All right, we're gonna go ahead and get started. I'm Doug Anmuth, J.P. Morgan's internet analyst. We're pleased to have with us Snap co-founder and CEO, Evan Spiegel. Snap is a technology company that leverages the camera to improve the way people live and communicate. The company has more than 420 million daily active users, 800 million monthlies. We expect Snap to have more than $5.3 billion in revenue this year, the bulk of which is advertising, but there's also a nice emerging business in Snap Plus, with more than 9 million subscribers. Evan co-founded Snap in 2011 while studying at Stanford. Welcome, Evan.
Thank you so much. Great to be here.
Were you, were you here two years ago?
2 years ago, a fateful day.
Okay. A lot, a lot has changed in the business since then. Maybe you can start by talking about how the team has changed, how the ad platform has changed, and kind of where you are on along this path.
Yeah, absolutely. So we've made a lot of progress in the last 2 years. They were very disruptive for our business, whether it was the, you know, platform policy changes or obviously the changing macroeconomic environment, increased competition. And so it became very, very clear that we needed to move quickly to improve our performance advertising platform. Historically, you know, we'd had direct response advertising, but, you know, our business was strongest with really upper and middle funnel, upper and mid-funnel products and with large advertising partners. So we really needed to diversify our business and reach smaller and medium-sized businesses, and we needed to go much lower funnel. You know, really because I think that's where advertisers find the most value, where they can drive more causal, you know, purchases or conversions on our platform.
So that involved, you know, in many cases, rebuilding parts of our team so we could really bring on, you know, that expertise in lower funnel advertising. Of course, rebuilding our advertising platform, investing heavily in machine learning, where, you know, we had to build much larger models, leverage, you know, privacy-safe signal, and of course, release a whole new set of offerings for advertisers, starting first with commerce products, with, you know, purchase-related conversions, and then, you know, more recently with app-based advertising. So it's certainly been a journey, but, you know, I'm excited by the progress the team is making. There's a lot more to do, but we're really starting to see the fruits.
Okay, so let's dig in a little bit. 1 Q in particular, you showed some meaningful progress. Maybe you can talk about what you think the biggest driver was there, how you're thinking about that through 2024, and then also, how you're thinking about ad backdrop and kind of macro versus more company-specific Snap initiatives.
Yeah, so I think we really started to see progress, at least in terms of, you know, advertiser performance in the back half of last year, but that didn't immediately translate to increased budgets. I think the progress we saw in Q4, in particular, where advertisers were really able to, you know, measure their return on investment, translate into, you know, I think maybe increased share or additional budgets in 2024, and certainly Q1 was an early indicator that we're making progress there. We've just been laser focused on advertiser KPIs, especially with lower funnel performance.
We found that if we're able to meet or exceed an advertiser KPI, they'll give us additional budget, and in that regard, we just, you know, really have to, you know, be more effective than the last marginal dollar spent on another, you know, another platform. So we definitely are beginning to see progress there, but that's really tied to the performance that advertisers are seeing. I think looking at the broader macro backdrop, I do think it has been getting more constructive.
I think largely because, you know, a lot of the consumer demand driven by the COVID pandemic, a lot of the supply chain issues as well, have started to subside, and in fact, in many cases, I think you have excess supply and reduced demand, and so advertising is a really effective tool, especially performance advertising, for businesses who are looking to generate more, more demand in a cost-effective way. So I do think that has been, you know, helpful and, and, and constructive. We'll see, of course, you know, what happens in the, in the balance of the year. But, but so far, you know, off to, off to a solid start, I would say.
Okay. And when you think about the DR rebuild in that you've embarked on, maybe you can talk about kind of what inning you think you're in, what improvements specifically have really been strongest, and what's really driving that big increase in SMBs that you're seeing?
Well, I think a lot of the foundational improvements have been completed over the last two years. So, you know, as I mentioned, the investments we've made in our ML platform, of course, in Conversions API, to be able to utilize privacy-safe signals, and I think now we're really going to each of our product offerings and to each of the different advertiser verticals, and looking at how, you know, we can continue to improve. So in the case of our Dynamic Product Ads, for example, we're doing a much better job with product selection. I think that's a real opportunity for us historically, where we've underutilized the signals that we've had and, you know, have not done a particularly compelling job presenting those catalog products. So that's an area of focus for us.
