Snap Inc.

Good afternoon, everyone, and welcome to SNAP, Inc.'s second 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 O. Meader, head of investor relations.

Thank you, and good afternoon, everyone. Welcome to SNAP's second quarter 2025 earnings conference call. With us today are Evan Spiegel, chief executive officer and co-founder, and Derek Anderson, chief financial officer. Please refer to our investor relations website at .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 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, everybody, and welcome

to our call. In Q2, we made exciting progress on our long-term strategy to grow our community, enhance value for advertisers, and invest in the future of augmented reality. Enriching relationships between friends and family is central to our mission, and we continue to build products that bring people together and spark conversations among Snapchatters, from messaging and maps to personalized content and AR experiences. Our team's continuous innovation was evident as we reached 932 million monthly active users in Q2, an increase of 64 million or 7% year over year, moving us closer to our goal of serving 1 billion Snapchatters around the world. Our large and -to-reach audience, brand-safe environment, and performance advertising platform continues to make us a valuable partner for businesses looking to grow with Gen Z and Millennials. One of the many things that sets Snapchat apart is the unique space that provides Snapchatters to feel free to express their creativity and maintain close relationships without the pressures of public performance. This authentic communication and self-expression is a key differentiator in the crowded digital landscape because it empowers brands to build strong relationships with their audience. Revenue increased 9% year over year to reach $1.34 billion in Q2, driven primarily by the continued growth of our small and medium customers and delivery against lower funnel objectives. Snapchat Plus approached 16 million subscribers in Q2 and was the primary driver of other revenue, growing 64% year over year to reach an annualized run rate of nearly $700 million. To build on this momentum, we introduced Lens Plus, a new Snapchat Plus subscription tier that offers access to exclusive new AI video lenses, emoji game lenses, as well as early access to new features. We continue to focus on aligning our investments with our core strategic priorities while improving financial performance. In Q2, we delivered $41 million of adjusted EBITDA and generated $24 million of free cash flow, as we continue to make progress towards profitability while generating consistent and meaningful free cash flow. We ended the quarter with $2.9 billion in cash and marketable securities, providing financial flexibility to invest in our future. We have made a long-term and consistent investment in augmented reality, committing more than over the past 11 years to develop the world's only full-stack, vertically integrated augmented reality platform. With one of the world's largest AR developer communities, purpose-built developer tools, a proprietary rendering engine, our own highly optimized operating system, our own optical engine, as well as the design of the hardware itself, our tight control over each aspect of the hardware and software allows us to deliver a product experience that is unmatched. We're excited about our progress as we work to make specs available to the public in 2026. While we are moving quickly to realize the full potential of our business, we believe there is an opportunity to better align SNAP's engineering and technology investments with our business priorities. We will be distributing our engineering teams to directly support our business functions with our core applications team reporting to Bobby Murphy, co-founder and chief technology officer, and our monetization engineering team reporting to Ajit Mohan, our chief business officer. Our chief information officer and chief information security officer will report to me and lead enterprise-wide foundational infrastructure and platform integrity. This new distributed structure will empower our teams to take greater ownership and drive continued innovation for our community and advertising partners. We are grateful to Eric Young, SVP of engineering, for his contributions and wish him all the best as he departs to pursue a new opportunity. Snapping with friends and families at the core of our service, driving daily engagement and long-term retention. In Q2, we introduced several features to make communication faster, easier, and more fun. We launched the Snapchat app on Apple Watch, allowing Snapchatters to preview incoming messages and respond using the keyboard, scribble, dictation, or emojis. Leveraging our investments in AI and machine learning, we enhanced group suggestions to help people connect more easily with their closest friends. Our video chat feature continues to strengthen real connections, with Snapchatters spending 30% more time video chatting year over year in Q2. These updates highlight our ongoing commitment to enriching the Snapchat experience through visual communication and fostering deeper