Snap Inc.

Good afternoon, everyone, and welcome to Snap Inc's fourth quarter 2025 earnings conference call. At this time, participants are in a listen-only mode. I will now turn the call over to David Ometer, head of investor relations.

Thank you, and good afternoon, everyone. Welcome to Snap's fourth 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 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 welcome to our call. Last fall, we embarked on a new chapter for our company with our business. At that time, we laid out our plans to accelerate and diversify our revenue growth, pivot our business toward more profitable growth, and deliver on the commercial launch of specs in 2026. The impact of this strategic direction began to manifest in the operating results of our business in Q4, and we are excited to build on this momentum in the year ahead. Over the last three years, we have grown monthly active users by more than 150 million, reaching 946 million in the most recent quarter, and bringing us within striking distance of our goal to reach 1 billion global monthly active users. We have already achieved immense reach and depth of engagement in many of the world's most attractive advertising geographies, and we believe this affords us a significant opportunity to grow our top line and expand average revenue per user over time. Growing our community in these prosperous geographies remains a priority, and we remain committed to our long-term goal of reaching 1 billion monthly active users. But going forward, we will seek to strike a better balance between the pace of community growth and the rate of top line growth in order to pivot our business to more profitable growth. For the advertising business, our focus will be on three core initiatives. The first is fostering direct connections between brands and Snapchatters by leveraging our core product capabilities across Snapchat. The second will be making it easier and more performant for advertisers to connect with Snapchatters by leveraging AI tooling and capabilities end-to-end through our ad platform, including creative development, campaign setup, and performance optimization. Finally, we plan to grow our advertiser base by scaling and optimizing our go-to-market operations that support the success of small and medium-sized businesses. Ultimately, we will grade the performance of our advertising business based on the rate of growth in advertising revenue with a focus on gaining share over time. The other revenue portion of our business has become an outsized source of growth and is playing a critical role in diversifying our top line. In the year ahead, we will focus on growing existing subscription offers, including Snapchat Plus and memory storage plans, while innovating to bring compelling new offers to our platform. This momentum is already materializing with subscribers growing 71% year-over-year to reach 24 million in Q4. In the year ahead, growth in subscribers will be a critical input metric to track our progress, and we will ultimately grade our performance based on the growth of the annualized run rate for other revenue. We are focusing on three significant catalysts for gross margin expansion to drive profitable growth. First, with community growth focused on monetizable markets and with our cost to serve increasingly calibrated to the monetization potential of each market, we expect our infrastructure costs will pivot from being a source of gross margin pressure to become a margin accretive investment. Second, as more of our ad revenue is derived from higher margin placements, such as sponsored snaps and promoted places, we expect advertising margins to improve. Third, we expect that the growing scale of our subscription business, which is built on a foundation of existing engagement and infrastructure investment, will become increasingly accretive to overall gross margins. In the Crucible Moment letter shared last fall, we set a near-term goal to achieve 60% gross margins. We have already made meaningful progress toward that goal by achieving a 59% gross margin in Q4, and we believe there is a clear path to exceed this goal in 2026. We are excited about our plans to accelerate top-line growth, diversify our revenue streams, and build a more financially efficient business in the year ahead. Ultimately, we will grade our performance on our progress toward achieving meaningful net income profitability over the medium term. Importantly, we believe we can deliver on this profitable growth path as we continue to invest in the future of augmented reality and support the consumer launch of specs later this year. For our community, we are focused on strengthening engagement in the world's most developed advertising geographies by building experiences across Snapchat that spark conversations and deepen relationships between Snapchatters. The connections between friends and family are what unify our camera, messaging, SnapMap, and content experiences and enable our platform to enrich the lives of Snapchatters around the world. By prioritizing features that encourage creativity, discovery, and interaction across these surfaces, we aim to increase the relevance and durability