As I mentioned, we've been working a lot on releasing our app products. Those have now been GA'd broadly, so we're very excited. Our teams have been going to market with those products this quarter. So excited to see some traction on the app side. Of course, that's very early and we've got some work to do there, but you know, exciting to have those products out. So yeah, I think there's a lot more to do, but the foundational pieces are in place, and now we're really going vertical by vertical to make sure we have the right product offering for advertising partners.
Okay. Maybe you can talk a little bit about the role that AI plays in your ad stack, how you think about it in terms of automating campaign creation, process, and then also, kind of building out a more, fully automated end-to-end solution?
... Yeah, the primary focus to date has really been around personalization and recommendation of advertising. You know, showing the right ad to the right person, and being able, you know, to start consolidating our goal-based bidding models into just several much larger models. In the past, we were running many small models, often for related GBBs. And so I think those larger models are, you know, at least from what we've seen, able to drive better performance. So certainly, you know, that model consolidation process has been really helpful for us, in addition to leveraging more signals as I mentioned, of course, in a privacy-safe way.
I think, you know, as it pertains to generative AI and campaign creation, there's definitely some opportunity around creative. You know, as I mentioned, the Dynamic Product Ads and catalog ads, we can make them look a lot more appealing, leveraging generative AI. Can also help advertisers, you know, get through campaign setup a lot faster. You know, whether it's generating copy or things like that, those have been helpful tools, as well. But I think the big performance gains we've seen so far are less, you know, in campaign setup and things like that, and more, you know, on the model side, and then, you know, really actually just making sure that we can, you know, configure campaigns correctly, or at least default advertisers into the right campaign configuration based on their, you know, vertical.
Okay, great. China-based advertisers have certainly driven some strength in the U.S. across digital ads more broadly. You know, when you think about a potential TikTok ban or divestment, any sense just in terms of how marketers might be rethinking budgets, and what is Snap seeing along these issues?
Yeah, I think that China export advertising is certainly a large opportunity for us. I don't think we've benefited as much as other players from that opportunity, you know, at least over the past couple of quarters. But as we continue to, you know, evolve our product offering and work closely with advertising partners in China, I do think that we can deliver results, you know, whether it's for e-commerce folks or gaming companies. And so I am excited about the way that our product is evolving, and the work that we're doing with our advertising partners over there. I think as it pertains to TikTok, obviously, you know, still a long road ahead.
I do think, you know, we've sort of looked to India, for example, where, you know, when TikTok was banned in India, that was a tailwind for our business, you know, in terms of engagement. And so, I do think, you know, depending on the outcome here, that could change the dynamic.
Okay. Let me shift gears to, Snap Plus. Now at more than 9 million subscribers, about 7% of overall revenue in the quarter. Maybe you could just talk a little bit about the product, some of the features that really differentiate it, how you think it's resonating most with users.
It's been really fun building the Snapchat Plus product. Our team really loves to innovate, and we get all these requests all the time for our community for specific features that they want. And historically, we had a hard time justifying some of those features, because we knew they wouldn't be used by a lot of people. We knew they'd only be used by some of the most passionate Snapchatters.
And so building Snapchat Plus was, I think, a really helpful way to align, you know, the interests of our community and all the features they want with the investments we've been able to make on the product and design side, to be able to continue innovating and testing new products with people who really love, you know, our service and are willing to pay a little bit to get access to some of those features. So far, the traction has been surprising to us. In the beginning, we really just started because we knew we had to meaningfully ramp our ML investments, and so we wanted to take a little bit of the edge off the ML investments while, you know, the ad business overall was experiencing some challenges.
And so far it's been helpful, certainly in doing that, and has been contributing more to revenue. So we'll continue to iterate on that product. It's definitely been a pleasant surprise.
Okay, great. Taking a step back, when you think about the changes that you've made in the business over the last couple of years, certainly some of that has been just around teams in terms of geographic heads and engineering, for example. How do you think about where the overall leadership team is now and the key strengths?
