Good afternoon, everyone, and welcome to Snap Inc.'s Fourth Quarter 2024 Earnings Conference Call. At this time, participants are in a listen-only mode. I would now like to turn the call over to David Ometer, Head of Investor Relations.

Thank you, and good afternoon, everyone. Welcome to Snap's fourth quarter 2024 earnings conference call. With us today are Evan Spiegel, Chief Executive Officer and Co-Founder; and Derek Andersen, Chief Financial Officer. Please refer to our Investor Relations website at investor.snap.com to find today's press release, earnings slides and investor letter and investor presentation. This conference call includes forward-looking statements, which are based on our assumptions 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 these forward-looking statements, please refer to the press release we issued today as well as risks described in our most recent Form 10-K, particularly in the section titled Risk Factors. Today's call will include both GAAP and non-GAAP measures. Reconciliations between the two can be found in today's press release. Please note that when we discuss all of our expense figures, they will exclude stock-based compensation and related payroll taxes, as well as depreciation and amortization and certain other items. Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today's call. With that, I'd like to turn the call over to Evan.

Hi, everyone, and thank you for joining our call. In Q4, 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 453 million in Q4, an increase of 39 million year-over-year, and content viewers and total time spent watching content grew year-over-year. The progress we have made with our direct response advertising business, and the growth of our Snapchat+ subscription business contributed to Q4 revenue increasing 14% year-over-year to $1.56 billion. The benefits of our more focused investments are now evident in our improved profitability and free cash flow generation. In Q4, the combination of topline progress and expense discipline translated to $276 million of adjusted EBITDA and 60% adjusted EBITDA flow-through, $182 million of free cash flow, and $9 million of net income. In 2024, we generated $5.36 billion of revenue, which grew 16% year-over-year, driven primarily by DR ad revenue, which also grew 16% year-over-year for the full year. Snapchat+ grew from 7 million to 14 million subscribers in 2024, and other revenue, the majority of which is Snapchat+ subscription revenue, grew 131% year-over-year, exiting the year with an annualized revenue run rate of well over $500 million. We delivered $509 million of adjusted EBITDA for the full year, marking our fifth consecutive year of positive adjusted EBITDA. In 2024, we generated $219 million in free cash flow, achieving our fourth consecutive year of positive free cash flow. As we enter 2025, we are focused on key initiatives to build on the momentum we established in 2024. First, our new ad placements, Sponsored Snaps, and Promoted Places provide advertisers with incremental reach while enabling them to connect…

Thanks, Evan, and good afternoon, everyone. In Q4, total revenue was $1.56 billion, up 14% year-over-year. Advertising revenue was $1.41 billion, up 10% year-over-year, driven primarily by growth from DR advertising revenue, which increased 14% year-over-year. Brand-oriented advertising revenue was down 1% year-over-year, driven by continued weakness that is concentrated among a relatively small group of large clients focused largely in North America. We drove robust growth from our SMB client segment globally as we continue to build towards a more diversified and performance-based advertising business. Other revenue, which is driven primarily by Snapchat+ subscription revenue, more than doubled year-over-year to reach $143 million in Q4, with Snapchat+ subscribers reaching 14 million in Q4. In Q4, North America revenue grew 8% year-over-year and Europe revenue grew 20% year-over-year with a relatively lower rate of growth in North America due to the impact of weaker large client upper funnel demand being relatively concentrated in this region. Rest of World revenue grew 35% year-over-year, driven by the continued progress with our DR ad platform and investments in go-to-market operations. Adjusted cost of revenue was $669 million in Q4, up 9% 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 Q4, which is in line with the prior quarter and within our expected range of $0.83 to $0.85. The remaining components of adjusted cost of revenue were $289 million in Q4 or 19% of revenue, which is in line with the prior quarter and within our full-year cost structure guidance range of 19% to 21%. Adjusted gross margin was 57% in Q4, up from 54% in the prior quarter and 55% in the prior year. Adjusted operating expenses…

[Operator Instructions] Our first question comes from Doug Anmuth with JPMorgan. Your line is now open.

Thanks so much for taking the question. Can you talk about the early results around Simple Snap now that it's rolled out to more than 25 million users? Are you seeing any differences across user GEOs? And how are you managing any user or advertiser budget disruption or impact associated with the rollout? Thanks.

