Snap Inc.

Good afternoon, everyone, and welcome to Snap Inc.'s second 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 second quarter 2026 earnings conference call. With us today are Evan Spiegel, Chief Executive Officer and Co-Founder, and Doug Hott, 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 and earnings slides available on our IR 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 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. Snapchat is now one of the largest internet communities in the world, approaching 1 billion people using our service every month. Over the past few years, we worked intensely to rebuild our monetization platform and improve our go-to-market strategy, and those efforts are producing stronger results. Our objective now is to turn our scale into durable growth and stronger cash generation while demonstrating the long-term value of our investment in specs. We are approaching this work with a more focused AI-enabled operating model. AI is helping us improve our service faster, deepening engagement, and improving outcomes for advertisers. That supports revenue growth, margin expansion, and free cash flow. Free cash flow gives us the flexibility to continue investing in long-term opportunities, offset dilution, and strengthen our balance sheet. That is why free cash flow per share will be our primary financial objective going forward. Our largest long-term opportunity is specs, a new kind of computer built into see-through glasses. Specs are designed for a future in which AI does more work on our behalf and people spend less time operating screens. I believe we can pursue that future from a much stronger position by continuing to improve our core business and remaining disciplined about how we invest. Last fall, I outlined three priorities for SNAP, strengthen our community and engagement, accelerate and diversify revenue growth, and build a more profitable cash generative core business. Q2 was a meaningful step forward across all three. Thank you for joining us. Gross margin reached 58%, net loss was $164 million, and operating cash flow was $176 million. Adjusted EBITDA was $250 million, and free cash flow was $121 million. At its core, Snapchat helps close friends and family stay connected. Over time, we have built Spotlight, SnapMap, and augmented reality around that foundation, giving our community more reasons to open Snapchat, discover something new, and share it with the people that they care about. Thank you for joining us. Thank you for joining us. Smart Campaign Solutions, our suite of AI-powered automation and optimization tools, is making it easier for advertisers to achieve better outcomes with less manual work. Those outcomes continue to improve. For app advertisers, cost per install declined 8% year over year, cost per purchase declined 18%, and app purchase volume increased 128%. Greater adoption by retailers also drove 43% growth in dynamic product ads revenue. Advertisers increased spending across native services such as sponsored snaps, where roughly one-third of the Snapchatters reached were incremental to other services on Snapchat. These results reflect the progress we are making across automation, optimization, measurement, and attribution. Our audience in the United States continues to broaden quarter over quarter, led by people aged 35 and older. Thank you for joining us. We have also built a meaningful second revenue stream. Snapchat Plus, Memory Storage, and Lens Plus help drive 85% year-over-year growth in other revenue to $316 million in Q2. Less than 3% of our monthly active users are paying subscribers, and we see substantial room to grow direct revenue over time through premium features, AI-powered creative tools, and additional subscription products. AI is transforming Snapchat and the way Snap operates. It powers better recommendations, more automated and performant advertising campaigns, and new creative tools for our community. Internally, it is helping our smaller, more focused team move faster and accomplish more. In Q2, code commits per engineer increased 75% year over year, while major reliability issues declined 57%. Our internal AI code reviewer now reviews 90% of pull requests across Snap and has saved an estimated 30,000 hours of code review time. Our AI-powered support agent answers approximately 3.9 million questions from Snapchatters each month and has reduced support ticket volume by approximately 62% since the start of the year. In advertising, AI increased first pass image review automation from 40% in Q2 2025 to nearly 90% in Q2 2026, resulting in faster approvals for advertisers, stronger content safety, and lower operating costs. Thank you. Unveiling specs in June was an important milestone after more than a decade of work. Specs are a new kind of computer built into see-through glasses, more capable than today's limited AI glasses, and more wearable than bulky VR headsets. Specs can understand the world around you and help with work, learning, entertainment, and shared experiences without pulling you away from the real world. We are excited to share much more about how specs work and what they can do at our launch event in Los Angeles on September 16th. Thank you, Evan. In Q2, revenue increased 19% year-over-year to $1.6 billion, including 9% growth in advertising revenue.