connections amongst our community. Global time spent watching content and the number of content viewers increased year over reflecting the multi-year investment in our machine learning infrastructure and the continued growth in Spotlight. In Q2, we began testing our largest mixed feed model to date, which reduced training time by half and led to an increase in content view time growth. These strategic investments and improvements have been fundamental in Spotlight, reaching an average of more than 550 million monthly active users. Time spent on Spotlight grew 23% year over year in Q2 and now contributes more than 48% of total time spent watching content. In Q2, we introduced a suite of new tools and features that make it easier for Snapstars to create and share content. Creators can now generate videos from their saved memories using templates and may have access to new insights like returning viewers, top content, and total view time, which will enable creators to optimize their content to deepen their relationship with their audience and receive rewards for posting. Over the past year, we onboarded thousands of creators to our Snapstar program, driving momentum with the number of Spotlight posts by Snapstars growing more than 145% year over year in North America in Q2. As part of our efforts to strengthen real-world connections among close friends, we acquired Saturn, a social calendar app that helps high school and college students manage and share their class schedules. Saturn transforms calendaring by orienting it around friends to make time management feel intuitive and fun. Students from over 80% of U.S. high schools use Saturn with their friends to organize their day. We are excited to support Saturn's growth and explore ways to integrate its calendaring expertise into Snapchat in new and innovative ways. Augmented reality continues to empower creativity and drive engagement on Snapchat. Snapchatters use AR lenses in our camera more than 8 billion times each day, and over 400,000 creators from nearly every country have built more than 4 million lenses using our industry-leading AR tools. In Q2, more than 350 million Snapchatters engage with AR every day on average. Our 90s school photos, AI lens, different eras AI lens, and cartoon world AI lens were collectively viewed over 1 billion times in Q2, highlighting strong engagement with our latest AR experiences powered by generative AI. Much of this momentum is driven by our growing AR creator and developer ecosystem. Lens Studio, our desktop authoring tool, has helped foster a global community of professional developers by giving them powerful tools to create innovative AR experiences. We have made AR creation increasingly more accessible with EasyLens, an AI tool that empowers lens creators to build a lens in just minutes by typing out a prompt for the lens that they want to create. In Q2, we expanded access with the introduction of the Lens Studio iOS app and a new web-based Lens Studio creation tool at .Snapchat.com. While the desktop version of Lens Studio remains the primary tool for professional developers creating advanced and more sophisticated AR experiences across Snapchat, partner apps, and Spectacles, these new tools are designed to help more people at all skill levels get started with AR. To support creators building lens games, our latest Lens Studio update includes new features and simplified development. These include the new Bitmoji Suite for enhanced personalization and animation that makes it easier to bring 3D Bitmoji avatars to any game environment, along with new game assets, including leaderboards and multiplayer features built specifically for Snapchat. As a result, games engagement on Snapchat has continued to grow, now reaching more than 175 million monthly active users, up over 40% year over year. We believe games represent a compelling long-term opportunity for driving engagement on Snapchat and eventually new monetization opportunities for creators and our business. In Q2, we announced plans to publicly launch our first fully standalone lightweight Specs AR glasses in 2026, marking an exciting milestone for our company and a critical step toward realizing our long-term vision for augmented reality. Snap is uniquely positioned as the only company in the world with a fully integrated AR computing stack. Our upcoming Specs represent a leap forward in human-centered computing. It will be significantly smaller, lighter, and more capable than our fifth-generation Spectacles released to developers in 2024. By combining advanced machine learning and AI with spatial intelligence, Specs will enable users to interact with computing in fundamentally new ways, delivering digital experiences embedded directly into the world around us. Our developer community continues to build new and compelling use cases and creative lenses for Specs. Recently launched lenses for Specs include Goa's Super Travel for real-time translation and currency conversion, Paradiddle's Drum Kit for interactive music learning overlaid on a physical drumset, and ANRK's Pool Assist to help players make better shots while playing pool. These examples demonstrate how Specs seamlessly integrate computing