Snap Inc.

Good afternoon, everyone, and welcome to SNAP, Inc.'s third quarter 2020 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. If you would like to ask a question during that time, please press star, then the number 1 on your telephone keypad. 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 third quarter 2020 earnings conference call. With us today are Evan Spiegel, chief executive officer and co-founder, Jeremy Gorman, chief business officer, and Derek Andersen, chief financial officer. Earlier today, we made a slide presentation available that provides an overview of our user and financial metrics for the third quarter 2020, which can be found on our investor relations website, at investor.snaps.com. Now I will cover the safe harbor. Today's call is to provide you with information regarding our third quarter 2020 performance in addition to our financial outlook. This conference call includes forward-looking statements. Any statement that refers to expectations, projections, guidance, or other characterizations of future events, including financial projections, future market conditions, or the impact of COVID-19 on our business and on the economy as a whole is a forward-looking statement based on assumptions 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 quarterly report on Form 10-Q for the quarter-ended June 30, 2020, particularly in the section titled Risk Factors. This information can be found in our other filings with the SEC when available. Our commentary today will also include non-GAAP financial measures, and we believe that the use of these non-GAAP financial measures provides an additional tool for investors to use and evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP metrics for our reported results can be found in our press release issued today, a copy of which can be found on our Investor Relations website. 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-referring charges. At times in our prepared remarks or in response to questions, we may offer additional metrics to provide greater insight into our business or our quarterly and annual results. This additional detail may be one time in nature, and we may or may not provide an update in the future on these metrics. Please refer to our filings with the SEC to understand how we calculate our metrics. With that, I'd like to turn the call over to Evan.

Hi, everyone, and thank you for joining our call. We added 11 million daily active users this quarter for a total of 249 million, up 4% quarter over quarter and 18% year over year, demonstrating the benefits of years of investment in our products and partnerships across a wide range of geographies. We generated $679 million in revenue this quarter, up 52% year over year, outperforming our expectations and highlighting the substantial value we drive to both direct response and brand advertisers during this continued period of uncertainty. Our year over year growth rates for both daily active users and revenue were higher this quarter than they were in Q3 of the prior year. In fact, they represent our highest Q3 growth rates since 2017. Our success underscored the excitement that our community and our advertising partners have around our innovative products and services. The adoption of augmented reality has happened faster than we had previously imagined, and we feel well-positioned to execute on the many opportunities that lie ahead. Two years ago, we transformed our business by relentlessly focusing our attention on delivering return on investment for advertisers and building new products and experiences to serve our community. The revenue and community growth we have generated as a result of these efforts has afforded us the opportunity to double down and innovate even more, especially around our camera and augmented reality platform. The creative and technical teams at Snap have worked hard to support LEM Studio creators and evolve our camera's capacity to entertain our community and help our partners grow their businesses. For example, this quarter we introduced more lenses for try-on and commerce with Sally Hansen creating AR trial and purchase for nail polish and Chance doing the same for sneakers. Snapcot community engagement is strong as we continue to grow in new markets, broaden our product offerings and improve our underlying infrastructure. This was our fourth consecutive quarter of more than 15% year-over-year daily active user growth. We also saw strong retention in our vast community, and we continue to reach over 90% of the Gen Z population and 75% of the Gen Z and millennial population in countries like the U.S., the U.K., and France. One key driver of growth across all of our markets has been product innovation and infrastructure improvement. Following the successful rebuild of our Android application last year, we are rolling out a newly streamlined messaging infrastructure that we expect will make messaging faster and more efficient, which will help drive increased engagement, especially as we expand our community across different countries and devices. These foundational investments in our core architecture have also enabled us to innovate faster and release new product features at a rapid pace. In the last year alone, we launched brand profiles, minis, places on the map, dynamic ads, bidded AR lenses, dynamic lenses, camera kits, SnapML lenses, and new creative tools, with lots more to come. We are currently rolling out a new five-tab navigation bar for Snapchat, which