This growth reflected progress with large advertisers in North America, broader adoption of our AI-powered smart campaign solutions, continued SMB momentum, and 85% growth in other revenue, led by Snapchat Plus, memory storage, and our Lens Plus subscription. In early Q2, we restructured our cost base so Snap can scale more efficiently, and those changes are increasingly visible in our results. Our total adjusted cost structure increased just 4% year over year, as operating efficiencies offset investments in long-term revenue drivers. Gross margin expanded seven percentage points year-over-year to 58%. Net loss improved by 99 million to 164 million, and adjusted EBITDA increased by 208 million year-over-year to 250 million. Our focus is to sustain this operating leverage by maintaining disciplined cost growth as we scale revenue, expand margins, and increase free cash flow. That operating leverage translates into stronger cash generation In Q2, operating cash flow was $176 million and free cash flow was $121 million. Over the past 12 months, operating cash flow reached $919 million and free cash flow reached $706 million. We have now generated positive free cash flow for eight consecutive quarters while limiting fully diluted share growth to approximately 2% over the past five years through our share repurchase program. Over that period, we repaid more than $2 billion of convertible notes due in 2027 and 2028, as well as the $47 million in convertible notes that were due in August 2026, reducing future debt obligations and strengthening our balance sheet. We ended Q2 with approximately $2.7 billion in cash and marketable securities, giving us the capacity to invest in our core business and long-term opportunities while maintaining a healthy cash balance. Our plan investment in SPEX is included within our existing operating expense outlook. Over time, we intend to pace that investment based on product, ecosystem, and economic milestones while preserving the improving profitability and cash generation of our core business and supporting a stable share count. Going forward, our financial objective is free cash flow per share. We believe this is the right objective because it connects operating performance, disciplined capital allocation, and long-term shareholder value creation. Our goal is to generate enough free cash flow to invest in SNAP's long-term potential, offset stock-based compensation dilution, and strengthen our balance sheet. We support these objectives by growing revenue faster than costs, investing with discipline, and using our share repurchase program to offset dilution and compound per share value. As we move into Q3, we remain focused on accelerating top-line growth, growing our community, deepening engagement, Our guidance range for Q3 revenue is $1.70 billion to $1.74 billion. We expect infrastructure costs to grow modestly year over year in Q3 and now anticipate full-year infrastructure costs of $1.65 billion to $1.70 billion, compared with our prior guidance of $1.60 billion to $1.65 billion. The increase primarily reflects additional investment in the AI and machine learning infrastructure needed to support revenue growth. We continue to expect all other costs of revenue, excluding infrastructure costs, to represent 16 to 17% of revenue for the full year. We also continue to expect full-year adjusted operating expenses of approximately $2.75 billion and stock-based compensation of approximately $1.05 billion. The personnel cost savings associated with our recently announced restructuring are expected to be more fully reflected in Q3 and beyond. As a result, we estimate that adjusted EBITDA will be between $300 million and $350 million in Q3. Following the expected completion of our current repurchase program in Q4, we expect to implement a new multi-year dilution management program designed to help offset future dilution and support a stable fully diluted share count in 2027. The program will be funded primarily through free cash flow, Thank you for joining us. as we scale the financial benefits of these trends should become increasingly meaningful with continued gross margin improvement, supporting further adjusted even a margin expansion and sustained positive net income beginning in 2027. Lastly, we continue to monitor the evolving legal and regulatory landscape in the United States and internationally that could materially impact our business and financial results, including increased regulatory scrutiny on youth related issues and several trials scheduled in the United States later this year. While outcomes remain uncertain, Thank you, and we will now take your questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star 1 on your touchtone phone.

If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star 1 again. 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. Your first question comes from the line of Doug Anmuth with JP Morgan. Doug, your line is open. Please go ahead.

Great. Thanks for taking the question. It seems like you think 2Q was the quarter where you're seeing the work of the last few years paying off. I just want to kind of hear more about what gives you the confidence that this kind of growth and performance is really durable going forward. Thanks.