Hi, Doug, thanks so much for the question. We're definitely continuing to see encouraging testing results, especially with engagement metrics like increased content active days. So we are seeing more casual users enjoy our content experiences more frequently. I think there are sort of two big puzzle pieces that we're still working on as it pertains to the rollout. The first is migrating story ad demand, which was typically filled in those tiles on the Stories page, migrating that to the in-feed or to our Sponsored Snap unit. And so that's going to be a priority on the -- on the advertising side. And then in terms of engagement, there's still a cohort of users who really come to Snapchat for our Stories page for the current tile base layout to the creators and publishers that they love and we still haven't been able to claw back some of the engagement losses we're seeing with that cohort. So we're very focused on continuing to iterate there. We've got a number of ideas on how we can solve so both of those pieces and we're going to work on rolling those out in the coming weeks or months.

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

Hi. I've got two kind of high level questions. You're the only mobile ad platform that's built a robust subscription business in Snap+. I think it's now like almost 10% of total revenues and it's by far your fastest driver of growth. I guess, Evan, how should we think about the growth potential in terms of not just subscribers and ARPU, but what are the features that you can add that would make this an even more meaningful product going forward? And then given everything that's happened with DeepSeek and sort of China-based AI in terms of innovations over the course of the past couple of weeks, just curious how you think the cost curve may be changing for AI and how that impacts the Snap cost structure over the coming year?

Hey, thanks, Rich, for the questions. Yeah, on Snapchat+, we're really excited about the progress there. And there's definitely been a lot of adoption, especially of our personalization features. People really like feeling like the app is made for them and changing its appearance or the icon, those sorts of things. I think as we look at the roadmap for feature development, one of the areas we're focused on is just the core engagement loop of snapping and how we can make that more differentiated with Snapchat+ features. So that will be a priority this year. And I also think there will be room for some price increases. I think the annual plan here in the US is about $2.50 a month. And I think folks have indicated that they're getting a lot of value from Snapchat+. So that may be another avenue in terms of growing ARPU over the longer term. As it pertains to DeepSeek, I mean, first, I would just say it's been really inspiring to see the innovation there. I love -- I think the founder made a comment along the lines of how capital is just not a long-term moat in the technology business and the way that constraints really can drive innovation and creativity. And so that was definitely an exciting development for the industry. But I think it just further validates our view that a lot of these models are going to continue to become commoditized over time and obviously are going to become more and more efficient to run. So hopefully, that will have some impact for us over the longer-term. I think right now, we're just sort of in the early experimentation phase with some of their open source work.

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

Hey, this is Luiza dialing in for Mark Shmulik. Can you provide any color on what you've seen around engagement and advertiser behavior since TikTok went dark in the app stores? And hopefully, we'll get an answer one way or another on TikTok resolution soon. But how does it affect the way you think about priorities for the year? And where do you expect to be most nimble? Will it be on Simple Snapchat?

Hi, Luiza, thanks so much for the question. I think some of the changes with TikTok, they've sort of been an -- I guess, an imperfect experiment. So we're not trying to draw too many conclusions from some of the engagement lift we saw when the app went dark for that brief period of time. I would say that the overall environment of uncertainty is benefiting our business. I mean, certainly, advertisers are very focused on contingency planning and diversifying their spend. And I think the same goes for creators who are really thinking hard about how they can build the most diversified engagement with their fanbase across various platforms, including Snapchat. So a big priority for us is really just helping make sure we support advertisers and creators during this period of uncertainty. And for creators in particular, we've been spending a lot of time working on just improving that overall creation flywheel. I mean, that's why we're seeing a 40% increase in the number of creators posting to Snapchat. And I think in Q4, we actually reached 1 billion public posts a month on Snapchat. So, the public content ecosystem is growing in a really nice and healthy way. And so we're just going to continue our focus there when it comes to our strategy and prioritization.

Our next question comes from Dan Salmon with New Street Research. Your line is now open.

