Q1 2024 Summary
Published Feb 18, 2025, 5:23 PM UTC- Significant growth in small- and medium-sized advertisers (SMBs), with active SMB advertisers increasing by 85% year-over-year, demonstrating strong momentum in expanding the advertiser base and potential for future revenue growth.
- Acceleration in Direct Response (DR) advertising revenue, which increased 17% year-over-year in Q1, up from 3% growth in the prior quarter, indicating that improvements to the advertising platform are translating into increased demand and better ROAS for advertisers.
- Positive ROI from investments in AI and ML infrastructure, leading to improved performance of advertising products and enabling the company to scale investments profitably, positioning Snap well against larger competitors.
- Flat User Growth in North America: Snap's North American daily active users (DAUs) were flat quarter-over-quarter in Q1 2024, indicating challenges in growing engagement in its most monetizable markets.
- Guidance for Revenue Deceleration in Q2 2024: Despite a 21% year-over-year revenue growth in Q1, Snap is guiding for a lower 15% to 18% revenue growth in Q2, representing a 3 to 6 percentage point deceleration from Q1, which may signal underlying headwinds affecting sustained growth.
- Competitive Pressure in AI Investment: Concerns about Snap's ability to invest sufficiently in artificial intelligence (AI) infrastructure compared to larger tech companies, which could impact its competitiveness and ability to connect with its audience effectively in the long term.
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DR Revenue Acceleration
Q: What drove DR acceleration in Q1, and outlook for Q2?
A: Management highlighted a broad-based acceleration in top-line growth, with Direct Response (DR) revenues showing significant improvement due to investments in leveraging privacy-safe signals and model enhancements. Notably, purchase-related conversions increased over 75% in Q1 , and Cost per Action (CPA) adoption grew over 300% year-over-year, now covering approximately half of DR revenue. For Q2, they expect DR progress to continue but anticipate a slight deceleration due to seasonal factors like prior-year comps, leap day effects, and Ramadan timing, none of which affect the underlying business fundamentals. -
SMB Advertiser Growth
Q: How is the growth of new SMB advertisers impacting revenue?
A: The company is expanding its base of small and medium-sized businesses (SMBs), with active advertisers in this segment up 85% year-over-year, making it the fastest-growing customer segment. Management believes this broadening of the advertiser base is critical to reaching full monetization potential over time. While it's early, the increased adoption among SMBs is expected to contribute meaningfully as these advertisers progress from initial testing to scaling their spend. -
AI Investment and ROI
Q: Are current AI investments sufficient to remain competitive?
A: The company has scaled its machine learning and AI infrastructure spending to around $100 million per quarter since Q2 and Q3 of last year. This investment strategy involves cloud infrastructure costs reflected in operating expenses, providing access to significant capacity. Management is pleased with the ROI on these investments, which are yielding improvements in revenue growth and ad platform performance. This positions the company to continue scaling investments profitably and remain competitive. -
North America and Europe Engagement
Q: Any early progress on increasing engagement in North America and Europe?
A: Management has shifted resources to grow engagement in North America and Europe, focusing on reengaging users, particularly on iOS devices. Early month-over-month trends are positive, with growth from February to March and March to April. While it's still early, they are seeing opportunities to improve the product and are eager to enhance the experience for users in these regions. -
Amazon Ad Partnership
Q: Any early learnings from the Amazon ad partnership?
A: The partnership with Amazon is an exciting opportunity to bring relevant products to shoppers within the Snapchat experience. Although still in early stages, offering a relevant product selection and enabling one-tap checkout aligns with the trend of consumers shopping where they consume content. Management sees continued opportunity in such ad partnerships to drive growth. -
App Value Optimization
Q: How is the build-out of app value optimization progressing?
A: The company has updated its app install models and is testing app install 7-day and purchase 7-day optimization products, with promising early results. A new SKAdNetwork offering is also being introduced to customers. The focus has been on driving more click-through installs at lower CPIs for advertisers, with value optimization efforts to follow. Overall, they are building on a solid foundation and making rapid progress. -
Spotlight and Snap Stars
Q: How does Spotlight contribute to engagement and compete with similar platforms?
A: Spotlight and Creator Stories have been bright spots in terms of time spent. Efforts are underway to simplify and unify the content experience, including a unified feed and shared ranking signals between Stories and Spotlight. Management recognizes the need to make content feel more timely and topical, leveraging the billions of snaps created daily. Investing in the creator journey is a key focus to enhance personalization and engagement. -
Digital Ad Market Recovery
Q: What is the vertical mix seen in digital ad market recovery?
A: Management observed a broader improvement in the operating environment during Q1, with a more robust brand environment across all regions. In Direct Response, verticals such as CPG, e-commerce, restaurants, travel, and SMBs are performing well. The company aims to broaden its appeal to a wider set of customers as they introduce more optimization options.