experiences into three-dimensional space, enabling practical utilities, enriching educational experiences, and fostering imaginative new forms of entertainment. To build on this momentum, we introduced updates to Snap OS and new tools to unlock deeper AR capabilities. AI-powered experiences with OpenAI and Gemini on Google Cloud, in addition to hosted open source models, now enable the creation of sophisticated, multimodal AI-powered lenses. Additionally, our new automated speech recognition API supports real-time transcription across dozens of languages, and the Snap 3D API empowers developers to generate 3D objects on the fly from any prompt. Future enhancements, including a new partnership with Niantic Spatial to develop a shared AI-powered map of the world, and our recently announced WebXR support, will further expand the utility and accessibility of our AR platform, and help our developer community build more unique industry-leading experiences in advance of the public launch of Specs next year. We have made significant progress across our advertising platform by focusing on three core priorities. Advancing our AI and ML capabilities with privacy-safe signals, optimizing ad formats and tools for performance, and improving our -to-market strategy with a strong focus on SMBs. In Q2, we further enhanced our AI and ML capabilities, leading to meaningful improvements in ad platform performance, particularly in conversion attribution, real-time personalization, and product relevance. This contributed to 7-0 purchase volume, increasing 39% -over-year for commerce advertisers, and total purchase-related ad revenue growing more than 25% -over-year in Q2. We continued to innovate on our ad offerings, and in June we expanded sponsored snaps in the U.S. and several other regions globally, activating all Pixel and App DR objectives. We also introduced First Snap, a single-day takeover format that delivers the first sponsored snap in the chat inbox. Sponsored snaps enable advertisers to show up like a Snapchatter, helping them build authentic relationships with our community. Sponsored snaps are proving highly effective in driving incremental conversions, delivering up to a 22% increase when included in an advertiser's broader Snap campaign mix. Sponsored snaps represent a significant new pool of inventory for our advertising business, and an opportunity to reach our unique audience directly and natively within our highest engagement surface, the chat inbox. In the near term, this is delivering ROI for advertisers in the form of incremental reach and additional conversions that we believe will translate into incremental top-line growth over time as we build demand and continue to enhance the performance of this new product. We continue to make meaningful progress in App Direct Response performance. Notably, sponsored snaps are now driving an 18% lift in unique converters across app installs and app purchases. We recently began testing App End Cards that reinforce advertiser messaging and guide users to a conversion at the end of a Snap ad, and are delivering a 19% average boost in scan installs. In addition, we have delivered core ML improvements and introduced smarter tools like target cost bidding to deliver performance and scale while remaining within an advertiser's cost constraints. Our investment in automation continued with the launch of Snapchat Smart Campaign Solutions, an AI-powered suite designed to enhance campaign performance and simplify advertiser workflows. This suite includes smart bidding, which dynamically adjusts bids to achieve a desired cost per action. For example, I Can I Will, a leading European sportswear brand, saw their ROAS double and conversion volume increase by 80% while reducing their cost per action by 50% after implementing smart bidding. We are also encouraged by initial testing of Smart Budget, which automatically adjusts campaign budgets across ad sets, and the alpha testing of auto-targeting, which leverages AI to identify and reach high-value users. We continue to enhance our -to-market operations in Q2 with particular focus on better serving our growing community of SMB advertising partners. SMBs were the largest contributor to ad revenue growth in Q2, driven by a combination of more performant DR products, improved -to-market operations, and a simplified ad buying experience. For example, WISB Money, an online financial services tool in France, leveraged smart bidding on Snapchat to significantly lower their cost per acquisition, resulting in a 77% improvement in eCPM and a 69% improvement in cost per click, making Snapchat one of their top performing acquisition channels. Looking ahead, we see significant opportunities to further enhance return on advertising spend by deepening our investments in AI and machine learning, delivering innovative ad formats across the entire funnel, and enhancing the tools and insights that help our advertising partners optimize their campaigns. These ongoing efforts are aimed at ensuring Snapchat remains a high-performing and increasingly automated platform for all of our advertising partners. With that, I'd like to turn it over to Derek to share more about our financial progress.