Great, good afternoon. Thanks for taking the questions. Evan, I'd love to just dig into small and medium-sized advertiser growth more. You noted it was the biggest contributor to ad revenue in 2024 in the letter and Snap Promote remains a big part of that. Could you just talk a little bit more about what the team is doing to leverage that growth, helping them expand beyond Snap Promote, build full ads manager accounts, and start to get a little bit more sophisticated on the platform -- on the platform, excuse me. And then you talked a little bit last quarter about how that Snap Promote list goes sort of straight into the go-to-market team to help facilitate that. Any other initiatives that you'd highlight to help accelerate that growth or other ad products in general that you see that group really ticking up with that -- with ticking up strongly? Thanks.

Hey, Dan, it's Derek speaking. I'll take that one. First, we are really pleased with what we're seeing with the SMB segment. It's been a big focus area over the last year. There's sort of a combination here of more performance DR ad products, the improvements we made to our go-to-market operations that are specifically optimizing them for the SMB segment, and then we've done a lot of work to simplify the ad-buying experience, including elements that are automated make it a lot easier for our SMB advertisers to get started. Advertisers in the SMB segment in particular have benefited from our growing number of CAPI integration partners, including, for example, Snowflake, Datahash, Tealium, and LiveRamp that make it really fast and easy to integrate and benefit from the improved performance that CAPI can deliver. Snap Promote, as you noted, is also a key driver of the SMB advertiser growth. It makes it really easy for folks to get started right within the app and this contributed in part to the active advertisers from the segment more than doubling year-over-year in Q4. To build on this momentum, we've got a pretty robust roadmap of enhancements on the way for SMB clients. Just as an example there, we'll be testing in Q1 our new smart budget optimization feature, which will automatically adjust campaign budgets across assets to deliver the best results for the advertiser. And so that's a big part of it. You also note in some of our investments that we're looking at in the year ahead, not just the investments in product and [ends] (ph) to deliver the advertising roadmap, but also more resources specifically to help scale the SMB segment. So hopefully, that gives you a little bit of color about what's been driving the success there and how we'll be investing going forward.

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

Great, guys. Thanks for the question. What if anything is factored into your Q1 revenue and user growth guides as it relates to the rollout of Simple Snapchat? Is it fair to say we're just too early for that to be meaningfully impacting results right now? And/or that maybe it could kind of occur later in the quarter? Thank you.

Hey there, thanks for the question. As it really pertains to the guide both for revenue and user growth and Simple Snapchat, there's really nothing material factored into either of those around Simple Snapchat. We're being really thoughtful, as Evan mentioned earlier, around the testing and learning and some of the things that we're rolling out to sort of optimize that experience. And so that's not really a big factor in how we're thinking about either the engagement growth or the revenue growth in the coming quarter. It's really about the momentum that we're seeing in the business, both in terms of the momentum on the DR side overall, some of the SMB strength that I just mentioned earlier and the growth that we're seeing in the global community more recently. So hopefully that helps a little bit and we'll continue to test and learn going forward.

Our next question comes from Shweta Khajuria with Wolfe Research. Your line is now open.

Okay. Thank you for taking my questions. Let me try two, please. The first one is just generally on verticals. Could you please comment on the overall demand environment as you see it for both across brand and DR? And then anything that jumped out to you that was in terms of demand trends, it was specifically muted trends that you saw or strength? And then my second question is on compute costs. And I think this was asked a bit earlier, but let me try it one more time. When you think about efficiency gains in your compute costs over the next year, two years or three years, how are you thinking about where you'd realize them the most? And how are you positioned to realize those gains? Thanks a lot.

Hey there. Thanks for the question. This Derek speaking. On verticals, specifically, what we're really seeing there is that we get the best results in verticals where we've really built out great product market fit. So, if you think, for example, it's been about a year and a half since we rolled out the new 70 Pixel Purchase optimization and that's been a very big driver of the DR business over the last year. And we're seeing really good results in retail, CPG and health and wellness with that particular optimization and of course, broadening out from there. As we've been able to make progress on rolling out through testing and then general availability, some of the improvements to other optimizations, we see the product market fit expand. So for example, we added a number of enhanced app-based optimizations around midyear of '24 based on our new sort of ML architecture and product stack. And we're seeing that work really well for more verticals. So for example, we saw more than 70% year-over-year growth with app purchase optimizations in Q4 and we're seeing that work for our gaming, our retail e-comm and financial services verticals. And so as we're able to make more progress in rolling out our improved ad stack against different optimizations, that really helps us expand the applicability of those to more verticals and make more progress. On compute costs, I think what we've seen over the long-term is a couple of things really go our way there. Number one, our teams have been very good about innovating very quickly, getting products out to our community really quickly and then based on what we see in utilization, being able to migrate between SKUs with cloud partners and to optimize our own code base in order to use…

