Good afternoon, everyone, and welcome to Snap Inc.’s Fourth Quarter 2021 Earnings Conference Call. At this time, participants are in a listen only mode. After the prepared remarks, there will be a question and answer session. [Operator Instructions] This call will be recorded. Thank you very much, Betsy Frank, Senior Director of Investor Relations. You may begin.

Thank you, and good afternoon, everyone. Welcome to Snap’s Fourth Quarter 2021 Earnings Conference Call. With us today are Evan Spiegel, Chief Executive Officer and Co-Founder; Jeremi Gorman, Chief Business Officer; and Derek Andersen, Chief Financial Officer. Please refer to our Investor Relations website at investor.snap.com to find today’s press release, slides, prepared remarks and our updated investor presentation. This conference call includes Forward-Looking Statements, which are based on our assumptions as of today. Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as risks described in our most recent Form 10-Q particularly in the section titled Risk Factors. Today’s call will include both GAAP and non-GAAP measures. Reconciliations between the two can be found in today’s press release. Please note that when we discuss all of our expense figures, they will exclude stock-based compensation and related payroll taxes as well as depreciation and amortization and non-recurring charges. Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today’s call. With that, I would like to turn the call over to Evan.

Thank you for joining our call. The fourth quarter marked the end of an exciting and productive year for Snap. We grew our community, expanded our product offerings and demonstrated the power of our augmented reality platform, both inside and outside of the Snapchat application. We faced some fresh challenges in 2021, but posted strong results, reflecting substantial progress on our journey to sustainable growth and positive cash flow generation. We grew revenue 64% year-over-year in 2021, including 42% year-over-year growth in the fourth quarter. We achieved adjusted EBITDA profitability for the second consecutive year. We recorded our first full-year of positive free cash flow and Q4 marked our first quarter of positive net income. Achieving positive free cash flow for the full year is an important milestone as increasingly able to self-fund our investments in the future, which positions us well to accelerate our vision for computing overlaid on the world through augmented reality. In Q4, our community grew by 20% year-over-year to 319 million daily active users. We grew sequentially in each of our three regions. While North America and Europe represent our largest monetization opportunities in the near and medium term, Rest of World represents our largest community growth opportunity. We have made a concerted effort over the past year to organize our team and make investments in our products to realize these monetization and community growth opportunities. Our expansion efforts in India continue to prove successful, and we are using our learnings to inform how we approach community growth in new geographies. Our desire to build a better way of communicating visually through our camera has evolved into a leading platform for augmented reality. Our AR products and services are driving major impact at scale today as Snapchatters use our services to shop, play, learn, explore…

Thanks, Evan. In 2021, we delivered strong results amidst several challenges to our industry and demonstrated the resilience of our team and our business while investing in the future of our platform. We generated 4.1 billion in full-year revenue, an increase of 64% year-over-year, which is an acceleration of 18 percentage points over 2020. In Q4, we generated total revenue of 1.3 billion, an increase of 42% year-over-year amidst headwinds to both our direct response and brand businesses. On the direct response side, we continue to work through challenges presented by Apple’s ATT related changes, and we are making solid progress. As anticipated, on the brand side, macro headwinds related to supply chain disruptions and labor disruptions materialized and remain unresolved in the new year. Despite all of this, we continue to onboard new advertisers which drove our active advertiser count to another all-time high. We remain focused on our many opportunities to support our community and advertising partners, which we believe will be driven by three key priorities. First, driving ROI through optimization and measurement; second, investing in our sales and marketing functions by continuing to train, hire and build for scale; third, building innovative ad experiences around video and augmented reality. Our unwavering commitment to these three priorities, along with our unique reach and growing global audience, allows us to drive performance at scale for businesses around the world. Our sales team is working hard to help advertisers adapt to the new measurement paradigms brought about by Apple’s iOS privacy-related changes. Our advertising partners who prefer to leverage lower-funnel goals such as in-app purchases, have been most impacted by these changes. We are seeing these advertisers migrate to mid-funnel goals where they have greater visibility such as install or click. Advertisers who optimize via web-based goal-based bids or…