Thanks, Evan. We continue to drive robust growth in our global community in Q2, with DAU reaching $469 million, an increase of $37 million or 9% year over year, including $98 million DAU in North America, $100 million in Europe, and $271 million in rest of world. North America MAU was $159 million in Q2 and flat on a -over-year basis, while North America Unique Snap Senders grew 2% year over year, which is an important input to long-term retention. As our global community continues to grow, we have continued to scale our top line, with total revenue reaching $1.345 billion in Q2, up 9% year over year. Our rate of top line growth was impacted by a number of factors in Q2, including an issue related to our ad platform, the timing of Ramadan, and the effects of the de minimis changes. Unfortunately, in our efforts to improve advertiser performance, we shift a change that caused some campaigns to clear the auction at substantially reduced prices. We have since reverted this change, and advertising revenue growth has improved as advertisers adjust their bid strategies to achieve their objectives. Despite these headwinds, advertising revenue reached $1.174 billion in Q2, up 4% year over year, driven primarily by growth from DR advertising revenue, which increased 5% year over year. The growth in DR revenue was driven by strong demand for our pixel purchase and app purchase optimizations, as well as continued strength from the SMB client segment. We continue to benefit from strong spotlight and creator stories engagement in Q2, as well as early contributions from sponsored snaps. And these factors contributed to total impressions growth of 15% year over year, and our average ECPM declining 10% year over year. As we continue to build demand across these new drivers of impression growth, we anticipate that they will be increasingly accretive to top line growth over time. Sponsored snaps remain a large incremental revenue opportunity, as they appear on the most frequently used surface in Snapchat. While we have implemented strict frequency caps to responsibly manage the rollout for our community, sponsored snaps are contributing to meaningful impression growth and incremental reach in our most highly monetized markets thus far in Q3. This increased supply has initially reduced auction contestation and lowered platform YD CPMs. We expect that these impressions will lead to improved performance for advertisers that will help to build incremental demand and make sponsored snaps increasingly accretive to top line growth over time. Other revenue increased 64% year over year to reach $171 million in Q2, with the largest driver being Snapchat Plus subscribers approaching $16 million in Q2, an increase of 42% year over year. To build on the momentum we are seeing in our subscription products, we introduced Lens Plus in Q2, which is a new Snapchat Plus subscription tier, offering access to new and exclusive lenses. Adjusted cost of revenue was $650 million in Q2, up 11% year over year. Infrastructure costs were the largest driver of the year over year increase, due in large part to our investments in ML and AI models to drive improved advertiser performance and content personalization, as well as the continued strong growth in our global community. Infrastructure cost per DAU was $0.84 in Q2 and within our full year guidance range of $0.87. The remaining components of adjusted cost of revenue were $257 million in Q2, or 19% of revenue, which is in line with the prior quarter and within our full year cost structure guidance range of 19-20%. Adjusted operating expenses were $654 million in Q2, up 10% year over year. Personnel costs increased 10% year over year, driven by a 10% year over year increase in full time headcount. With hiring focused on our core strategic priorities, including improvements to our ad platform and advertising performance, our efforts to drive more personalized and fresh content, and the drive to expand our leadership in AR. Higher legal costs, including litigation and regulatory compliance related costs, were an additional driver of cost growth in Q2. Adjusted EBITDA was $41 million in Q2, compared to $55 million in Q2 of the prior year. Net loss was $263 million in Q2, compared to a net loss of $249 million in Q2 of the prior year. The $14 million higher net loss year over year largely reflects the flow through of a $14 million decline in adjusted EBITDA, a $22 million increase in interest expense, offset by a $16 million improvement associated with the early retirement of convertible notes in Q2 of last year. Free cash flow was $24 million in Q2, while operating cash flow was $88 million. Over the trailing 12 months, free cash flow was $392 million and operating cash flow was $587 million, as we continue to balance investments with top line growth to deliver sustained positive cash flow. Dilution, or the year over year growth in our share canon, was .6% in Q2. As part of our efforts to responsibly manage the impact of SBC on our share count, we repurchased 30 million shares at a cost of $243 million in Q2. We ended Q2 with $2.9 billion in cash and marketable securities on hand. We believe that our robust free cash flow generation and the strength of our balance sheet ensure that our business has the capital and financial flexibility to invest in our core strategic priorities to drive long term growth. As we enter Q3, we anticipate continued growth of our global community and as a result, our Q3 guidance is built on the assumption that DAU will be approximately $476 million in Q3. Our Q3 guidance range for revenue is $1.475 billion to $1.505 billion. We believe it is prudent to continue to balance our level of investment with realized revenue and are updating our full year cost structure guidance to reflect our current investment plans. For infrastructure costs for DAU, we maintain our full year guidance range of $0.82 to $0.87 per quarter and anticipate we will be in the top half of this range in Q3 as we continue to prioritize investments in ML and AI infrastructure to drive improvements in our ad platform and depth of content engagement. For all other costs of revenue, we maintain our full year cost guidance at 19 to 20% of revenue and anticipate we will be within this range in Q3. For adjusted operating expenses, we are maintaining our range of $2.65 to $2.7 billion. For stock based compensation, we are lowering our full year cost guidance from the prior range of $1.13 billion to $1.16 billion to a new range of $1.1 billion to $1.13 billion, which implies a $30 million reduction at the midpoint. Given our updated full year cost guidance and our investment plans for Q3, we estimate that adjusted EBITDA will be between $110 million and $135 million in Q3. Moving forward, we will remain focused on executing against our strategic priorities of growing our community and improving depth of engagement, driving top line revenue growth and diversifying our revenue sources and building towards our long term vision for augmented reality. Thank you for joining our call today and we will now take your questions.

