Good afternoon, everyone, and welcome to Snap Inc.'s First Quarter 2025 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. You may proceed.

Thank you, and good afternoon, everyone. Welcome to Snap's first quarter 2025 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. 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 or Form 10-Q, particularly in the section titled Risk Factors. Today's call will include both GAAP and non-GAAP measures. Reconciliations between the two can be found in today's press release. Please note that when we discuss all of our expense figures, they will exclude stock based compensation and related payroll taxes, as well as depreciation and amortization, and certain other items. Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today's call. With that, I'd like to turn the call over to Evan.

Hi, everyone, and thank you for joining our call. Q1 marked an important milestone for Snap as we reached more than 900 million monthly active users on the way to our goal of 1 billion 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 460 million daily active users, an increase of 38 million year-over-year, and content viewers and total time spent watching content grew year-over-year. Q1 revenue increased 14% year-over-year to $1.36 billion, 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+ subscription business. 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 million of adjusted EBITDA and $114 million 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. 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…

Thanks, Evan, and good afternoon, everyone. In Q1, total revenue was $1.363 billion, up 14% year-over-year and up 15% year-over-year on a constant currency basis. Advertising revenue was $1.211 billion, up 9% year-over-year, driven primarily by growth from DR 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. 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+ subscription revenue, increased 75% year-over-year to reach $152 million in Q1, or just over a $600 million annualized run rate, with Snapchat+ subscribers reaching nearly 15 million in Q1, an increase of 5 million 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…

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

Hi. Good afternoon, everyone. So guys, it looks like a really solid result in North American revenue accelerating 4 points. Derek, I think you had some comments around DR there, but can you just elaborate on that improvement in growth? And then if I could sneak a second one in around Simple Snap. I think there were 25 million users of the test as of 4Q. It seems like you've gone in a new direction. Can you talk about that a little bit? Thank you.

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. And of course, a healthy contribution from Snapchat+ as well. So really great to see the long-term investments we've been making in the 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 power users, folks who really love Snapchat the way that it is who use the map and stories all the time to really adopt 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 I think as a result, we've been seeing some more broad based gains. And of course, it will be easier to navigate the transition on the monetization side because we won't have to deprecate the tile ad units. So there's a benefit there as well. So overall, we learned a lot, but I think it's really important that we really paid attention to our community and how they were using the service and ultimately have ended up in a place where we're seeing more broad based gains and I think it will be easier to navigate some of the monetization transition there.

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

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 DR. It sounds like you're growing, but you're starting to see some impact. So I guess, could you just give us a little bit more color on what categories or what segments of the business are seeing an impact? 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 with that small of a reduction, things are kind of softening, but this is all kind of trending in-line with what you're seeing on the revenue side? Thank you very much.

Hey, Ross. Thanks for the questions. It's Derek speaking. Yeah. At a high level, the macro is changing quickly, and I think the path we're concerned here going forward isn't entirely clear that obviously impacts visibility on our end. We've learned from some of the big past macro events that we've experienced in external events to be thoughtful about how this can impact the operating environment and, therefore our approach to guidance generally. We've had a really solid Q1, top line growth at the very high end of our guide range, and then both adjusted EBITDA and net income well above those ranges. So we started the year really strong. Thus far in Q2, we're still growing, but we've seen some headwinds to our top line growth so far. As 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 caution you, it's just really difficult to parse the drivers between the various potential factors there. We're just really focused on continuing to execute for our customers and to build on the momentum we saw in Q1, with active advertisers up 60%, DR advertising revenue reaching 70% of total ad revenue for the first time. We believe by continuing to shift our mix towards DR and lower funnel by continuing to diversify our advertiser base through the growth in the SMB channel and by diversifying our revenue sources with the growth of Snapchat+, that will build a more resilient and stronger business over time as we continue to execute there. On the cost side, 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 Q1. We reached 37% flow through of incremental revenue to adjusted EBITDA in the quarter. And of course, as I said earlier, above our ranges for both adjusted EBITDA and net income. But what -- 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 million at the midpoint and SBC by $30 million at the midpoint. We also reiterated our estimate for all other costs 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 thank you.

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

Hi. Thanks for taking the question. I guess one of the big questions that everyone is trying to understand, you've been sort of in that mid-teens-ish, 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 our sponsored Snaps, what will it take to deliver 20% plus growth in the DR business? Like, do you have line of sight to like what needs to happen or how long it will take to sort of get that to be a 20% plus growth business? And then just two housekeeping things, Derek. One of the de minimis that you just mentioned, anything that you could say in terms of how much China based advertisers is a percentage of your revenue? And on the guidance comment on the forward-looking that April is continuing to grow, I've got a lot of questions, is advertising growing, or is it -- if you look excluding Snap Plus, is it still growing excluding Snap Plus as you look into April because everyone is trying to isolate what's happening in core ad business given everything that's happened with tariffs? Thank you.

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 about 14% we're at today. Of course, we're going to continue the ongoing ad platform improvements we mentioned on the call, including larger and fresher models and better signal utilization. I think in terms of the product roadmap and the product pieces, we've got a really good roadmap for our app goal based bidding objectives and for dynamic product ads as well, that will land throughout the year. And then I think bringing direct response goal based bidding objectives to new placements like sponsored snaps will also be a contributing factor as well. And then I think 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 the work he is doing with our go-to-market teams. I think that can be a multiplier on top of all the foundational platform and product work that we've been doing.

Thank you.