of engagement in ways that support long-term community growth and monetization. Our camera remains central to how Snapchatters communicate and express themselves and is often the starting point for conversations on Snapchat. We are enhancing our camera with AI-powered capabilities that make creation more intuitive, dynamic, and social. Recent breakthroughs in our proprietary models allow us to deliver high-quality generative AI camera experiences efficiently at scale by running our models on device. AI-driven lenses represent a meaningful evolution from traditional lenses, shifting the experience from applying a fixed set of visual overlays to creating images and scenes dynamically through generative AI. Snapchatters can now prompt, explore, and co-create personalized content in real time, and this shift is already resonating with our community. More than 700 million Snapchatters have engaged with generative AI lenses more than 17 billion times, often discovering and sharing these lenses through conversations with friends and family. Our Imagine lens, launched in September, has already been engaged with nearly 2 billion times, highlighting strong early traction and repeat usage. This momentum is supported by a global creator and developer ecosystem that is unmatched in scale. More than 450,000 creators from nearly every country have built over 5 million lenses using our industry-leading AR and AI tools. helping ensure that camera experiences remain fresh, relevant, and closely aligned with how our community builds relationships. Sharing snaps with friends and family remains the foundation of Snapchat and a core driver of engagement, retention, and long-term value creation. Our platform is designed around visual communication that enables frequent interactions and helps our community maintain close relationships over time. We continue to see strong momentum and direct communication between friends and family, with messaging behaviors reflecting the durability of Snapchat's core value proposition. For example, average daily messages sent increased 5% year over year, and the number of bidirectional communicators increased 5% year over year in Q4. We are investing in product experiences that make it easier to start conversations, sustain them over time, and introduce new ways for friends and family to interact. For example, in Q4, we began testing topic chats, a new feature that allows Snapchatters to participate in public conversations around trending topics and events, discover shared interests, and explore what's happening visually across our community. We also began rolling out new two-player term-based games designed to create playful, low-friction ways for friends and family to connect, such as two-player mini golf and magic jump. In Q4, these experiences contributed to more than 200 million Snapchatters playing games every month on average, representing an increase of 90% year-over-year. The Snap Map has become an increasingly important driver of engagement by helping Snapchatters stay connected to friends, local communities, and places in the real world. Snapchatters use the SnapMap to see where friends are spending time, discover what is happening nearby, and engage with local businesses and events. Monthly active SnapMap users reach 435 million in Q4, up 6% year over year, creating natural opportunities for both organic engagement and monetization through ad placements such as promoted places. We have built a differentiated content platform powered by authentic content that is native to Snapchat and that reinforces human connection through content sharing as a conversation starter. Our systems increasingly surface timely, relevant content by identifying emerging trends and original formats across Spotlight and Stories and matching them to the right audiences. In Q4, enhancements to our ranking and trend detection models contributed to improved content freshness and engagement. For example, the number of Spotlight reposts and shares increased 69% year-over-year in the U.S., reflecting our ability to surface timely content at scale. In addition, Snapchat continues to be a platform where both established and emerging creators can grow an audience and build a sustainable business. For example, Rhonda Adami, a nail designer and travel creator, grew her follower base by more than 20 times over the last six months by consistently posting to Spotlight and leveraging engagement tools such as Q&A and Spotlight comments to strengthen connections with her viewers. As we continue to innovate across these surfaces, we are seeing the impact of better calibrating our investments in community growth and cost to serve with the long-term monetization potential of each market. In Q4, global monthly active users increased by 3 million quarter over quarter to 946 million, while global daily active users declined by 3 million quarter over quarter to 474 million. The decline in global DAU in Q4 reflects in part our decision to substantially reduce our community growth marketing investments in order to focus on more profitable growth. Improving average revenue per user through more direct monetization of our core product remains a key priority, including