Thank you. We will now begin the question and answer session. To ask a question, press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, press star then 2. In the interest of time, we ask that you please limit yourself to one question. After your initial question is asked, your line will be muted. At this time, we will pause momentarily to assemble our roster. The first question comes from Ross Sandler with Barclays. You may proceed.

Hi guys, just one question and one housekeeping question. I guess that's two total. So you sound pretty optimistic about what you're seeing early on with sponsored SNAPs. We know that's a big opportunity given how much traffic that surface sees within the app. So could you talk about what you saw in 2Q and the longer term vision for this new ad unit? And then the housekeeping question is on the auction pricing issue in the quarter, could you just elaborate on what happened there and what would have ad revenue grown had that not happened? Thanks a lot.

Hey Ross, thanks so much for the question. The rollout of sponsored SNAPs is definitely a very meaningful and profound evolution of our ad business. Because sponsored SNAPs really bring a native and highly performant ad placement to the most frequently used surface in Snapchat. So so far, sponsored SNAPs have driven meaningful growth in both incremental reach and conversions for advertisers who utilize the placement. And we've been seeing some really great engagement from users as well. So after opening a sponsored SNAP from the chat feed, users exhibit significantly higher engagement per full screen ad view, driving a two times increase in conversions, a 5x increase in click to convert ratios, and a 2x increase in website dwell times compared to other inventories. So I think the early signs are very positive. Of course, this is a profound shift in terms of available inventory on the service. So we've tried to be really thoughtful about managing the supply growth, you know, with things like frequency caps and relevancy filters, as we work to build more demand against this new inventory. I'll let Derek speak to the sort of revenue pacing throughout the quarter.

Hey there, Ross. It's Derek speaking. So you know, I think digging in on the impact in the quarter on the revenue, there are really multiple factors that we looked at in the quarter. One of them certainly is the one you mentioned around the ad platform. We also had a factor around the timing of Ramadan, which was less of a benefit in Q2 than in the prior year. And as well, there was the impact of the de minimis changes in the quarter. So each of those were a factor. I think maybe one of the things that could help a little bit in terms of understanding the relative impact of things would be to talk about the topography of ad revenue growth specifically over the last number of months as some of these shifts have come into the business. So if you recall, we grew ad revenue at a rate of approximately 9% in Q1. And what we saw in April is that ad revenue growth declined to approximately 1% before largely recovering as we moved through May. And what you saw in May is number one, we'd gone to the work of reverting the ad platform change, but also the factor around Ramadan obviously being diminished during that period of time. So we saw the recoveries who enter May. That really gave us the confidence to be able to roll out sponsored snaps more broadly, both from a regional and bidding objective perspective as we moved into June. And so that's where we've seen a little bit of the impact of all of this inventory that Evan just spoke about and how that's translated into lower platform YBCPMs and some of obviously improved pricing for advertisers where a lot of that benefit is building demand. We have seen post the rollback of the ad change as we moved through June and into July, we've seen ad revenue specifically growing at a rate between 3% to 4%. So give you a sense of how the topography sort of moved from 9% in Q1 to approximately 1% for ad revenue in April, then to a rate of recovering largely in May. And then we're looking at 3% to 4% post the rollback of that change. So hopefully that gives you a better sense of how things have evolved as we've moved through these different factors. And we're excited now about ramping the demand into these new ad units and the performance that we're delivering for our ad partners with this new inventory. Hopefully that's helpful. Thank you.

