Snap Inc. (SNAP) JPMorgan's 52nd Annual Global Technology, Media and Communications Conference (Transcript)

Snap Inc. (NYSE:SNAP) JPMorgan’s 52nd Annual Global Technology, Media and Communications Conference May 20, 2024 5:10 PM ET

Company Participants

Evan Spiegel - Co-Founder and Chief Executive Officer

Conference Call Participants

Doug Anmuth - JPMorgan

Doug Anmuth

All right. We're going to go ahead and get started. I'm Doug Anmuth, JPMorgan'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 monthly.

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 Snaps with more than 9 million subscribers. Evan cofounded Snap in 2011, while studying at Stanford.

Welcome, Evan.

Evan Spiegel

Thank you so much. Great to be here.

Doug Anmuth

So were you here two years ago?

Evan Spiegel

Two years ago, a faithful day.

Doug Anmuth

Okay. 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 along this path?

Evan Spiegel

Yes, absolutely. So, we made a lot of progress in the last two years. They were very disruptive for our business, whether it was the platform policy changes or obviously the changing macroeconomic environment, increased competition. And so, it became very, very clear that we need to move quickly to improve our performance advertising platform.

Historically, we've had direct response advertising, but 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 really because I think that's where advertisers find the most value where they can drive more causal purchases or conversions on our platform.

So that involved in many cases, rebuilding parts of our team, so we could really bring on that expertise in lower funnel advertising, of course, rebuilding our advertising platform. investing heavily in machine learning, where we had to build much larger models, leverage privacy safe signal. And of course, release a whole new set of offerings for advertisers starting first with commerce products with purchase-related conversions and then more recently with app-based advertising.

So, it's certainly been a journey, but I'm excited by the progress the team is making. There's a lot more to do. but we really are starting to see the fruits.

Question-and-Answer Session

Q - Doug Anmuth

Okay. So, let's dig in a little bit. 1Q, 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 '24? And then also how you're thinking about ad backdrop and kind of macro versus more company-specific Snap initiatives?

Evan Spiegel

Yes. So, I think we really started to see progress, at least in terms of advertiser performance in the back half of last year, but that didn't immediately translate to increased budgets. I think progress we saw in Q4, in particular, where advertisers were really able to measure their return on investment translate into 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 really have to be more effective than the last marginal dollar spent on 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 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 demand in a cost-effective way.

So, I do think that has been helpful and constructive. We'll see, of course, what happens in the balance of the year. But so far, off to a solid start, I would say.

Doug Anmuth

Okay. And when you think about the DR rebuild 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?

Evan Spiegel

I think a lot of the foundational improvements have been completed over the last two years. So, 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 into each of the different advertiser verticals and looking at how 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 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 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 exciting to have those products. out.

So yes, 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.

Doug Anmuth

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?

Evan Spiegel

Yes. The primary focus to date has really been around personalization and recommendation of advertising, showing the right ad to the right person and being able 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, at least from what we've seen, are able to drive better performance. So certainly, 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 as it pertains to generative AI and campaign creation, there's definitely some opportunity around creative. As I mentioned, the dynamic product ads and catalog ads, we can make them look a lot more appealing, leveraging generative AI also help advertisers get through campaign set up a lot faster, 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 less in campaign setup and things like that and more on the model side. And then really actually just making sure that we can configure campaigns correctly or at least default advertisers into the right campaign configuration based on their vertical.

Doug Anmuth

Okay. Great. China-based advertisers have certainly driven some strength in the U.S. across digital ads more broadly. 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?

Evan Spiegel

Yes. I think the China export advertising is certainly a large opportunity for us. I don't think we benefited as much as other players from that opportunity, at least over the past couple of quarters. As we continue to evolve our product offering and work closely with advertising partners in China, I do think that we can deliver results, whether it's for e-commerce folks or gaming companies.

And so, I am excited about the way that our product is evolving and some of the work that we're doing with our advertising partners over there. I think as it pertains to TikTok, obviously, still a long road ahead. I do think we've sort of looked to India, for example, where TikTok was banned in India, that was a tailwind for our business in terms of engagement. And so, I do think, depending on the outcome here that could change the dynamic.

Doug Anmuth

Okay. Let me shift gears to Snap + 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 products, some of the features that really differentiated, how you think it's resonating most with users.

Evan Spiegel

It's been really fun building the Snapchat+ 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 Snapshot+ was, I think, a really helpful way to align the interest 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 our service and are willing to pay a little bit to get access to some of those futures.

So, so far, the traction has been surprising to us in the beginning 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 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.

Doug Anmuth

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?

Evan Spiegel

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 we weren't doing a great job of meeting market specific needs, whether that was in APAC, the China export business, for example, or in EMEA.

And so, we built out a new structure with three regional presidents, President of the Americas of EMEA and the APAC region. And so far, that's just driven a lot more focus in the countries where we have strong penetration. We reached more than 75% of 13- to 34-year-olds in more than 28 countries. And so, making sure we have the right level of leadership and attention in market has really been helpful for us.

And 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.

Doug Anmuth

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.

Evan Spiegel

Yes. At this point, I think it's really advertiser specific. In terms of what we're seeing, some advertisers have already gone through a test and learn phase with us and we've 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 in terms of our focus as a team looking at those advertisers where we have been successful, understanding that there are a lot of similarly situated advertisers or look like advertisers who aren't yet utilizing our solutions and helping them go through that same test-and-learn process to ramp to ramp with us.

And that's definitely relevant in terms of our large advertisers, but we have an enormous long tail small-, medium-sized businesses. that can utilize our tools to grow, and that's been a very big focus as well. So, 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 with advertisers, and it's about scaling that out to more and more partners.

