions. Evan, appreciate the color around kind of MyAI usage growth. But I guess just kind of broader picture, where do you see MyAI going and perhaps kind of standing out versus the growing number of kind of AI chatbots we've How do we think about potentially like a standalone app or integration into Spectacles? But just overall, do you see it going?

[Mark Shmulik, MD, Senior Analyst at AB bernstein]

And then a follow-up question just around engagement domestically. We saw that tick down a little bit, but there's color on spotlight growth for newer content kind of up. How's just overall spotlight engagement trending kind of against that pressure content? And any color on kind of what's happening domestically would be appreciated. Thank you.

[Evan Spiegel, CEO and Co-Founder at Snap]

Yeah. Thanks so much for the question. I you know, I'm particularly excited about the new ways that people are gonna wanna interface with AI. Of course, chat is a interface. I think voice to some degree is growing as well.

[Evan Spiegel, CEO and Co-Founder at Snap]

As we look at the areas where we really wanna differentiate it, it's really around that visual communication. And so as we look at the way that people are interacting with MyEye by sending snaps and, you know, either receiving snaps or a chat response in return, I I think that that really starts to show the way that, you know, these multimodal models are gonna play a a really powerful role in in people's lives. I think looking even longer term beyond that, the way that people are going to integrate AI into augmented reality, and I think provide a totally new user interface powered by AI is something that we're investing a lot in. We'll have more announcements around that later this year because we really do believe that augmented reality is is the ideal interface for AI. In terms of Spotlight, certainly a lot of progress there.

[Evan Spiegel, CEO and Co-Founder at Snap]

You know, we're now reaching more than 500,000,000 monthly active users there. And view time, I I think, grew about 25% year over year in q one. So certainly some good momentum. And and, you know, the team's focus on timely and fresh content, I think, is really important because this increases the probability that folks will see, you know, really unique and relevant content as as they're using the Spotlight service.

[Operator]

Thank you. The next comes from Dan Stanley with New Street Research. You may proceed.

[Dan Salmon, Partner at New Street Research]

Great. Afternoon, everyone. Evan, you highlighted once again the growth in your total advertiser base, up 60% this quarter, again, big theme there being more small and medium sized business advertisers. Also noted you're lapping the launch of Snap Promote. So I'd just like to hear a little bit more about the next steps for SMB advertiser growth.

[Dan Salmon, Partner at New Street Research]

Do you expect that rate of growth to slow or does Snap Promote have have legs beyond that, maybe internationally more? Are there other initiatives you'd highlight? And then just a follow-up to it. I think I've asked you this one before, but how much are you starting to see those advertisers that come in through Snap Promote move over to to the Snap Ads platform and and start to do a little bit more, with your advertising from there? Thanks.

[Evan Spiegel, CEO and Co-Founder at Snap]

Yeah. Thanks so much for the question. We're we're excited about what we've seen with Snap Promote, and and we've got a a whole string of of product updates there. Plan to to really streamline the the Snap Promote product with within the app and and, of course, try to ease that transition to the full fledged Ads Manager, including a lot of work that we've been doing to simplify Ads Manager overall. I think, you know, looking at the the small medium customer segment, I'd say, you know, in terms of an our our acquisition focus, we're really trying to ramp up those medium sized advertisers just, I think, in terms of the dollar volume overall.

[Evan Spiegel, CEO and Co-Founder at Snap]

Certainly, terms of active advertiser accounts, Snap Promote is very important. But in terms of the dollar volume, I think those medium customers, you know, can can really help accelerate the growth of our direct response business, and we're seeing some really good product market fit there. So certainly a lot to do on the SnapRemote side in in terms of the products, and we're excited about the momentum we're seeing there. But I think in terms of the team's focus right now and the evolution of our go to market efforts, I'd say the team's probably more focused on the midsize customer segment.

[Operator]

Thank you. The next question comes from Ken Gorelski with Wells Fargo. You may proceed.

[Ken Gawrelski, Analyst at Wells Fargo]

Thank you. Appreciate the opportunity. Maybe first you could talk a little bit about the kind of progression through the first quarter on the ad side. And as you go into April, any particular categories that you're seeing or geographies that you're seeing changes in performance? Maybe we'll start there and one follow-up after that.

[Derek Andersen, Chief Financial Officer at Snap]

Ken, it's Derek speaking. I think first, we're really pleased with what we saw in Q1. We continue to execute against our road map and priorities on the ad platform. You know, pleased to see the progress we were able to make on model freshness and and model size and signal incorporation, the progress we're seeing in CAPI adoption. You're seeing that, you know, translate into the outputs of the business, you know, both not just the top line revenue It was at the very high end of our range, but also the progress on the Doctor growth rate and, you know, what we're seeing with the growth of active advertisers and the progress in the SMB channel specifically, which we're really pleased with.

[Derek Andersen, Chief Financial Officer at Snap]

So off to a good start, really focused on executing for our customers and and delivering ROAS for them. You know, in terms of, you know, what we're seeing early here in in the new quarter, we're just a few weeks in. It's very early in the going. You know, as I said earlier, you know, the business is continuing to grow, but we have seen some headwinds to start the quarter to the growth rate. You know, as I mentioned earlier, you know, one example of a factor that we've seen as a driver there is, you know, some advertisers that have been impacted by the changes to the de minimis exemption.