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

Hi, thanks. You know, I guess just to sort of play off on, let me just do a housekeeping first. You obviously just were talking about a lot of the factors that hit DR, Derek, in that last answer. Could you give us a sense of what brand looks like? Obviously, I assume most of the impact that we saw on the bidding related to DR and that drop from mid-teens to like 5% this quarter, if you just give us a sense of what's happening with brand advertising, because I don't think you disclose it this quarter versus the past. And then maybe just a big picture question for Evan. I think watching you, Evan, you've spoken on a bunch of podcasts, you've done a bunch of interviews in the last several months. You clearly have a true passion for what you're building in AR and specs, which are going to roll out next year. If you could just maybe spend a minute, we've obviously heard both Meta and Google talk about their sort of plans for AR and glasses in the last several weeks. How does SNAP's approach fundamentally differ? And then the piece of that is, do you have the capital to pursue the vision on your own or do you need partners to bring this to fruition as you move forward? Thanks so much for taking the questions.

Hey, Rich, thanks for the questions. I'll take the first one. So yeah, correct. The majority of the deceleration quarter over quarter showed up in the DR advertising revenue. So we saw total ad revenue in Q2 was at 4% year over year. We saw the DR ad revenue up 5% year over year, as you had mentioned. And brand advertising revenue was flat in Q2. So that slight improvement over the growth rate in the prior quarter. So hopefully that gives you a little bit of the sense of the topography of the revenue between the different splits there of DR and brand. And obviously in terms of the auction impact issue, yeah, that accrued largely to the DR advertising line. So hopefully that provides a little more context.

Thanks, Rich, for the question. Yeah, we're incredibly passionate about the opportunity to reinvent the computer. People are spending more than seven hours a day on average staring down at screens. And I think even just moving a couple hours of that to looking out at the world through see through lenses and a pair of glasses can make a meaningful difference for people's well-being, but also the way they interact with computing and AI in general. So the opportunity is enormous. Obviously, this is a space we've been committed to actually since before Snapchat had chat. So more than, I guess, 11 years now. And I think, you know, really fortunately, that's given us the time to compound our technical advantage and to build out our fully vertically integrated stack. Obviously, you know, to be able to achieve the performance in such a small form factor, really controlling every aspect of the stack, you know, from the developer tools to the rendering engine, to the operating system, to the optical engine, really helps us deliver, I think, a really compelling product experience. And of course, we benefit from the huge developer ecosystem we have today. You know, people use lenses and Snapchat, you know, more than eight billion times every day. There's hundreds of thousands of developers who built millions of lenses. And so I think, you know, to already have such a strong, thriving developer community, I think is a real advantage for us, you know, as we, you know, prepare for this launch next year. I think, you know, as it pertains to sort of the capital requirements, I guess, what over the last 12 months, we've generated close to $400 million in free cash flow while investing in our long term vision for specs and really reinventing computing. So I think from a capital perspective, you know, our own cash flow generation, obviously, the core Snapchat business generates a lot of cash. We've been able to reinvest that. And I think that, you know, that's probably the lowest cost of capital we have. But, you know, from a partnership perspective, I think there's a focus for us, obviously, in the lead up to the launch. Thanks.

Thank you. The following comes from Mark Schmulik with Bernstein. You may proceed.

Yes, thanks for taking the questions. I appreciate the color around how, you know, time spent with content is growing. Any color you can share on how kind of time spent with, like, snapping with friends and family has been tracking, perhaps particularly in the U.S. where I think users declined by about a million. And then secondly, Snapchat plus growth continues to track real well. I think it's mid-teens revenue contribution here. So I think we're now like three years into this product. And just wondering how your thinking has kind of evolved around, you know, how meaningful this business can be going forward. Thank you.