Thanks, Jeremi. Our Q4 financial results reflect our priorities of growing our community, making focused investments in the future of our business and scaling our operations efficiently in order to drive towards profitability and positive free cash flow. As Evan mentioned earlier, our community grew to 319 million daily active users in Q4, an increase of 54 million or 20% year-over-year. In North America, DAU grew by five million or 6% year-over-year to reach 97 million. In Europe, DAU grew by eight million or 11% year-over-year to reach 82 million. In rest of world, DAU grew by 40 million or 41% year-over-year to reach 140 million as we continue to execute against the international growth playbook we laid out at our Investor Day one year-ago, including investments in local language support, local content, local marketing partnerships and support for local creator communities. Total revenue for Q4 was 1.298 billion, an increase of 42% year-over-year, down from 57% in the prior quarter, but exceeding our expectations entering the quarter. At a high level, the macro headwinds we anticipated entering the quarter materialized largely as we expected, but our direct response advertising business began to recover from the impact of the iOS platform changes quicker than we anticipated. The macro headwinds included supply chain disruptions and labor-related factors, which impacted our brand advertising business most directly with the consumer packaged goods and restaurant sectors of the brand business being impacted most significantly. These headwinds and their impact on growth rates for upper funnel objectives commonly utilized as part of brand campaigns such as impressions and views were the largest contributors to the sequential decline in year-over-year growth in Q4. Excluding the restaurant and CPG sectors, revenue from our brand advertising business grew at approximately 49% year-over-year, indicating what we believe to be…

[Operator Instructions]. Our first question comes from Brian Nowak with Morgan Stanley. Please go ahead.

Hi it is [indiscernible] on for Brian Nowak. Thanks for taking our questions, we have two. The first question we have is, you have made a lot of progress around IDFA, and it seems like it will still take at least a couple of quarters to rebuild full confidence. Can you talk to us about the key technological or go-to-market areas you need to execute on in order to further close the IDFA measurement and attribution challenges and work to return ad growth closer to the Analyst Day targets of last year? And our second question is any update on new advertiser growth contribution in 4Q and how you think about advertiser growth contribution to 1Q? Thank you.

Thank you for the question. This is Jeremi. You are right, that we expect that it could take at least a couple more quarters for our advertising partners to calibrate to the instrument solutions against the results that they see in their businesses. They are utilizing litany of different triangulation tactics right now, including lift studies, AV studies and these kinds of things. And so we do expect it to take some time for them to build full confidence in these new tools. But with that being said, we are certainly pleased with the progress that we have made with our advertising partners in Q4. Advertisers that represent more than 75% of our DR revenue have now enabled our first-party measurement solutions and can use these tools alongside the third-party measurement solutions I just mentioned to optimize and measure their campaigns I think it is important to think of it as sort of a three-step journey. So first, advertisers need to enable, which makes it possible to use the tools, then they need to actively use them and then they need to build the trust and the confidence in these tools before there is broad adoption across the board. While we expect the changes to continue to impact our business and we anticipate there could be additional platform changes ahead, we remain confident in the long-term growth prospects from our Direct Response advertising business, as you have heard, and our ability to deliver results for our advertising partners in a privacy safe environment, which is increasingly important. Our teams are really focused on helping advertisers adopt our first-party solution. We have talked about that a bit, which is Advanced Conversions. And just to reiterate what that is, Advanced Conversions utilizes cryptographic techniques to measure aggregate conversion data. And it doesn’t…

Your next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Hi. Want to know if we could ask a quick question following up on the front part of the call. The long-term initiatives you are looking at on product and content and partnerships. Can we get a little deeper on what that might mean for 2022 and 2023 and how it flows back into the investment cycle? Thank you.

Yes, sure. Thanks for the question. We are really excited about the long-term here in particular to what we are seeing is a lot of momentum around augmented reality today on Snapchat. So there are over 200 million people engaging with AR every day. I think people are playing with Lenses and Snapchat over six billion times, using our camera every day. And what we are doing now is taking all this technology and not only continuing to improve it for developers, but also to make it much more accessible for businesses and to help them specifically in e-commerce and retail help consumers try on their products and convert easily through our camera. So a lot of our investments in the near and medium term are really around smartphone augmented reality because we just see such a massive opportunity there. And then looking a definitely excited about the evolution of our Lens Studio developer tools and how that will support augmented reality on our Spectacles glasses in the future. We released our first version of stand-alone AR glasses last year and continuing to build on that and evolve that platform. So a lot to do on smartphone AR today in the near and medium term and then, of course, building to the long-term future of computing overlaid on the world.

Our next question comes from the Justin Post with Bank of America. Please go ahead.

Great. Thanks for taking my question. A couple. You made a lot of ARPU progress over the last two years, but still some services aren’t monetized yet. So maybe give us a refresher on where you are in the ARPU journey and then, of course, the question of the day is it looks like your IDFA-related headwinds could be less than peers. Maybe you could talk a little bit more about why that could be? Thank you.

