Snap Inc.

Good afternoon, everyone, and welcome to Snap Inc.' 's first quarter 2026 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 first quarter 2026 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 described a crucible moment for SNAP and the imperative to grow our community and engagement, re-accelerate revenue growth, improve gross margins, and establish a clearer path to net income profitability. We made meaningful progress on each of these priorities in Q1. Q1 marked a return to growth in daily active users reaching 483 million, while monthly active users grew to 956 million. Revenue increased 12% year-over-year to 1.53 billion, including a 3% year-over-year increase in advertising revenue to 1.24 billion, and an 87% year-over-year increase in other revenue to 285 million. Net loss improved to $89 million, operating cash flow was $327 million, free cash flow was $286 million, and adjusted EBITDA was $233 million. These results indicate that we are closing the gap between engagement and monetization while converting revenue growth into a more durable path towards GAAP profitability. As we look ahead, our priorities are clear. First, grow our community and deepen engagement across Snapchat. with a focus on highly monetizable geographies. Second, accelerate and diversify revenue growth. And third, build a more profitable and cash-generative core business while investing with discipline and specs and our long-term opportunity in intelligent eyewear. Our first priority is growing our community and deepening engagement by making Snapchat the best place to communicate with close friends and family. Engagement on our platform is built around relationships. People use Snapchat to talk to their friends, to express themselves visually, to share what they're seeing, and to stay connected to what is happening around them. That is why we continue to believe that our communication service is our strongest long-term advantage. In Q1, we continue to invest in new conversation starters to make communicating with friends easier and more fun. Topic chats, which allow Snapchatters to participate in public conversations around trending topics and events, gain momentum as we broaden the rollout in Q1. For example, the March Madness topic chat was one of the most active real-time group chats with more than 90,000 messages sent and peak concurrent participation exceeding 40,000 people. Games are also emerging as a popular conversation starter with new two-player turn-based experiences creating low-friction ways for friends and family to connect. We also added new entry points for games in Q1 to improve discovery, contributing to games reaching 255 million monthly active users. In addition, we enhanced our messaging infrastructure by improving notification timeliness and relevance, and by making it easier for Snapchatters to seamlessly share content into conversations. Our community is increasingly using content sharing as a conversation starter, and Spotlight is playing an important role in recommending more shareable content. In Q1 2026, Spotlight shares and reposts grew 62% year-over-year globally and 124% year-over-year in the U.S. Our focus on prioritizing authentic content created using the Snapchat camera and our investments in the creator experience are driving spotlight posts, contributing to nearly 74% year-over-year growth in spotlight posters in the U.S. and over 61% globally. These efforts combined with continued investment resulted in higher engagement, with total time spent watching spotlight increasing 11% year-over-year. Our augmented reality and lens ecosystem continues to play an important role in enhancing communication and self-expression on Snapchat. More than 75% of Snapchatters are engaging with augmented reality every day on average, and our community uses lenses in our Snapchat camera 9 billion times per day on average. AI-powered lens creation is transforming our AR ecosystem, with more than 400,000 lenses submitted in Q1, increasing more than 150% year over year. The significant growth this quarter was driven primarily by the adoption of new lens creation tools such as EasyLens, our free tool designed to make lens creation simpler, more fun, and more personal. The map continues to play a growing role as a way to stay up to date with friends and discover new places. With more than 450 million global monthly active users in Q1, we believe that the SnapMap is the world's most personal map. continually adapting to highlight the friends, places, and real-world experiences that matter most to Snapchatters. As we layer in richer content and local signals, we see SnapMap developing into a powerful platform for connecting our community with places and services in the fiscal world, creating a durable foundation for local commerce and advertising over time. The innovation we delivered across new conversation starters, content sharing, lenses, and SnapMap all contributed to the growth in our global community in Q1, with global daily active users and monthly active users both growing 5% year-over-year in Q1. Advertising execution improved in Q1, led by continued strength with SMBs and better performance across our lower funnel products. Large advertisers in North America remain the headwind, but we are beginning to see early signs of improvement