Yeah, thanks, Mark. You know, certainly we're excited about the growth, you know, for example, in things like calling. We talked a bit about that earlier in the call. I think we've seen calling growth with friends and family grow something like 30% year over year, which has been really encouraging. In North America in particular, SnapSend unique users grew by 10%, sorry, 2% year over year. And North America, MAU was flat year over year at 159 million. So we did see a slight decline in active days. Our focus, you know, on driving daily engagement is really around supporting communication between friends and family, you know, and of course continuing to improve the content experience as well. We've got some new products landing later this year. So we're excited about that. The team's heads down focusing on getting that out the door. In terms of other revenue or direct revenue business, the growth has really continued nicely. I mean, we achieved a $700 million annual run rate, grown 64% year over year. So that revenue is becoming much more meaningful to the business. And we see a lot of opportunity to continue to develop the Snapchat Plus product, but also new products like Lens Plus and potentially some new offerings around creators on Snapchat as well. So I think it's just a testament to the deep engagement you know, people have with Snapchat and certainly our ability to continue to deliver new value that folks are willing to pay for. So it's been a really exciting area of growth in the business and I'm looking forward to investing more there.

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

Okay, two questions, please. You talked about that, Derek, at the end, stock-based compensation coming down. Just any color on the why? Is it a new approach to how you're thinking about stock-based compensation as an expense item? And then secondly, going back to, I know you've got a lot of interesting new monetization and sponsored snaps, but going back to just the core spotlight, not the core, but the spotlight monetization, where are you on that? How do you feel about the progression of that? Maybe not just in a quarter, but you know, for the next year or two, your level of confidence and where you are in terms of load, level of targeting, monetization, advertiser interest. Thank you very much.

Hey there, Mark. It's Derek speaking. On the SBC side, yeah, the note there is we took down the full year cost structure guidance for SBC at the midpoint of that range for the full year, about 30 million lower than we'd been in the prior quarter. That's the second reduction we've made to that estimate for the full year this year. So we're trying to be very careful and focused our hiring, trying to make sure that our hiring is laser focused on our core strategic priorities. And so as we've been able to manage that ramp and balance out the level of investment in the business relative to our observed growth and top line to make sure that we're doing well, you know, on profitability and progress towards profitability over time, that balance is really showing up there. So thanks for noticing that and we'll keep updating folks each quarter as we make progress there.

Thanks, Mark. Yeah, on the spotlight monetization front, certainly spotlight revenue has become an increasing share of revenue overall and that's been really exciting to see. We're doing some experiments around sort of more contextual placements which we're excited about and going to continue to explore further. But overall, you know, that inventory tends to perform quite well. I think, you know, the dwell times and sort of high consideration of that inventory is helpful for direct response advertisers. So, you know, we're also iterating on formats, but yeah, generally, you know, excited to see the progress on spotlight monetization. And now that, you know, spotlight total time spent is about 40% of time spent overall, it's just becoming a more meaningful part of the business.

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

Great, thanks. Just wondering if maybe you could outline some initiatives that you're really excited about to kind of maybe reaccelerate USDAUs. And then second, on the guidance, it kind of implies similar growth despite the challenges in Q2. How are you thinking about, you know, the ad revenues embedded in there and do you see opportunity for, you know, acceleration as especially sponsor snaps gets more implemented? Thank you.

In terms of North America user engagement, I think, you know, one of the biggest shifts has really been, you know, from posting stories for friends to sharing content, you know, that you find in spotlight or stories and sending that to your friends to start a conversation. So, historically, people would start conversations by replying to a friend's story. That obviously happens quite frequently today, but we've also seen the rise in content sharing as really a conversation starter and catalyst. So, on the innovation front, we've been thinking a lot about new parts of the service that can help sort of inspire or kickstart conversations. And, you know, as we think about innovation and landing some new products later in the year, that'll really be a focus area.

Hey, and just in terms of, you know, what we're seeing in terms of opportunity for growth in Q3, you likely heard me say earlier that, you know, since we've rolled back the ad platform issue, we're seeing ad revenue growth in the sort of 3 to 4% range. So, you know, that correlates pretty closely to the guidance range that we're seeing for Q3 on total revenue, maybe it rimmed for a point of improvement as we move through the quarter. The big thing we see there, obviously, is, you know, number one, continuing the momentum we're seeing in direct monetization and other revenue, but also, you know, the work that we're going to be doing to build demand into sponsored snaps. The one thing I'll note there's two is just comps as we move through the quarter. There are obviously some big items last year with Olympics and so on. So, we're going to be working to overcome that too. And so, the teams will be working hard to build demand into this new inventory and make sure that we power through those things as we go through the quarter. So, largely reflective of the rate of growth that we're seeing today, maybe a little bit of improvement as we move to quarter and execute. Hopefully, that gives better context.