Hi Justin, it is Derek speaking. I will take these two. I think the first question related to ARPU, we are still really early in our journey here, and I believe we continue to have a lot of room to grow on the ARPU side. Today, we generate most of our revenue from our content business. And with continued optimization, ECPM growth and the expansion of the content business by Spotlight, we continue to see lots of room to grow here. I think importantly, as you mentioned, we already have a lot of engagement on screens that are currently either monetized relatively little or not at all, including the camera and the map, in particular. And we do monetize the camera today, but given that our app opens to the camera and the vast majority of Snapchatters engaged with AR every day, we already have immense inventory potential on the screen, and we are investing heavily to build out our AR advertising products there. On the Map, we are not monetizing today, but we are working on the building blocks of utility for the approximately 30 million places to populate our Map, and we are excited about the potential for the Map to be an on-ramp to a new category of advertisers over time. So there is a lot to do and we are investing heavily in executing against what we believe is a well-organized plan in order to capture that ARPU opportunity over time, which we see ahead of us. So the second question on the IDFA-related headwinds. I think we have built our business with privacy by design at the core of our products, including our advertising platform. And as a result, the impacts of the changes that we have seen on the iOS platform are likely to…

Our next question comes from Rich Greenfield with LightShed Partners. Please go ahead.

Hi. A couple of questions. One, DAUs obviously look good. I mean, I guess, solid is the best word, to say it. But I think if you could maybe just help us a little bit understand what is going on under the surface, especially in the U.S. As you think about sort of time spent engagement, however you want to think about it, sequentially and year-over-year. Obviously, investors have been very concerned over the last 24-hours about what TikTok is doing to companies like Meta. What is actually happening in terms of time spent and engagement on the Snapchat platform, especially in the U.S. where your monetization is still outsized? And then two, I have seen obviously, in the prepared remarks, I think Jeremi called out brand spend in terms of the headwinds that you saw in Q4. And I think you had talked about CPG and restaurants being key areas. I was wondering - I know you are still seeing supply chain issues, but has there been any improvement in Q1 through the first - essentially month of Q1 versus what you saw in Q4 on the brand spend side?

Thanks, Rich, for the question. I can talk a little bit about engagement. I think we have worked really hard over the years to diversify our product offering beyond just communicating with friends and family, into Stories, of course, in our Map and now with Spotlight. And I think what we are seeing with the growth of our user base overall is that people are coming to Snap for all sorts of different reasons and then migrating across our different products. So while we certainly compete with TikTok and Instagram and YouTube for video entertainment, we also have different areas of our service like our Map or our AR platform where we see a really strong engagement. And I think as it pertains to stories in particular and growth in video, I talked a little bit following on some of our prior earnings calls about the trends we are seeing throughout the pandemic, where we are seeing people post fewer stories for their friends, view fewer stories from their friends. But at the same time, we have seen folks watching more premium content, watching more content Spotlight. So there is a bit of a mix shift there. Some of our user studies, for example, when we talk to our community, they say, gosh, during the pandemic, I haven’t been able to do as many cool things out with my friends. So I’m posting less stories or stories are less interesting because my friends aren’t doing as many cool things. So we will have to see how that progresses. Obviously, the Omicron thing was a little bit of a setback there for us. But overall, the core of Snapchat is really about friends and family. And I think we offer a really differentiated product, not only with stories and some of our entertainment products, but across our entire service in all of our different platforms.

And I can take the second part, Rich. Thank you very much for the question. You talked about restaurants as well as CPG and the reality is that we haven’t seen a lot of change in those particular areas, the supply labor disruptions did materialize as expected, and they still remain unsolved in the new year and result in new year. But I think that when you look at the revenue and you kind of break it down, excluding the restaurant and CPG sectors, revenue from our brand advertising business grew at give or take 49% year-over-year and that indicates what we believe to be continued strong underlying momentum in our areas not impacted by supply chain and labor issues noted earlier. We expect this to continue these macro conditions that continue to impact advertising demand as, in many cases, just practically speaking, their businesses don’t have the inventory or operational capacity to support incremental demand brought on by marketing. But in addition, we have plenty of categories, particularly with brands that aren’t as reliant on supply chain. We have redeployed resources to many of those verticals, and they continue to perform well. Examples of that are travel, streaming, financial services amongst others. And it is really great that we have been able to develop these nimble and agile teams and support them and train them on categories that may not be their core competency to ensure that we can take advantage of the tailwind categories and shift some things away from the headwind categories, but it is really important for us to continue to support the categories that may be facing some headwinds as they are long-term. Absolutely our partners and we continue to invest in them, learn with them, grow with them and pivot our resources accordingly to make sure we can take advantage of areas where there are tailwinds. But thank you for the question.