continued growth in Snapchat Plus, the expansion of sponsored snaps in promoted places, the launch of Lens Plus, and memory storage plans. While these initiatives involve tradeoffs with engagement, they are strengthening top-line performance, supporting more stable and retentive subscription-based revenue streams, and improving the gross margin profile of our business. The regulatory environment also presents near-term risk to engagement metrics. In Q4, we implemented platform-level age verification in Australia in accordance with a new law requiring users to be at least 16 years old, resulting in the removal of approximately 400,000 accounts. We have since begun testing new signals from Apple's declared age range API, and we plan to test Google's solution once it becomes available. While these actions may adversely affect engagement metrics as implementation progresses, we believe it is the right thing to do to maintain the long-term trust of our community and partners, and we remain committed to our long-term goal of serving more than 1 billion global monthly active users. Our long-term vision for augmented reality extends beyond the smartphone to a future when computing is more natural, contextual, and seamlessly integrated into the real world. For more than a decade, we have invested in building a platform that brings digital experiences closer to how people see, move through, and interact with their everyday environments. Specs are central to this vision. After five generations of development and refinement, we plan to launch specs publicly in 2026, which we believe represents a significant step forward in human-centered computing and the evolution of our AR platform. As we prepare for launch, we have continued to strengthen both the platform and the ecosystem that is designed to support adoption at scale. We began testing Snap Cloud powered by Supabase to make advanced back-end capabilities more accessible within Lens Studio, enabling developers to build richer, more dynamic AR experiences. We also announced that all lenses built today for Spectacles will be compatible with specs at launch, providing continuity and scale for developers from day one. Partners and developers are already building compelling AR experiences that demonstrate the breadth of what is possible on specs. Star Wars Holocron Histories from ILM is now live on Spectacles, highlighting the power of smart glasses for immersive storytelling with one of the world's most beloved franchises. This experience showcases the studio's continued innovation in technology and platforms through an extension of the Star Wars galaxy. In addition, developer Harry Banda created Card Master, a multiplayer AR card game that lets players face AI opponents in classic card games with tutorials and achievements, evolving into a broader suite of AR card experiences for specs. We believe Snap is uniquely positioned to lead the next wave of spatial computing. With Snap OS 2.0, Lens Studio, Snap Cloud, and a global developer ecosystem, we have built an end-to-end AR platform spanning software, tools, and hardware. Together, these capabilities position us to deliver fully standalone, human-centered eyewear that expands creative expression and unlocks new ways for people to engage with the world around them. In Q4, we made meaningful progress executing against the three priorities guiding the evolution of our advertising business. fostering more direct connections between brands and Snapchatters, making advertising on Snapchat easier and more performant through our AI-driven ad platform, and expanding our advertiser base by scaling and optimizing our go-to-market operations for small and medium-sized businesses. Together, these efforts delivered measurable improvements in advertiser performance, positioning us for more durable growth as we enter 2026. We are focused on fostering more direct connections between brands and Snapchatters by enabling advertisers to participate natively in the experiences our community use every day on Snapchat, including messaging, the Snap Map, our AI-powered camera, and creator-led content. These services allow brands to show up in ways that feel timely, relevant, and aligned with how our community communicates and discovers the world around them. High-impact, conversation-driven placements are playing an increasingly important role across both upper and lower funnel objectives. Sponsored snaps continue to gain traction in Q4 as one of our most differentiated ad placements, allowing brands to engage directly with Snapchatters. Sponsored snaps revenue grew meaningfully quarter over quarter, supported by in-app optimizations and early testing of dynamic product ad integrations. Advertisers are seeing strong results from this placement. In Q4, sponsored snaps click-through rates grew 7% and click-through purchases grew 17% from Q3 to Q4, during which numerous format and ranking improvements were introduced. For example, global travel company Contiki used sponsored snaps to drive lower funnel bookings, achieving a 283% increase in ROAS and a 72% reduction in cost per purchase, highlighting the format's ability to connect creativity with measurable outcomes. In