Thank you. The following question comes from Eric Sheridan with Goldman Sachs. You may proceed.

Thanks so much for taking the question. Maybe building on Rich's question earlier that was sort of anchored around spectacles and AR and where you're going longer term. Evan, I'd love to broaden out the question and talk a little bit more about the wider ecosystem when you think about how user interfaces might evolve from the format into where you want to take them over the medium to long term and how you think about the role of content and AI at the center of some of those experiences. They move more towards spectacles and how much of those dynamics around content or AI you feel you need to own, operate, build yourself rather than possibly build in partners and other ways to possibly scale those initiatives. Thanks so much.

Yeah, thanks so much for the question. Obviously, it's been so exciting to see the developments in AI and I think they're really helping accelerate our vision around making computing more human. Our AI investments are really focused on areas where we think we can differentiate. We've done a lot around image and video generation, especially with on-device models, which are really helpful in terms of scaling that capability to our entire community without any incremental cost for them, for example, and things like 3D generation as well. If you think about the future of user interfaces or the future of lenses in general, I think it's quite likely that a lot of those experiences will be generative as well. If you have a chance to try out our new EZLens tool, there's a Lens Studio web tool that's available now where you can create an augmented reality lens with just a prompt. I think as we look forward to the types of experiences people will be able to have with AR glasses, I think we're quickly moving to a world where those sorts of experiences can be generated on the fly. Again, that's an opportunity where we think we can really differentiate, especially because we have developed the developer tools ourselves and supported this ecosystem. Developers can actually plug into these various Lens Studio tools as well and design their own plugins. I think just looking towards the future here, we're going to invest where we can differentiate. Of course, having the glasses form factor allows you to provide much more contextually relevant computing experiences to understand not only what's on the screen or the lens per se, but also the world around you. We think that we can really build a competitive advantage there over time.

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

Great. Good afternoon, everyone. Evan, could you take us a little deeper on your small and medium customer base? Maybe any color on the growth of the SMC count or broader total of the SMC. What other ad products are you seeing get the most traction with that group? Any insights on your roadmap for them from here would be great. Thanks.

We're really excited about the progress with SMC segment. It's the largest contributor to ad new growth in Q2. I think our improved -to-market operations and the simplification of some of our ad products and ad manager have been really helpful there. When it comes to the smart solutions for advertisers, obviously budget optimization has been in testing and has driven some really strong results. Then auto-targeting as well, we're finding that AI can really assist advertisers with finding the right audience to convert on their products and lower funnel goals. Certainly excited about a lot of the automation improvements there. That's especially important for smaller advertisers who may not necessarily have the resources to manage campaigns in such a fine-grained way. I think automation will provide a big lift for SMCs, but advertisers more broadly as well.

Thank you. Our last question comes from Benjamin Black with Deutsche Bank. You may proceed.

Great. Thank you for taking my question. I just have one on Lens Plus really. It'd be great, Evan, if you could talk a little bit about the reception. Maybe give us any sort of ideas to how conversion metrics or engagement trends are panning out in the early innings. How big of an opportunity do you think this could ultimately be? Perhaps more broadly, how do you think about the interplay between pricing and subscriptions to drive growth within Snapchat Plus? Thank you.

Thanks so much for the question. It's really early with Lens Plus, but we're super excited about it. Lenses are really heavily engaged with Snapchat, with people using lenses eight billion times every day. I do think the opportunity to offer exclusive lenses and, of course, our AI lenses, which have proven incredibly popular, will be a strong driver of growth with Lens Plus. I think there's a nice top of funnel there for sure. Looking more broadly at pricing, we think there's room to experiment on pricing. I think our primary focus so far has just been on continuing to build the value proposition for customers. We see, obviously, new features being a major driver for new subscriber acquisition and retention as well. It's a small but mighty team. I think over time, especially given the size of the revenue opportunity in front of us, we'll be investing more in pricing experiments. I'd say the primary focus for us is just continuing to build value for our subscribers and our community.

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