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

Thank you very much. Two questions, please, on the ad side. First, I kind of on the upper funnel brand side, continued weakness there. Could you talk a little bit about from a category perspective? Are you continuing to see pressure in the same category as you talked about food and beverage in the past, but has that broadened out or does that roughly similar? And where do you see the opportunities? Are there new categories that there are potential opportunities there on the upper funnel brand side? And then the second one on the lower funnel side, a nice progress on doubling the number of advertisers. Could you talk about just the typical ramp period for those advertisers in terms of getting to kind of what a maybe a full run rate because that the volume increase is great? The question is, should we see continued momentum there on the direct response side and on the lower funnel side from that volume increase? Thank you.

Hey there, Ken, thanks for the question. As it pertains to the sort of upper funnel business and the source of the weakness there specifically, it continues to be concentrated in a relatively small number of larger upper funnel-oriented advertisers. I think our real focus there in terms of being able to reignite growth in this category and make progress is, number one, we're focused on accelerating our product innovation, and specifically, we're encouraged by the incremental reach that advertisers have realized in the early rollout of Sponsored Snaps and the positive feedback we're hearing from clients and agencies in those products. So looking forward to making that solution available to more partners over the course of the year ahead. We're also prioritizing support for large brands and agencies by offering enhanced client support, easier platform integrations, and advanced measurement tools. So, for example, last year, we launched a partnership with VideoAmp to provide agencies with reach, planning, and measurement tools that enable agencies to build multichannel media plans and then have the visibility to key metrics such as incremental reach. And so we're going to keep leaning into those innovations in order to be able to deliver improved performance for those advertisers. I also think it's just important to maintain our real focus and priority around diversifying the business and leaning into the places that are the focus of our roadmap. So as much as we'd like to see this category grow a lot faster, I think it's important that we have our resources focused on doubling down on the momentum that we're seeing with our direct response business, doubling down on the momentum that we're seeing with the SMB category and of course, continuing to invest in Snapchat+, so that over time, we continue to build a business…

Our last question comes from Deepak Mathivanan with Cantor Fitzgerald. Your line is now open.

Great. Thanks for taking the questions. Two ad product questions. First on Sponsored Snaps. The reach some of the advertisers are seeing on the early campaigns looks very strong. Can you talk about the go-to-market strategy this year for Sponsored Snap? How fast can you ramp the adoption of this in 2025? And then second one on DR ads, we're seeing companies like Meta and others deploy kind of GPUs to improve relevance beyond areas like creative iterations for the AI products. How do you think about that opportunity to kind of deploy additional compute and drive performance for our Snap's DRI products? Thank you very much.

Yeah. Thanks so much for the question. In terms of Sponsored Snaps, we're really excited about what we're seeing there. And one of the reasons why is I think the creative execution by advertisers has been really thoughtful, which has made for a really sort of native and organic feeling experience for folks who have received. Sponsored Snaps. So I think for us, as we look at scaling out demand for Sponsored Snaps, we want to do that in a way that's thoughtful and that really maintains a high bar for relevance. So we'll be starting with our Pixel Purchase GBB, where we've got a quite a significant diversity of advertisers and wide range of creatives and really holding a high bar for relevance as we bring that product to our auction. So that will be the first step and we'll learn from that. We've already been doing some preliminary testing there and then, of course, expand to other GBBs over time. As it pertains to our investments in machine learning for our advertising business, this is certainly a huge focus area for the company. Our ad business benefits a lot from the broader ML platform investments we've been making across the company. We're definitely experimenting with things like sequence models and other techniques to drive improved relevance. But some of these other themes like much larger models and fresher models really benefit our advertising business as well in addition to our content business, even though, of course, the corpus of ads is much smaller than the corpus of content that we need to recommend to our community.

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