Snap Inc.

Good afternoon, everyone, and welcome to Snap Inc's second quarter 2023 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 second quarter 2023 earnings conference call. With us today are Evan Spiegel, chief executive officer and co-founder, Jerry Hunter, chief operating officer, and Derek Anderson, Chief Financial Officer. Please refer to our investor relations website at investor.snap.com to find today's press release, slides, investor letter, and 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 these forward-looking statements, please refer to the press release we issued today, as well as risks described in our most recent form, 10Q, particularly in a 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'd like to turn the call over to Evan.

Hi, everyone, and thank you all for joining us. We began the second quarter of 2023 with a strong focus on growing our community, accelerating our revenue growth, and leading in augmented reality. Our community grew to 397 million daily active users in Q2, and we are working to deepen engagement with our content platform. with the number of content viewers and total time spent watching content increasing globally year over year. Our focus on visual communication between friends and family is a strategic advantage that has enabled us to build engaging and retentive products and services across our platform. To achieve a higher rate of revenue growth, we are focused on three key priorities. First, investing in our products to sustain community growth and deepen engagement. Second, investing heavily in our direct response business to deliver measurable return on spend for our advertising partners. And third, cultivating new sources of revenue to diversify our top-line growth to build a more resilient business. We generated revenue of $1.68 billion in Q2, a decrease of 4% year-over-year and an increase of 8% quarter-over-quarter. In Q1 of this year, we made changes to our ad platform to unify the ad experience across our service, and retrained our models to drive more in-session click-through conversions. In Q2, we made progress toward improving results for advertisers through machine learning model updates and infrastructure improvements, new ways of measuring and optimizing advertising spend, and new leadership for our go-to-market efforts. We are encouraged to see that this progress is beginning to translate into improved results with record active advertisers in Q2, up more than 20% year-over-year, and through improved advertiser retention compared to the same period last year. We made progress diversifying our revenue through Snapchat Plus, our subscription service that offers exclusive, experimental, and pre-release features, which now has more than 4 million subscribers. We are excited about the early progress we are making with AR Enterprise Services, our first SaaS offering, which helps retailers use our augmented reality platform to drive sales and reduce returns on their own applications and websites. We also rolled out MyAI globally, and we recently began early testing of sponsored links and conversations with MyAI. Diversifying our revenue growth is an important strategic initiative, and we believe our leadership and messaging and AR technology provides a strong foundation to help connect businesses to our large and engaged community. We are calibrating our investment levels to build a path to free cash flow breakeven or better, even with reduced rates of revenue growth. We will continue to invest with a long-term perspective, especially in areas that are critical to realizing the long-term opportunity of augmented reality. While our strategic investments in cloud-based ML infrastructure have put downward pressure on margins in the short term, there are early signs that the improvements to ranking and personalization of our content and ad platforms are leading to deeper engagement with content by our community and stronger returns on investment for our advertising partners. We have further scrutinized our operating costs in order to invest incrementally only where it is necessary to achieve our strategic priorities, and in particular to drive top-line revenue acceleration. Last year, we reorganized our team, reprioritized our business initiatives, and laid out our strategy to re-accelerate revenue growth by investing in community growth and engagement, improving our direct response advertising business, and diversifying the sources of our revenue. While we are still far from achieving the revenue growth to which we aspire, we believe that the momentum we have established in community growth and content engagement, the significant improvements we are seeing in return on investment for direct response advertisers, and the early growth of Snapchat Plus to more than 4 million subscribers demonstrate progress, and further validate our strategic focus. Thank you, and with that, we will begin our Q&A session.