as performance gains are more fully reflected in third-party measurement systems and as newer inventory and chat is more widely adopted. Our focus is on three priorities. improving performance and measurement across the core ad platform, expanding new inventory, and translating those gains into broader advertiser adoption and larger commitments. First, we continue to make meaningful progress improving performance across our core direct response products. Growth in Q1 was led by lower funnel solutions and by performance-oriented advertisers responding to stronger ROI. Dynamic product ads revenue grew more than 30% year over year, while adoption among small and medium-sized customers more than doubled. We also saw strong momentum in app advertising, where goal-based bidding revenue grew 27% year-over-year, and app purchases revenue grew 87% year-over-year. Across pixel purchase campaigns, 7-0 purchases generated per dollar of revenue grew more than 23% year-over-year, which we view as a sign that conversion efficiency is improving. These gains are being driven by continued progress in AI, ranking, retrieval, and automation across the app platform. Nearly 70% of advertising spend now use at least one of our AI-powered automation solutions, including smart audience, smart budget, or smart placement, which gives us confidence that these improvements are benefiting a broad share of the business. In Q1, we launched LLM-based user intent understanding for dynamic product ads retrieval, which improved pixel purchase conversions by more than 2%, and multimodal similar product retrieval using a vision language model fine-tuned on Snapdata. which delivered an additional high single-digit lift in DPA purchase conversions. We also upgraded our app re-engagement model with stronger foundational user embeddings and a new multitask architecture, increasing purchase conversions by approximately 2% while improving CPA by nearly 9%. Together, these changes are making the platform more effective at matching the right advertiser, product, and creative with the right Snapchatter at the right moment. Measurement remains a critical priority, particularly for large advertisers and agencies. It is not enough for our internal systems to show better performance. Those gains need to be reflected in the third-party measurement tools advertisers use to evaluate, spend, and allocate budgets. Over the past year, we have made progress closing long-standing measurement gaps so that external systems more accurately reflect the performance we are delivering. According to measured, median iROAS on Snapchat grew 104% from the April through September 2025 test period to the October 2025 through March 2026 test period. This matters because larger advertisers typically move budgets only after platform improvements are validated externally. Second, we are expanding new inventory in places where Snapchatters are already taking action. Sponsored snaps continues to demonstrate the potential of bringing brands into the chat experience in a way that feels native to Snapchat, while also creating a meaningful new surface for performance advertising. We are scaling the surface carefully with a focus on preserving the quality and frequency of close friend communication. In Q1, nearly 75% of U.S. chat daily active users viewed ads in chat, and roughly one-third of sponsored snaps reach was unique to chat, clearly demonstrating that chat is driving meaningful incremental reach. We are seeing encouraging performance from sponsored snaps. In Q1, per impression click-through rate improved 226%, and seven-day conversion volume increased 59%. While this remains an early opportunity, those results suggest that chat can support both scale and measurable performance over time. Building on this momentum, we introduced AI-sponsored Snaps, a new format that enables brands to engage Snapchatters through interactive, AI-powered conversations and chat, and extends our strategy of delivering more personalized, high-intent advertising experiences. We were also encouraged by the progress we were seeing with Promoted Places, which helps connect digital discovery on Snapchat with real-world action. Early campaigns generated more than 20 million incremental visits and double-digit growth in foot traffic. For example, Carl's Jr. achieved an 18% lift in incremental visits alongside gains in ad awareness and brand favorability. We believe products like sponsored snaps and promoted places can expand our lower funnel footprint over time by adding more differentiated inventory while creating more measurable outcomes for advertisers. Third, we are continuing to grow and diversify our advertiser base. Over the past three years, the number of current SMB advertisers on our platform has nearly tripled. And in Q1, SMBs grew spend by more than 30% year over year in North America. SMBs accounted for more than 30% of global ad revenue and remained our largest ad growth driver for the seventh consecutive quarter. This continues to reflect strong product market fit in the segment, as well as the improvements we are making in onboarding, automation, and advertiser support. At the same time, large advertisers in North America remained a headwind to advertising growth in Q1. We are not satisfied with that outcome, but we are beginning to