Hi, Doug. Thanks for the question. The improvement in Q2 really reflects progress across both the advertising platform and the go-to-market execution, which is something we've really been working hard on. We're delivering stronger performance, especially for app, e-commerce, and other lower-funnel advertisers, and we're making campaigns easier to manage with better automation, Optimization, Measurement, and Attribution. One of the things I'm particularly excited about is that all these improvements resulted in a 56% year-over-year increase in conversions across the platform, including app and pixel purchase goals. And we also saw increased spending from existing advertisers alongside broader adoption of newer formats like sponsored snaps and our smart campaign solutions. So we know we still have more work to do, but the breadth of the improvement here is what gives us confidence that's being supported by stronger fundamentals.

Your next question comes from the line of Ross Sandler with Barclays. Ross, your line is open. Please go ahead.

Hey, guys. So there was some language in the letter about specs and the launch date and your kind of planned pacing of investment. So could you just elaborate a little bit on, you know, What we should expect in the second half and into 27 for specs, investment, and then is the idea of setting up specs as a company outside of Snapchat off the table, or is that still something that you guys would consider in the future? Thanks a lot.

Hi, Russ. Thanks for the question. I think big picture, what we were really trying to outline was that given the real inflection in free cash flow generation in the business, that we have the ability to simultaneously invest in the future of specs, offset dilution and strengthen our balance sheet. So as we look at specs specifically, we're very focused right now on product quality, on the customer experience and really the ecosystem development. And we've gotten some great feedback from developers and businesses after the announcement at AWE in June. I think looking forward on September 16th, we'll be sharing a lot more about all the different ways people can use specs, how they fit into people's lives We're just really excited to get specs into folks' hands later this year.

Your next question comes from the line of Dan Salmon with New Street Research. Dan, your line is open. Please go ahead.

All right, great. Good afternoon, everyone. Evan, I'd just like to hear a little bit more on the North American DAU outlook for the rest of the year after it stabilized at 92 million this quarter. You mentioned more usership, healthier usership in the 35 and older age group in the letter. Could you expand on that and maybe also give us a little color on users under 35 and whether that figure grew sequentially this quarter?

Thanks, Dan. Yeah, we're definitely encouraged by the stabilization in North America DAU on a quarter-over-quarter basis. And we made some progress in strengthening the core communication experience. and also giving Snapchatters more reasons to engage with Spotlight and the Snap Map and augmented reality. I would say in particular Spotlight is becoming a more important part of that flywheel. So in the United States, the number of people posting grew more than 115% year over year and daily active viewers of Spotlight increased by more than 20%. So I think going forward, we're just very focused on improving activation, retention and engagement. I would say we are closely monitoring the regulatory environment, including age assurance, privacy, and online safety requirements, which may affect the product experiences or user growth and engagement over time.

Your next question comes from the line of Rich Greenfield with LightShed Partners. Rich, your line is open. Please go ahead. A reminder to unmute yourself locally if you are muted.

Sorry, guys, I was muted. That was my bad. First of all, thanks for the shorter prepared remarks. That was really helpful. I appreciate getting into questions quickly. Evan, it's been like seven weeks since you started taking pre-orders for specs. Any sense of you could give us any sense of like what pre-order volumes look like and what that's telling you about demand heading into the launch event in September. And then to Doug, you called out in the prepared remarks that there was a Q2 tailwind from the World Cup, as well as the large advertiser performance. I would assume the World Cup is carried over at least a little bit into Q3, but any commentary on sort of, could you size for us like what the World Cup means? And obviously you did more, your revenue growth in Q2 was faster than your guide for Q3. Is that the difference is not having the World Cup or just less World Cup, but just trying to understand what the organic number might look like from that change or that improvement in the large advertiser number that you called out?

Thanks so much for the question. Yeah, you know, on specs, we've been overwhelmed at the extent to which, you know, I think our announcement really broke through and there's just a huge amount of interest. What we're hearing from folks is really that they want to try specs. It's obviously a high consideration purchase, you know, at $21.95. And obviously developers and folks who are familiar with the platform really understand it and understand the technical leaps we've made with this generation. I think for the broader public and consumers, it's going to be really important for folks to go I think September 16th, our upcoming launch event, will be an important sort of starting point for that consumer-oriented journey. So certainly a lot of exciting momentum around specs, and we're really looking forward to getting these in folks' hands and really so that they can experience the platform for themselves.