Yeah, over the last couple of years, we've really built a strong leadership team. As you mentioned, on the go-to-market side, one of the challenges we had historically is we really had a global leader of our go-to-market functions, and what we found is that, you know, we weren't doing a great job of meeting market-specific needs, whether that was, you know, in APAC, the China export business, for example, or in EMEA. And so we built out a new structure with three regional presidents, you know, president of the Americas, of EMEA, and of the APAC region. And so far, that's just driven a lot more focus in the countries where we have strong penetration. You know, we reach more than 75% of 13- to 34-year-olds in more than 20 countries.
So making sure we have the right level of leadership and attention in market has really been helpful for us. Yeah, on the engineering side as well, on revenue product, we certainly have made a number of leadership changes, again, just to build that expertise around lower funnel performance advertising.
Okay. Maybe you can talk a little bit about, kind of the transition, how you're doing in terms of capturing more always-on type of budgets for marketers. That's something where we've seen, certainly with other companies, when they've been able to really grasp that, and get scale there, that you can see a real change, in terms of the numbers. Maybe you can talk about that for Snap.
Yeah. At this point, I think it's really advertiser specific. In terms of what we're seeing, some advertisers have already, you know, gone through a test-and-learn phase with us and, you know, been working with us for many, many years and already allocate a very significant percent of their digital advertising budget to Snap. And so I think a lot of it, what it is, you know, in terms of our focus as a team, is looking at those advertisers where we have been successful, understanding that there are a lot of similarly situated advertisers or look-alike advertisers who aren't yet utilizing our solutions, and helping them go through that same test-and-learn process to ramp with us.
That's definitely relevant in terms of our large advertisers, but we have an enormous long tail of small, medium-sized businesses that can utilize our tools to grow, and that's been a very big focus as well. I think we're now at a place where we have product market fit in many of these important verticals. We've seen a lot of traction, you know, with advertisers, and it's about scaling that out to more and more partners.
... Okay. Shifting to product kind of more broadly, user growth has remained solid. Time spent with content in North America has stabilized. What do you think the biggest driver of DAU growth and improvements in engagement have been and will be going forward?
Snapchat is about communicating with your close friends and family. It's designed to enhance the relationships that you have with the people that are closest to you. And what we continue to see is when people onboard to Snap, and they add their close friends, their best friends, they find that this new way of communicating visually is just incredibly enriching, and they stay with us, you know, over a long period of time. So what continues to drive the growth of Snapchat is really that connection that people are able to make with their close friends when they use our service. Because it's just so much more expressive than, you know, a text message or something like that.
And that I think, you know, is where we continue to focus, how we continue to evolve our products to just deepen those and strengthen those relationships.
Okay. And does anything stand out there just, you know, geographically in terms of users? It sounds like you're kind of refocusing efforts somewhat more in some of the more highly monetized regions to drive more user growth and deepen engagement some of those areas where you have been more penetrated.
Yeah. Our overall focus over the last, you know, 5 or so years, I would say, has really been around emerging markets. The, you know, typically Android devices and lots of net new users to Snap. And recently, you know, we, we've really just felt like there's more headroom for us to grow in North America. I mean, even though we, you know, reach, you know, more than 75% of 13- to 34-year-olds in the U.S., for example, I think we can obviously continue to grow with the community that we already have, but also acquire new customers. And so as part of that, we've really had to shift our efforts and our engineering and product focus, you know, more towards iOS, for example, here in the United States.
More towards the resurrected user experience, meaning that a lot of people here in the United States have already downloaded Snapchat once. And so it's more about helping them re-onboard to Snapchat, reconnect with the friends that are most important to them, you know, to make sure that we drive that engagement and retention. So I think there's a big opportunity there. We are beginning to shift more resource and focus there, and you know, that does represent a higher opportunity.
Okay. I have more questions, obviously, but we're gonna also go to the audience for questions. So if you have any, please raise your hands and mics will come by. Evan, maybe you can talk about some of the features and products that you know that are within the core set, certainly within the app, but are more emerging, like Spotlight, for example, Maps, kind of where you see biggest opportunities there.
Yeah. On the content side of our business, historically, you know, our service started with messaging. So you know, people were sending photos and videos to one another to really just to have a conversation. And over time, we realized there was a big opportunity, you know, that some percent of the time, people would post those photos and videos to Stories. You know, to put them in chronological order and share not just with one or two friends, but with all of their friends on Snapchat. But we also recognized that there was a real constraint to building a content business around friends because people only have you know, a certain number of real friends.