see encouraging signs that this part of the business is improving. As measurement systems have time to reflect the performance gains we have delivered, and as newer inventory becomes available at greater scale, we are seeing better traction with large customers. North America upfront commitments for 2026 grew approximately 10% year-over-year, which we view as an important sign that agencies and advertisers are increasingly willing to invest as performance and measurement improves. At the same time, we want to be clear that recovery among larger North American advertisers remains early and uneven. These customers typically make planning and investment decisions on quarterly or semiannual cycles, which means revenue often lags underlying improvements in performance. Overall, Q1 marked important progress in strengthening the foundation of our advertising business. We improved performance across key direct response products, made meaningful progress in measurement, and continue to scale new inventory that expands both reach and conversion opportunity. These gains are already driving stronger results with SMBs and performance advertisers, and we are beginning to see early signs that larger advertisers in North America are responding as well. While there is still work to do, we believe the progress we made in Q1 positions us well to drive broader adoption and more durable revenue growth over time. In Q1, we continued to diversify our top line with other revenue reaching $285 million, up 87% year-over-year, and representing a 25 percentage point acceleration over the prior quarter growth rate. Memory storage was an important driver of this acceleration, and we are encouraged to see that a larger than anticipated share of new subscribers acquired through Memories are choosing higher ARPU subscription offerings, including Snapshot+. This performance reflects the increasing value of our subscription products as we continue to introduce features that enhance the user experience and create differentiated value for our community. We view subscriptions as strategically important for three reasons. First, they deepen our direct relationship with Snapchatters. Second, they help diversify revenue by adding a business line that is less exposed to the advertising cycle. Third, they can be attractive from a margin and cash generation perspective as we scale. We are strengthening the long-term foundation of our subscription strategy by creating new subscription tiers and offerings, including LensPlus. AI-powered lens interactions are deepening user engagement and increasingly serving as a natural discovery layer for premium AI-powered experiences. LensPlus is emerging as a key extension of this strategy, offering subscribers access to exclusive lenses and AI-powered features. Early traction has been encouraging, with LensPlus contributing to higher subscription ARPU and gross margin expansion. We continue to innovate on additional direct value propositions for our community, including the launch of creator subscriptions in Q1. We believe this offering can deepen creator engagement on Snapchat, strengthen relationships between creators and their audiences, and further diversify our revenue streams over time. We are excited about the upcoming launch of specs and our mission to make computing more human. For more than a decade, we have believed that smart glasses will be the most important computing platform transition since the smartphone. Snap is uniquely positioned to shape that future because we bring together a scaled augmented reality platform, a large developer ecosystem, and a vertically integrated software and hardware stack through Lens Studio, SnapOS, and Specs. Over the past year, we continue to improve our platform with major SnapOS updates, new tools and APIs for developers, and new experiences that expand what is possible on Specs across learning, gaming, utility, and AI-powered assistance. We are also seeing encouraging momentum in our developer ecosystem, with the number of lenses submitted for specs increasing 28% year over year. We are inspired by the range of lens experiences developers are building for specs. Early examples include Fossils from XR company VueXR Immersive Studios, an interactive AR learning experience that uses spatial puzzle mechanics to let users uncover and assemble prehistoric fossils while bringing extinct animals to life. Artel from Yegor Ryabtsov, an AR drawing app that lets users create in 3D space with a wide range of brushes, colors, and effects, and now includes physics-based interactions that allow drawings to respond to gravity and motion, and The Heist by Growpile, a co-located AR puzzle game in which players solve changing modules and challenges to disarm an anti-theft system, either solo or with others on specs or mobile. We look forward to sharing more as we get closer to launch, and we hope you'll join us at Augmented World Expo on June 16th as we continue our work to make computing more human. I'd now like to turn over the call to Derek to discuss our financial results. This will be Derek's last earnings call at SNAP, and I want to thank him for his leadership and contributions to our team over the past eight years.

Thank you, Evan. I really appreciate the kind words, and thank you everybody for joining our call today.