Hey, Rich. This is Doug. Take a second. Can we take the second part of your question? Yeah, definitely the World Cup provided a benefit during the quarter, but it wasn't the only improvement we saw. Our guidance reflects the expected normalization of World Cup-related spending and a more difficult year-over-year comparison in Q3 following the easier comps we had in Q2 as our ad platform stabilized last year at the end of Q2 2025. In Q2 this year, we can see constructive trends across the platform. including, you know, large advertiser momentum in North America, strength among the small and medium business, small-sized businesses, and really the broader adoption of our smart campaign solutions and the lower funnel products like app purchase and dynamic product ads really added to our, you know, overall year-over-year growth. So we're very pleased by that.

Your next question comes from the line of Michael Nathanson with Moffitt Nathanson. Michael, your line is open. Please go ahead.

Thanks. Can I just double click back on specs for a second? I guess going to Ross's question, I understand why you're doing it, but the question I think is the financial sense of why this will work for a company your size. So walk us through why financially the structure you have here make sense versus working with a partner? And then, Evan, what gives you confidence given that Apple, Meta, Alphabet are all trying to build over time competitive products? What gives you confidence that you actually can win at this game versus some bigger resource companies? So thanks.

Hi, Michael. Thanks so much for the question. I think what is very clear to us is that the long-term opportunity to develop the next computing platform is absolutely enormous. If you look at what laptops and desktops did to desk jobs, the transformations in productivity and what that enabled for the world over the last couple of decades has just been extraordinary. And I think what's so unique about Specs is that they bring computing to the real world and to real-world jobs and allow you to work hands-free Thank you so much for joining us. Thank you so much for joining us. We were a late entrant. So, you know, most of the apps at the time, whether it was Facebook or Instagram or Twitter, were already in existence. And we had to really innovate to continue to grow. And obviously now we're approaching a billion monthly active users. What's so unique about this opportunity for us is really that we're a first mover and that really placed our strengths as an innovator. It's why we've been able to lead in this category and leverage our incredible augmented reality platform to win over the long term.

Your next question comes from the line of James Heaney with Jefferies. James, your line is open. Please go ahead.

Thank you. Could you just talk about what's driving the decision to raise the full year infrastructure cost outlook? Just how should we be thinking about the return on that investment, particularly as it relates to the direct response, kind of lower funnel advertising business? Appreciate it. Thank you.

Thanks, James. Yeah, this is Doug. Look, I think this is an opportunity for us as we've seen the advertising revenue growth over this quarter and our guide for Q3. One of the things that we want to make sure that we're doing is continue to invest in our, especially our DR and our ad platform in general. And so this gives us a little bit of flexibility to make those investments as we see fit through the back half of the year. It doesn't mean we'll have to do that, but we wanted to make sure that we gave full year guidance to reflect the opportunity that we could make those investments and really drive those meaningful short and medium and long-term investments in our ad platform.

Your next question comes from the line of Mark Shmulek with Bernstein. Mark, your line is open. Please go ahead.

Yes, thanks for taking the question. Doug, both you and Evan kind of mentioned prioritizing free cash flow for share and kind of that prepared remarks and just kind of wondering, What's different as you've ramped up in the seat? How's your philosophy evolving and you're deploying it across the organization? And if there's any kind of colorful examples in the early days, it's kind of things you've done around restructuring the cost base would be very helpful. Thank you.

Thank you, Mark. Appreciate it. Yeah, I mean, I think really free cash flow per share connects the three things that we believe are really essential to our long-term shareholder value. So number one, improving the operating performance of the business. Number two, investing our capital with discipline. And lastly, managing our dilution. Our first priority is really to grow free cash flow, if you think about the numerator of this. And we really want to grow revenue faster than cost. And if you think about what we did in Q2, we grew revenue 19% year over year, and we only grew cost 4%. And we're really proud of that. And I think it comes a lot from the restructuring that we did at the beginning of the quarter. and can continue forward as we look to continue to drive that flow through. Then after that flow through to cash, we want to allocate that cash in a really balanced way. So investing in our highest return opportunities, maintaining a healthy cash balance and strengthening the balance sheet. And then finally, repurchasing shares to help offset that dilution. As Evan mentioned in his prepared remarks following the expected completion of our Current authorization in Q4. We expect to implement a multi-year program beginning in 2027. And I expect that any new program will be funded primarily through free cash flow and designed to support our stable share account over time.