Only a small, you know, percent overall of those real friends are posting all the time, and so naturally, the content supply is limited if you want to build a content business around your real friends. So we focused on building a business that would supplement content from your friends with recommended content. And we made a unique choice at the time to moderate that content, to make sure that the content on our platform, you know, is appropriate for the audiences that are watching it. That it didn't contain, you know, hate speech or misinformation, these sorts of things that I think other more open platforms have really struggled with. So we built a business around recommended content, first with Stories, more recently with Spotlight, which consists of short-form video.
We've now been in the process of reconciling those two content stacks because they were built separately and historically didn't share signal. So we're quite excited about the progress we've been making of bringing Stories and Spotlight together into one unified content experience to share that signal across both of those platforms. We think that'll lead to a much better user experience overall.
Okay. I'm sure there are questions in here somewhere. But let me ask you about... You run a really interesting ad campaign, which is basically kind of like Snap is not really social media, for example. You'll correct me if I have it slightly off. But I guess well, first, what do you really mean by that? And what are you trying to get across in that campaign, which I think actually really stands out? And then second, you know, your platform is unique in that it doesn't really have a feed, for example, which of course others have been able to monetize really well. So how do you kind of resist that, you know, that urge to do something like that?
... Yeah, I think at this moment in time, people are really questioning the way that social media makes them feel, you know, about themselves, about their relationships. I think oftentimes it can feel like a popularity contest, and that was certainly what Bobby and I experienced when we were growing up. We grew up with social media, and we just found that people only shared kind of what was pretty or perfect, the best, you know, moments in their day, and not kind of the whole of human experience.
And so in building Snapchat, we created a place where people could express themselves more completely and share with friends, you know, whether it's a good- a great day, you know, or a bad day, and share that full range of human emotion without the, you know, judgment of public likes and comments and these sorts of things. You know, when we look at the data and we hear back from our community about all the different types of products they use, they consistently say, you know, that Snapchat is the happiest platform.
That's something that we really wanted to help the broader public understand, that there is an alternative to social media that can help you connect more deeply with your friends, do it in a way that's visual and I think helps people convey that full range of emotion that's so important to deepening relationships. So, you know, I think as it pertains to, you know, growing our business and monetizing over time, making sure that we have a differentiated position in what is a very competitive market is critically important to us.
Mm-hmm.
I think that's why over the last, you know, 13 years, we have been able to consistently grow, even in the face of very, very intense competition, because we offer a product experience that's fundamentally different. And that extends to some of our early choices around, you know, data privacy, around deleting message contents by default. In the past, everything was saved forever and made public. You know, to things like Stories, of course. And so I think it's been a really, you know, important moment to remind people that, you know, you don't have to use social media and feel bad about yourself to connect with your friends, and in fact, Snapchat's there to support those relationships.
Okay. Let's shift to cost and investments a little bit. Maybe you can talk about the recent step-up in infrastructure investments and where you see the highest returns from those.
Yeah, we were confronted, I think with some difficult strategic choices. We rent our infrastructure. We leverage the cloud, which I think has been really helpful and brought a lot of flexibility to our business. And we were very focused on managing infrastructure cost per user, you know, very, very tightly for a long period of time and helped create a lot of leverage in the business, which, you know, has helped us reinvest and continue to innovate. But what we found was that by managing those infrastructure costs so tightly, we were really hamstringing a lot of the most important work we needed to be doing on our ML platform, and it was clear that we were gonna have to meaningfully step up the investment.
I think, you know, we ramped the investment by $100 million a quarter or something like that. So I'm not sure what the CapEx equivalent would be, but it is certainly a meaningful investment, you know, in our ML platform. And that was really needed to make, you know, some of these step-change technical improvements. And, you know, I think over time, we found that we're able to look at different pieces of our infrastructure and cost optimize, and that's why now, you know, as we look out through the rest of the year, we estimate, you know, infrastructure expense to be in the range of $0.83-$0.85 per user. So that gives us some room to continue to invest.
But we're seeing certainly that the investments we have made so far are driving better performance for advertisers, and, you know, those investments are starting to stabilize.