allows us to deepen the product experience for our map and discover platform. We're excited to make the SnapMap more visible to new Snapchatters and invest in a better content experience for Discover, especially as we brought in our content offerings across popular creators and professional studios. Our ability to launch a large-scale, fundamental product transformation like this quickly and without disruption to our business is evidence of the progress we've made. In fact, it was the first major update where we prototyped and launched on Android first Due to the structural improvements we made to our Android application last year. Our investments in Lens Studio continue to drive the growth of our augmented reality platform, and we are especially excited to see lenses created by our community driving a majority of the year-over-year growth in daily lens use. Our Lens Studio platform allows people all over the world to create rich AR experiences that highlight the broad range of cultures represented by our community. Some of these lenses are used by Snapchatters across the world, while others are notable for their extraordinary regional engagement. For example, a university student in India created a lens with a smoke flare effect which went viral in India and Southeast Asia, garnering billions of views on Snapchat and even more on other social platforms. This demonstrates the impact of the creativity of our community, which empowers self-expression with augmented reality, at a volume and scale we could never achieve on our own. We've also continued to invest in the technology that underlies our AR platform to empower new experiences for our community. We drew on several years of technical investment and creative experience to launch a number of extremely popular lenses this quarter. For example, our recently launched anime lens uses our SnapML technology to turn people into anime characters in real time and our community engaged with this lens 3 billion times in its first week. As we push the envelope on what is possible in augmented reality with these new lenses, we are even more excited to contribute these new learnings and capabilities to Lens Studio so our community can leverage them in their own creations. Our content platform continues to mature following our investments in regionalized content and the expansion of our partnerships with both traditional media partners and newer mobile-focused content studios. Our premium shows format continues to grow rapidly around the world, with time spent watching shows increasing more than 50% this quarter compared to Q3 of last year. Our successful VersaWorld docuseries franchise launched its second season featuring Conor McGregor and has already reached 14 million viewers. to reach our differentiated audience. Over 50 million Snapchatters watch content derived from TV on Snapchat each month on average, and this familiar programming has helped drive an 80% year-over-year increase in the average number of people watching shows every day that are over the age of 35. Additionally, as various sports leagues are resuming their seasons, our community has turned to Snap to watch the action. Last month, more than 40% of the U.S. Gen Z population watched premium sports content on Snap. The NBA Highlights channel saw over 20% more engagement so far this season than last year, and SportsCenter viewership on Snapchat increased by 80% from July to September. We are also seeing dramatic growth in content engagement in markets like India, where Discover viewership grew nearly 50% quarter over quarter. Furthermore, in markets like France and the UK, young people turn to Discover as their destination for premium mobile content, with more than two-thirds of the Gen Z and millennial population in both markets watching premium content on Discover. Finally, as our content business develops, We are also providing our partners with better monetization. This quarter, due to growth in shows and improved monetization, we paid our partners 85% more than we did in Q3 of last year. In addition to AR and content, we are also building new ways to empower creators, developers, brands and others to improve the entire Snapchat experience for our community. For example, We have partnered with TurboVote to launch a Snap Mini to help our Gen Z and Millennial audience register for the upcoming U.S. election. Over 1 million U.S. users have signed up for the Mini, where they can get help registering to vote. According to Democracy Works, more than 50% are likely first-time voters. Additionally, we are continuing to make early progress on our gaming platform by launching three new games this quarter. Many of our early developers are deepening their investment as they explore new genres, monetization models, and game types. For example, MojiWorks, developer of the popular Ready Chef Go, is doubling down on the Snap Games opportunity and exploring new genres like music and trivia. We have also been working hard to help our developers find financial success on our platform and have more than doubled the revenue our developers are generating this quarter. As we look to the future, we believe that the fundamental changes we've made to our products and business over the past two years have put us in a strong position to continue executing in a rapidly evolving world. Our improvements to both our core product infrastructure and our internal team and operations have enabled us to accelerate the velocity of our product innovations. Thank you, Evan.