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Eric, your line is open. Please go ahead.

Thanks so much for taking the question. Maybe broadening out the conversation on monetization, just understand better how you're thinking about the evolution of the mix of revenue in the business and some of the signals you're getting from Snap Plus as a subscription and how do you even think about specs as an opportunity both across hardware and subscriptions to possibly also diversify the revenue stream as you look out, not just through the end of this year, but out over 2027 and beyond. Thanks so much.

Eric, thanks so much for the question. I think big picture, it's really exciting that we're becoming a multi-engine revenue business here. I think that does expand the total opportunity for us overall. And I think it also provides a lot more resilience, frankly, as we look at our long-term growth. I think one of the real bright spots for us has been other revenue growing 85% year over year. That's been primarily driven by Snapchat Plus, memory storage, and then a new subscription product we have called Lens Plus. which is really connected to new AI creative tools and that's sort of at a higher price point for our community. So we've seen some really nice and exciting growth there and we believe that continuing to develop new premium features and creative tools will drive growth into the future. I think as I noted in my remarks, less than 3% of our monthly active users are paying subscribers today. We do think there's substantial room to increase penetration over time. Looking to specs as well, that is a longer-term opportunity for us, but it is absolutely massive if we can really help people make the shift to computing based on screens, from computing based on screens to computing in the real world.

Your next question comes from the line of Shweta Kajuria with Wolf Research. Shweta, your line is open. Please go ahead.

Thank you for taking my question. I had one on subscribers. So in the letter and in your prepared remarks, you mentioned less than 3% of MAUs is where you are at. Could you please talk about how you view the runway for that 3% to grow and where do you think that could grow to call it in the near to midterm and what kind of opportunity you see there and what gets you there. What are some of the drivers that you feel confident gets you to that penetration level? Thanks a lot.

Yeah, thanks so much for the question. You know, it's still early days for us on the subscription products. So It's hard to say specifically. One of the things we did do is just take a look across the industry at other app-based subscription products, and it seems like penetration is typically around 7% to let's call it 12% over the long term. I do think if we just look across the competitive set, there is certainly headroom to continue growing subscribers. From here, I think what we've seen work historically is just continuing to add value to our subscription products. and I think LensPlus is going to be an exciting new driver of growth for us there as it allows us to expand into some really powerful AI tools that people have really demonstrated a willingness to pay for.

Our last question comes from the line of Lloyd Walmsley with Mizuho. Lloyd, your line is open. Please go ahead.

Thanks for taking the question. Two, if I can. First one, maybe for Evan. Can you just help us understand how you think about the trade-off between growing the profitability and free cash flow of the company overall and then investing in the future of specs? And are there any guardrails to think about in terms of how much you might invest and sort of any sense for how the product roadmap looks in terms of when we might really get to see a broader mass market, product market fit And then I guess the second one, shareholder letter talked about just the strong incremental reach and sponsored snaps. So wondering if you can give us an update on how meaningful is that ad unit today in the ad mix and sort of how could that become a significantly larger portion of the ad mix over time? Anything you could share there would be great. Thanks.

Thanks so much for the question. As I mentioned, I do think that the real inflection in free cash flow generation is going to allow us to invest in specs and offset dilution while simultaneously strengthening our balance sheet. I think specs are just so important because they support our mission of making computing more human, and we really believe that this next generation of computers is going to be more contextual, more intelligent, and far less dependent on people operating Thank you for joining us. I think it will be towards the end of the decade before we see mass market consumer adoption. And I think things, for example, like weight and cost are going to have to come down to see unit volumes really meaningfully pick up. But we do have, I think, a real advantage here in that developers have been building on the SPEX platform now for several years. They're very familiar with our tools, and we're just so excited to share more on September 16th when folks can see all the amazing experiences that are possible with SPEX.

This concludes our question and answer session as well as SNAP Inc.'s second quarter 2026 earnings conference call. Thank you for attending today's session. You may now disconnect.