Our next question comes from Ross Sandler with Barclays. Please go ahead.

Jeremi, I guess just following up on that last question. So if we had to size the revenue bucket that is kind of still in the iOS negative impact zone, I guess, these lower funnel GBB campaigns you mentioned earlier, is that like 25%? Is it 30% of Snap’s business? And how much is the revenue growth that impacted in that area? And then alternatively, if we look at the other 70%, 75% of revenue at Snap that is not in the impact zone. Is it fair to say that that is growing kind of consistent with your kind of 50% long-term goal now and in the foreseeable future? And then the second question is -- I’m sorry, this is a little long winded, but when you guys say that DR recovered faster than expected, is it that the monthly spend from the DR advertisers is actually increasing right now as they adopt new tools and make these changes with Pixel, et cetera or do they just have better visibility and the spend is going to increase in a couple of quarters when the recovery in revenue actually happens? Thanks a lot.

Hey Ross, it is Derek speaking. I will take those questions as best I can remember all of them. So I think the first question was just around the components of our business and how many of them are really impacted by the various headwinds I think it is fair to say that in Q4, the headwinds we faced were contained to a limited portion of our business. And the top line results reflect that, obviously. At a high level, we anticipated that we would likely face some macro headwinds related to supply chain factors and labor factors in Q4. And we did see that. And as I mentioned in prepared remarks, that was largely contained to a couple of sectors within our brand advertising business, in particular, the restaurants and CPG categories that are impacted by labor and supply chain and Importantly, though, outside of those two sectors, revenue from our brand advertising business grew at nearly 50% year-over-year, indicating what we believe to be pretty strong, continued underlying momentum in that business. And then on the DR side, similarly, we saw a really strong return in growth across a number of our mid- and lower funnel goal-based bidding objectives, things like app install and Pixel purchase and so on with a large number of those growing at rates of 50% or better in some cases year-over-year. But we did similarly see pockets of the DR business and in particular, the lowest down-funnel app-based objectives such as in-app purchase were ones that were continuing to be impacted most directly by some of the iOS platform changes, including the limitations of Scan, where there are relatively high thresholds to return any results for a campaign. And so there is obviously work that we are doing there, as I mentioned in prepared remarks, around the enablement of our first-party measurement solutions, which help to fill in some of those measurement gaps, including the limitations of that threshold so. So when I think about our results overall, you can see that big parts of the DR business growing at those elevated rates and big parts of the brand business growing at elevated rates. But we are dealing with a couple of headwinds at the same time across those businesses and the macro factors and the platform changes. And so you have got pockets of the business and the minority of each side that are impacting things. So hopefully, that gives you a good sense of what is happening and what pockets of the business it is limited to. Thanks very much and hopefully, that gives you the context you need there.

Our next question comes from Doug Anmuth with JPMorgan. Please go ahead.

Hi this is Katie on for Doug. First, I just want to dig into users. Your annual DAU net adds improved in both 2020 and again in 2021. So I’m curious how you are thinking about net adds into 2022 relative to pre-pandemic levels you saw in 2019? Then second, I’m curious just your updated views regarding competition. It feels like many social peers have called outcome is intensifying broadly in the industry. How are your efforts in visual communication differentiating the product and experience relative to others in the space? Thanks.

On the first part of the question, I believe, in terms of net adds you are thinking about specifically DAU in that area and our growth in that sector. So one, I think we laid out at our Investor Day a little over a year ago, our international playbook and investments that we plan to make in order to grow the community globally. We have continued to execute against that plan over the last year, including significant investments in local content, local marketing partnerships and building our local creator community, and we continue to execute against that plan and seen strong results as a result of that. In particular, I would note that this was our fifth consecutive quarter of 20% better year-over-year growth, including 54 million total DAU. So good momentum on the community base there. We are going to continue to execute against that playbook and invest in our platform and our products in order to support the growth of our community over time. So hopefully, that gives a little perspective about what we are seeing there.