addition, Shein used sponsored snaps as part of a total takeover campaign to amplify the launch of its 2025 collection, connecting an online to offline event with high-impact camera-native creative that drove engagement beyond digital impressions. The campaign exceeded impression benchmarks by 20% while delivering CPMs below standard benchmarks, demonstrating strong efficiency, scale, and the effectiveness of clear product-led creative with a direct call to action. We're also seeing advertisers amplify lower funnel outcomes by combining complementary ad formats across the Snapchat experience. For example, Saudi QSR brand Kudu combined creative AR lenses with sponsored snaps to drive full funnel performance, achieving up to 49.5% lower cost per sign-up 3.76 times more app installs at 76% lower CPI, and 38 times more purchases at an 84% lower cost per purchase. Promoted Places further extends this strategy by translating digital engagement into real-world action. Early results from our Promoted Places beta saw an average 65% reduction in cost per incremental visit and an average double-digit visitation lift, according to third-party foot traffic measurement by InMarket. We continue to leverage AI to make it easier for advertisers to connect with Snapchatters while delivering stronger performance and more consistent returns. By embedding AI across our advertising platform, from creative development and campaign setup to delivery and optimization, we are reducing friction for advertisers and improving ROAS at scale, particularly across direct response use cases. A central focus of our AI strategy is simplifying how advertisers plan, launch, and manage campaigns on Snapchat. Our smart campaign solution suite, including smart targeting and smart budget, uses AI to identify incremental high-value audiences and dynamically allocate spend across objectives, reducing the need for manual setup and ongoing optimization. We also began early testing of smart ads, which automatically assemble and iterate creative elements to identify the highest performing combinations. These tools are designed to reduce creative friction, accelerate learning cycles, and shorten time to spend. Improving direct response performance remains a core priority within this effort. In Q4, we delivered meaningful progress across both DPA and app advertising. For DPA, targeted ranking, format, and delivery improvements delivered a 55% reduction in cost per action for 7-0 conversions and 45% reduction in cost per action for 1-0 conversions amongst all pixel purchase GBVs based on cumulative internal testing over the past year. DPA revenue grew 19% year-over-year supported by expanded adoption among large advertisers and continued migration to higher performing dynamic solutions. For example, Wolfpack, a North America retail fashion and apparel brand, leveraged dynamic product ads to drive lower funnel performance, delivering 90% higher return on ad spend compared to non-DPA campaigns. Our app advertising business also accelerated meaningfully in Q4. Revenue from in-app optimizations grew 89% year over year, supported by advances in foundational app models, broader adoption of the app power pack, and new immersive formats such as playables. For example, our partnership with Triumph Arcade delivered 2.6 times more app installs at 37% lower CPI and 94% more purchases at a 15% lower cost per purchase, demonstrating how native formats can drive strong, lower funnel outcomes. We are growing our advertiser base by scaling and optimizing go-to-market operations that support the success of small and medium-sized businesses. SMBs contributed the majority of advertising revenue growth for the sixth consecutive quarter, underscoring sustained product market fit and the impact of our investments. In Q4, total active advertisers increased 28% year-over-year, driven in part by simplified onboarding, improved campaign workflows, and increased performance. We reduce setup friction by enhancing ads manager workflows and expanding integrations across the commerce and measurement ecosystem, enabling advertisers to launch campaigns directly from partner platforms. We also strengthen our SMB offering through new partnerships, including a global integration with Wix, which allows e-commerce businesses to more easily create campaigns, manage catalogs, and improve measurement. In addition, we are investing in AI agents designed to accelerate SMB activation through automated recommendations and onboarding optimizations, that reduce decision friction and improve performance. Our Q4 results reinforce our confidence in the strategic direction outlined in our 2026 plan. By fostering deeper connections between brands with Snapchatters, improving advertiser performance through AI, and expanding our advertiser base with greater discipline, we are building a more resilient and competitive advertising business. As we move into 2026, we will continue to grade our progress based on growth in conversions, improvements in ROAS, expansion of our active advertiser base, and ultimately the rate of growth in advertising revenue and share over time. I'll now turn the call over to Derek to discuss our financials.