[Derek Andersen, Chief Financial Officer at Snap]

But, you know, as I also said earlier, it's really difficult, it's early in the going, to parse the different drivers, you know, that that can be can be impacting that. So we're gonna continue to watch it really carefully. And, of course, you know, where we head from here on the macro and some of the factors there is also uncertain. So the key is that, you know, we stay focused on executing for our customers, improving the ad platform, and that we continue to be thoughtful about balancing our investment levels over time to make progress for the business financially. So hopefully, that gives you a little bit more color on your question.

[Derek Andersen, Chief Financial Officer at Snap]

Thank you.

[Operator]

Thank you. The following comes from Benjamin Black with Deutsche Bank. You may proceed.

[Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank]

Great. Thank you for taking my question. You mentioned hitting $900,000,000 MAUs and that you're approaching $1,000,000,000 yet North America DAUs contracted sequentially. I know you've been working on a number of initiatives to restimulate growth in North America. So curious to hear what is potentially not working and what gives you confidence that those trends can inflect positively again?

[Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank]

Thank you.

[Evan Spiegel, CEO and Co-Founder at Snap]

Yeah. Thanks so much for the question. We're really excited about hitting that milestone of 900,000,000 monthly active users and really looking forward to crossing 1,000,000,000 at some point here in the future. That will be a really exciting moment for the company. In North America, in particular, we sort of trend around this $100,000,000 90 9 million dollars DAU sort of number.

[Evan Spiegel, CEO and Co-Founder at Snap]

We're not expecting further declines here in Q2 in North America. And and the the things that sort of make us confident or or that we're excited about are really the the engagement around snapping that is so core to the service, people making and sending snaps with their friends. So we we've seen some positive trends there. We're continuing to build on those overall, and then and then continuing to invest in the content business as well. Some of the things we mentioned earlier around content freshness, around homegrown creators, and engagement around content overall, that that's a a real priority for us as well.

[Operator]

Thank you. The next question comes from Justin Post with Bank of America. You may proceed.

[Justin post, Managing Director at Bank of America Merrill Lynch]

Hey, thank you. Just want to go back to prior comments that you might have been a little bit demand constrained. And just are you still, you know, when you think about your supply and demand, how do you feel about that balance right now? And if you are demand constrained, obviously ignoring the macro, what do you think are the keys to unlocking that over the next year or two? Thank you.

[Evan Spiegel, CEO and Co-Founder at Snap]

Yes. Thanks so much for the question. We certainly see a lot of opportunity to continue to grow demand on the service. Although, I do think we are taking some steps to increase inventory overall, especially with sponsored snaps, which not only expand reach for advertisers to connect with folks who are primarily using that chat surface. But also just given, you know, the overall engagement with chat and the the chat page on Snapchat, I think, should provide a a a pretty substantial meaningful amount of incremental inventory for us.

[Evan Spiegel, CEO and Co-Founder at Snap]

So the keys right now are are really bringing more goal based bidding objectives to that inventory. It's taken a a bit of time. We we brought Pixel purchase to sponsored snaps, and we've been working on training the models on this new placement, and we'll be bringing more GBBs to Sponsored Snaps in the coming months.

[Operator]

Thank you. The final question comes from Mark Mahaney with Evercore. You may proceed.

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Thanks. I'll just ask a cost question related to headcount. I think this quarter you had one of the biggest additions you've had in, I don't know, a year two years, I guess. With the kind of the new trim down of the cost guidance for the full year, does that mean that the headcount kind of pace should slow from what we saw in that in the March? Thank you.

[Derek Andersen, Chief Financial Officer at Snap]

Hey, Mark. Thanks for the question. Yes. Look, we're trying to be really thoughtful here in terms of managing the cost structure over time and balancing that. We were pretty pleased with what we were able to do in Q1 with the 37% flow through and also being able to come over the top of our range in both adjusted EBITDA and and net income.

[Derek Andersen, Chief Financial Officer at Snap]

So, you know, demonstrating, you know, the ability to balance it there in q one. Yeah. We've we have done some hiring in q one, and, you know, the focus there has been really around our core priorities and and bringing people into the building that can help us with, you know, our go to market efforts around, especially around the SMB client space, you know, help around supporting clients, you know, with MarSci measurement and things like that. And and also around, you know, engineering and and specifically ML and AI competencies as well. So big focus there, you know, in supporting the business and supporting our our top line growth and our road map for the year.

[Derek Andersen, Chief Financial Officer at Snap]

I you know, approximately two thirds of our adjusted operating expenses or roughly there about our people or people related costs. So certainly, anytime, you know, that we're adjusting, you know, our cost outlook for the year, you know, that's that's gonna be part of the mix. And and we're sort of being thoughtful there to make sure that our pace of hiring, you know, makes sense relative to to the balance that I spoke about earlier. So hopefully, that gives you some sense of how we're thinking about the cost structure and balancing it there. Thank you.

[Operator]

Thank you. This concludes our question and answer session as well as Snap Inc. First quarter twenty twenty five earnings conference call. Thank you for attending today's session. You may now disconnect.

Participants

Executives

• David Ometer, Head, Investor Relations
• Evan Spiegel, CEO and Co-Founder
• Derek Andersen, Chief Financial Officer

Analysts

• Thomas Champion, Senior Research Analyst at Piper Sandler Companies
• Ross Sandler, Analyst at Barclays Capital
• Rich Greenfield, Partner, Media & Technology Analyst at LightShed Partners
• Mark Shmulik, MD, Senior Analyst at AB bernstein
• Dan Salmon, Partner at New Street Research
• Ken Gawrelski, Analyst at Wells Fargo
• Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank
• Justin post, Managing Director at Bank of America Merrill Lynch
• Mark Mahaney, Senior Managing Director at Evercore ISI