I can speak a little bit to just competition, how we think about it. It is a highly competitive area. It always has been. When we created Snap, Facebook and Instagram and YouTube and WhatsApp all those products already existed and were already really, really big. And so Snap has always been able to grow really through our continuous product innovation and focusing on our community. And we identified really early on that people want to express themselves visually through our camera. We then took that and built that into our Stories product where people can share about their day in a narrative fashion. We learned that people want to see what is happening all around the world, so we built our Map. And more recently, of course, we have built Spotlight to highlight the best of Snapchat. And so we are continually innovating and evolving our products. We believe that is the only way to compete long-term in the tech industry, and we are very excited about the future of augmented reality where we are investing a lot of our time. And that is really where a lot of our growth over the longer term is unconstrained in terms of our innovation as we are building out new products like Spectacles and continuing to evolve our AR platform. So we are really excited about our ability to continue this product momentum. And ultimately, our ability to win here in the long-term is going to come down to innovation, as it always has.

Our next question comes from Lloyd Walmsley with UBS. Please go ahead.

Great. Two questions on the AR advertising side. I guess, first, what are you guys seeing in terms of advertiser adoption? Are you seeing it pick up amongst DR advertisers and through the self-serve platform or is it still mostly bought on an awareness basis? And then second one from kind of the client perspective, what are you seeing in terms of maybe revenue retention, do advertisers come spend on lenses and keep growing that and how is kind of catalog shopping change conversations with advertisers? Thanks.

Thank you so much for the question. I’m very happy that you asked it. We certainly believe that the camera and augmented reality represent our most exciting long-term revenue opportunity. And we are seeing that with brands, they are starting to build ways on AR strategies for their businesses, and we are delivering results against that. I think the great thing about augmented reality is that it is a fully immersive experience that Snapchatters choose to engage with versus something that is passive or served to them and it is now delivering a return on investments businesses that is both measurable and repeatable. So to your point, that is something that is incredibly important for direct response advertisers. And that is encouraging more and more businesses to invest in augmented reality. You are right that when we initially launched AR for advertisers, it was kind of seen as this next shiny thing, a big brand moment, something that was a little bit more fun in their reference. But over time, we have been evolving the way that businesses think about it as more than just an ad format, but an experience that brands can build to grow their businesses. We have invested really heavily into building the tools and capabilities to make it easier to create augmented reality, which then allows it to be a part of people always on ecosystems to manage those, deploy their AR experiences. And you heard in the prepared remarks, us talk about results from the likes of MAC and Ulta, who are starting to see just incredible results with at 1.3 million try-ons, for example, on the MAC lens that was using our lens web builder tool, I think, is the best example of that. And when advertisers start to see results like that, you can imagine it is highly retentive and look alike advertisers want to start doing a lot of the same work so that they can get cost per try on down, utilizing augmented reality. These types of results that we are seeing from those two particular companies are emblematic of a larger shift that we are seeing with AR transforming e-commerce. And e-commerce is obviously a secular trend. They like to continue to grow, and we will grow right alongside it with AR as these consumer-centric ships continue to happen. And we are really excited about the future of augmented reality as a product, particularly as it delivers results for incredible advertisers with great measurement solutions.

Our next question comes from Brent Thill with Jefferies. Please go ahead.

Derek, a couple of quick ones for you. One on the mix of price versus the production growth. If you could just give us your thoughts and what you are seeing there. And secondarily, everyone realizes that the goal you gave at Investor Day is most likely on ice in the short-term for 50% plus revenue growth. But how are you and the team thinking about the long-term still on that commitment to that goal? Thanks.

Brian, it is Derek speaking. Thanks for the question. In terms of the impression and pricing growth, I think, first, obviously, we did observe rising CPMs in Q4. We were up 46% year-over-year, driven by the really significant sequential and year-over-year rise in demand. At a high level, we continue to think of ECPM at least in part as an output metric at this stage in our growth. We still believe we have room to grow ECPM across many of our ad units, but there are several competing forces that influence CPM, many of which we have influence over and they can put downward pressure on ECPM. So one such factor is growth in our community and our community has grown at rates of 20% or better for five consecutive quarters now. The second is the potential to expand our inventory opportunity by expanding monetization of highly engaged areas of our application, including the camera, Spotlight and map, among others that we talked about earlier today. And then each of these screens, there are different levels and stages of their evolution around monetization. We are monetizing the camera today, and we are heavily investing in the advertising capabilities for the long-term there. But we have not yet begun to monetize spotlight of the map, and we don’t feel urgency to do so in the very near-term, but we are investing to grow these platforms today and are excited about the potential for those screens to expand our inventory and ARPU over time. On the other side of this equation, there is improvements in optimization and measurement of our direct response business, which can help us to utilize our inventory more efficiently, and that tends to put upward pressure on ECPMs. So for example, in our most recent quarter in North…

This concludes our question-and-answer session as well as Snap Inc.’s Fourth Quarter 2021 Earnings Conference Call. Thank you for attending today’s session. You may now disconnect.