Okay, great. Maybe you can talk a little bit about AR, and it's obviously an area that you've been very focused on over the years. And not just some of the products that are most interesting to you, but also how it plays into the advertising business as well, and it's really differentiated for marketers.
Yeah. Advertising is really important to us because it represents the future of computing. I think today, you know, even just looking around this room, in order to leverage the power of computing, people have to bury their heads in a smartphone or bury their heads in a laptop. And I think, you know, increasingly, as we hear from our community and people around the world, they feel like technology is actually taking them out of the real-world experiences that are most important to them or getting in the way of their ability to connect with other people. And so augmented reality is really exciting to us because it allows people to leverage the benefits of computing, but to share them together in person.
I think, you know, as we look at the future of things like education, for example, and the way that people are going to learn, the ability to leverage augmented reality to do that together and to learn by doing, which is really different than the way I think people experience learning today, whether it's in front of a whiteboard or, you know, behind a computer screen. I think those sorts of opportunities are incredibly compelling, you know, and exciting for us. So, you know, as we've been thinking about investing in augmented reality, of course, we've started with the smartphone, which is very constrained at this tiny little screen that doesn't allow you to directly interact with your hands or move around or even to share that experience with other people.
But already, 300 million people engage with augmented reality on Snapchat. So we have this really strong base of engagement and a very large group of developers. You know, so as we think about the way that the form factor will evolve and the platform will evolve, we have this really strong base of engagement of our community using augmented reality, developers building augmented reality. And so we've really been going on a step-by-step journey with them, you know, whether it's releasing iterative versions of our glasses. I think, you know, the first version we released maybe back in 2016, you know, to our more recent pair that included an AR display, so developers can begin experimenting with what the glasses' form factor will enable.
So I think ultimately, as we look at the long term, we're, you know, augmented reality for us is really about the future of computing, which is why it's such a critical investment for us.
Okay. From a form factor perspective, like over time, what do you, what do you think that that looks like?
... We think see-through glasses are a really important enabler of augmented reality. I think a lot of folks have been experimenting with, you know, VR headsets or pass-through augmented reality, where you kind of look at a screen that has a video feed of the world around you, and we just don't think that really does justice to the AR experience, and I think is also disconcerting for folks, even when they can kind of see a video view of what's happening around them. It, you know, just feels like you're there's a screen in front of your face.
So we think in order for computing technology to be successful, it has to really ground people in the real, real world, and that's why see-through glasses are gonna be, you know, just a critical component of that.
Okay, great. Questions in the audience? I think there's a mic somewhere. It's looking around. No. Okay. How does Snap evolve when you think, you know, what does the business look like over five to seven years, for example, in your view from both advertising perspective, technology, how the platform is really different for users?
Well, I think in the near term, we have a huge amount of opportunity with the Snapchat application, whether that's just continuing to support people's relationships with their close friends and family through our communication service. We're continuing to grow our content business. Of course, our Map, where people can see, you know, what their friends are doing, who they're with, what they're up to. These are all really compelling opportunities for user engagement and ultimately in terms of monetization, whether it's with advertising or our subscription service. So I think that's where the vast majority of our focus will be for the next 5-7 years.
But I certainly think as we look at 5-7 years, we're gonna begin to see the glimmers of, you know, the next generation of computing and the transition from smartphone-based computing to augmented reality and wearables, and I think that's gonna create an incredible amount of opportunity as new platforms emerge. So we always, you know, have been interested in and looking for those platform shifts, because in the technology business, that's where a huge amount of value creation happens, whether it's with, you know, artificial intelligence today, smartphones before that, or, you know, augmented reality in the future. I think, you know, businesses that work towards those major platform shifts are really the ones that can be successful and grow meaningfully over the long term.
Okay, great. All right, we're going to wrap up with a quick, quick word association. Direct response.
Vitally important.
Gen AI.
Creative and fun.
Spotlight.
Lots of opportunity.
Social media.
Snapchat.
AR?
AR, the platform of the future.
Snap Plus?
Sign up today.
Uh, Stories.
Stories. I think, being yourself.
TikTok?
To be determined.
Diplomatic. Close friends?
It's what life's all about.
All right, cool. We're gonna leave it there. Thank you, Evan.
Thank you.