Doug Anmuth

Okay. Shifting to product kind of more broadly, user growth has remained solid, time spent with content in North America stabilized. What do you think the biggest driver of DAU growth and improvements in engagement have been and will be going forward?

Evan Spiegel

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 over a long period of time.

So, what continue 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 a text message or something like that. And that I think is where we continue to focus, how we continue to evolve our products to deepen those -- deepen and strengthen those relationships.

Doug Anmuth

Okay. And does anything stand out there just 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?

Evan Spiegel

Yes. Our overall focus over the last five or so years, I would say, has really been around emerging markets, typically Android devices and lots of net new users to Snap. And recently, we've really just felt like there's more headroom for us to grow in North America. I mean even though we reach 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 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 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 that does represent a higher ARPU opportunity.

Doug Anmuth

Okay. I have more questions, obviously, but we're going to also go to the audience for questions. So, if you have any, please raise your hand and mics will come by. Evan, maybe you can talk about some of the features and products that 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?

Evan Spiegel

Yes. On the content side of our business, historically, our service started with messaging. So, people are sending photos and videos to one another to really just to have a conversation. And over time, we realized there was a big opportunity that some percent of the time, people would post those photos and videos to stories to put them in chronological order and share not just with one or two friends, but with all their friends on Snapchat.

But we also recognize that there was a real constraint to building a content business around friends because people only have a certain number of real friends only a small percent overall, 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 is appropriate for the audiences that are watching it that it didn't contain 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. And we've now been in the process of reconciling those two content stacks because they were built separately and historically didn't share signal.

And so, we're quite excited about the progress we've been making on bringing stories and spotlight together into one unified content experience to share that signal across both of those platforms. We think that will lead to a much better user experience overall.

Doug Anmuth

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 the -- 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, your platform is unique and 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 urge to do something like that?

Evan Spiegel

Yes. I think at this moment in time, people are really questioning the way that social media makes them feel 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 moments in their day and not kind of the whole of human experience.

And so, in building Snapshot, we created a place where people could express themselves more completely and share with friends, whether it's a good -- a great day. or a bad day and share that full range of human motion without the judgment of public likes and comments and these sorts of things. And 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, that Snapchat is the happiest platform.

And 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.

And so, I think as it pertains to 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. And I think that's why, over the last 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 data privacy, around deleting message contents by default. In the past, everything was saved forever and made public to things like stories, of course. And so, I think it's been a really important moment to remind people that you don't have to use social media and feel bad about yourself to connect with your friends. And in fact, Snapchat is there to support those relationships.

Doug Anmuth

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.

Evan Spiegel

Yes. 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 were very focused on managing infrastructure cost per user very, very tightly for a long period of time and help create a lot of leverage in the business. which 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 going to have to meaningfully step up the investment. I think 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's certainly a meaningful investment in our ML platform.

And that was really needed to make some of the step change technical improvements. And 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 as we look out -- through the rest of the year, we estimate infrastructure expense to be in the range of $0.83 to $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 those investments are starting to stabilize.

Doug Anmuth

Okay. Great. Maybe you can talk a little bit about AR and your -- 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.

Evan Spiegel

Yes. Advertising is really important to us because it represents the future of computing. I think today, 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 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. We're 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. And so, I think as we look at the future of things like education, for example, in 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 behind a computer screen. I think those sorts of opportunities are incredibly compelling exciting for us.

So, as we've been thinking about investing in augmented reality, of course, we started with the smartphone, which is very constrained at this tiny little screen. It 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. 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, whether it's releasing iterative versions of our glasses. I think the first version we released maybe back in 2016, 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, augmented reality for us is really about the future of computing, which is why it's such a critical investment for us.

Doug Anmuth

Okay. And from a form factor perspective, like over time, what do you think that, that looks like?

Evan Spiegel

We think see-through glasses are a really important enabler of augmented reality. I think a lot of folks have been experimenting with 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, 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 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 world, and that's why see-through glasses are going to be just a critical component of that.

Doug Anmuth

Okay. Great. Questions in the audience? I think there's a mic somewhere Okay. How does Snap evolve when you think -- 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?

Evan Spiegel

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 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 subscription service.

So, I think that's where the vast majority of our focus will be for the next to seven years. But I certainly think, as we look at five to seven years, we're going to begin to see the glimmers of the next generation of computing and the transition from smartphone-based computing to augmented reality and wearables. And I think that's going to create an incredible amount of opportunity as new platforms emerge.

So, we always have been interested in and looking for those platform shifts because in the technology business, that's where a huge amount of the value creation happens, whether it's with artificial intelligence today, smartphones before that or augmented reality in the future. I think businesses that work towards those major platform shifts are really the ones that can be successful and grow meaningfully over the long term.

Doug Anmuth

Okay. Great. All right. We're going to wrap up with a quick word association. Direct Response?

Evan Spiegel

Vitally important.

Doug Anmuth

Gen AI.

Evan Spiegel

Creative and fun.

Doug Anmuth

Spotlight.

Evan Spiegel

Lots of opportunity.

Doug Anmuth

Social media.

Evan Spiegel

Snapchat.

Doug Anmuth

AR.

Evan Spiegel

The platform of the future.

Doug Anmuth

Snap+.

Evan Spiegel

Sign up today.

Doug Anmuth

Stories.

Evan Spiegel

I think being yourself.

Doug Anmuth

TikTok.

Evan Spiegel

To be determined.

Doug Anmuth

Diplomatic. Close friends.

Evan Spiegel

It's what life is all about.

Doug Anmuth

All right. Cool. I'm going to leave it there. Thank you, Evan.

Evan Spiegel

Thank you.