Yeah. Hey, Rich. It's Derek speaking on the second parts of your question there. On the China based advertisers, we don't really break it down at that level of detail. We've not previously disclosed that market as a breakout market in our Qs and case. So in some ways, that perhaps is helpful in and of itself. And look, we're early in the quarter. We're only a few weeks in. You were continuing to grow as a business, but we've seen some headwinds thus far. I think it's early. And of course, there's a lot of quarter ahead of us in the macro uncertainty and how that's going to evolve over time. So we're going to keep watching it and monitoring the growth of the business, and go from there. So hopefully, that gives you a little bit more color on the China based side of things.

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

Yes. Thanks for taking the questions. Evan, appreciate the color around kind of My AI usage growth. But I guess just kind of broader picture, where do you see My AI going, and perhaps kind of standing out versus the growing number of kind of AI chatbots we've seen? How do we think about potentially like a standalone app or integration into spectacles, but just overall, where do you see it going? 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 is this overall spotlight engagement trending kind of against that fresher content? And any color on kind of what's happening domestically would be appreciated. Thank you.

Yeah. Thanks so much for the question. I'm particularly excited about the new ways that people are going to want to interface with AI. Of course, Chat is a popular interface. I think voice to some degree is growing as well. As we look at the areas where we really want to differentiate it, it's really around that visual communication. And so, as we look at the way that people are interacting with My AI by sending snaps and either receiving snaps or chat response in return, I think that really starts to show the way that these multimodal models are going to play a really powerful role 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 the ideal interface for AI. In terms of spotlight, certainly a lot of progress there. We're now reaching more than 500 million monthly active users there. And view time, I think grew about 25% year-over-year in Q1. So certainly some good momentum and the team's focus on timely and fresh content, I think is really important because it just increases the probability that folks will see really unique and relevant content as they're using the spotlight service.

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

Great. Good afternoon, everyone. Evan, you highlighted once again the growth in your total advertiser base, up 60% this quarter, again, the big theme there being more small and medium-sized business advertisers. You also noted you're lapping the launch of Snap Promote. So just like to hear a little bit more about the next steps for SMB advertiser growth. Do you expect that rate of growth to slow or does Snap Promote 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 the Snap ads platform and start to do a little bit more with your advertising from there? Thanks.

Yeah. Thanks so much for the question. We're excited about what we've seen with Snap Promote, and we've got a whole string of product updates there. Plan to really streamline the Snap Promote product within the app 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, looking at the small and medium customer segment, I'd say in terms of our acquisition focus. We're really trying to ramp up those medium-sized advertisers, just I think in terms of the dollar volume overall, certainly in terms of active advertiser count, Snap Promote is very important. But in terms of the dollar volume, I think those medium customers 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 Snap Promote side in terms of the product 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 is probably more focused on the mid-sized customer segment.

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

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. Thank you.

Sure. Hey, Ken, it's Derek speaking. I think first, we're really pleased with what we saw in Q1. We continue to execute against our roadmap and priorities on the ad platform. Pleased to see the progress we were able to make on model freshness and model size, and signal incorporation, and the progress we're seeing in copy adoption. You're seeing that translate into the outputs of the business, both not just the top line revenue that was at the very high end of our range, but also the progress on the DR growth rate and what we're seeing with the growth of active advertisers and the progress in the SMB channel specifically, which we're really pleased with. So off to a good start, really focused on executing for our customers and delivering roads for them. In terms of what we're seeing early here in the new quarter, we're just a few weeks in. It's very early in the going. As I said earlier, the business is continuing to grow, but we have seen some headwinds to start the quarter to the growth rate. As I mentioned earlier, one example of a factor that we've seen as a driver there is some advertisers that have been impacted by the changes to the de-minimis exemption. But as I also said earlier, it's really difficult, it's early in the going to parse the different drivers that can be impacting that. So we're going to continue to watch it really carefully, and of course, where we head from here on the macro, and some of the factors there is also uncertain. So the key is that 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. Thank you.

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

Great. Thank you for taking my question. You mentioned hitting 900 million MAUs and that you're approaching 1 billion 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 reflect positively again? Thank you.

Yeah. Thanks so much for the question. We're really excited about hitting that milestone of 900 million monthly active users and really looking forward to crossing 1 billion 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 trended around this 100 million, 99 million DAU sort of number. I think we're not expecting further declines here in Q2 in North America. And the things that sort of make us confident or that we're excited about are really the engagement around snapping that is so core to the service, people making and sending snaps with their friends. So we've seen some positive trends there. We're continuing to build on those overall 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's a real priority for us as well.

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

Great. Thank you. I just want to go back to prior comments that you might have been a little bit demand constrained. And just are you still -- 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.

Yeah. 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 the overall engagement with chat and the chat page on Snapchat, I think should provide a pretty substantial meaningful amount of incremental inventory for us. So, the keys right now are really bringing more goal based bidding objectives to that inventory. It's taken a bit of time. 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.

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

Well, 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 to two years, I guess. But 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 quarter? Thank you.

Hey, Mark. Thanks for the question. Yeah, 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 on both adjusted EBITDA and net income. So, demonstrating the ability to balance it there in Q1. Yeah. We have done some hiring in Q1 and the focus there has been really around our core priorities and bringing people into the building that can help us with our go-to-market efforts around especially around the SMB client space, help around supporting clients with measurement and things like that and also around engineering and specifically ML and AI competencies as well. So big focus there in supporting the business and supporting our top line growth and our roadmap for the year. Approximately two-thirds of our adjusted operating expenses are roughly thereabout our people or people related costs. So certainly, anytime that we're adjusting our cost outlook for the year, that's going to be part of the mix, and we're sort of being thoughtful there to make sure that our pace of hiring makes sense relative 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.

Thank you. This concludes our question-and-answer session as well as Snap, Inc.'s first quarter 2025 earnings conference call. Thank you for attending today's session. You may now disconnect.