Q2 2024 Summary
Published Feb 18, 2025, 5:24 PM UTC- Strong Growth in Small and Medium-Sized Customer Segment: Snap is focusing on the small and medium-sized customer segment, which has shown significant growth with total active advertisers more than doubling year-over-year in Q2. This growth leverages the scale of Snap's community and is expected to result in more resilient revenue from a diversified customer base.
- Continued Progress in Direct Response (DR) Advertising: Direct Response advertising revenue increased 16% year-over-year, driven by improvements in ad products and optimizations that deliver performance results for advertisers. The DR business is described as incredibly resilient and has been growing at a strong and stable rate.
- Rapid Growth of Snapchat+ Subscription Revenue: Other revenue, which includes Snapchat+ subscription revenue, grew 151% year-over-year to reach $105 million in Q2. Snapchat+ reached the 11 million subscriber milestone in Q2, contributing to revenue growth and diversifying Snap's revenue sources beyond advertising.
- Snap's brand advertising business is experiencing volatility and weakness in key consumer discretionary verticals, including technology, entertainment, and retail, with no significant rebound expected in Q3. The company stated that "there's not an assumption built into that guide that we're going to see significantly improved or really significant turnaround in the brand performance in the quarter."
- Despite investments and focus, Direct Response advertising growth remains at mid-teens percentage and is not scaling dramatically as expected. An analyst questioned, "Why is DR not exploding? Like why is it growing mid-teens? Why isn't it scaling dramatically?"
- Challenges in integrating content types (stories and Spotlight) have contributed to choppiness in user engagement, particularly in North America. The company acknowledged that "maintaining our existing production content stack while building a whole new combined stack has been a bit of a challenge... And I think that contributed to a little bit of the choppiness we saw through the quarter."
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Revenue Growth and Outlook
Q: How did revenue perform and what is the growth outlook?
A: Revenue growth in Q2 was driven by strong performance in Direct Response (DR) advertising, up 16% year-over-year, matching momentum from Q1's 17% growth despite tougher comparisons. Brand advertising decelerated due to event timing and weakness in consumer discretionary verticals like technology, entertainment, and retail. For Q3, Snap expects top-line growth of 12% to 16% year-over-year, implying an 8% to 11% quarter-over-quarter increase, historically strong for Q3. Growth is expected from the DR business and Snapchat+, with other revenue up 150%+ year-over-year, now at over $100 million a quarter. -
Strength of Direct Response Advertising
Q: Why isn't Direct Response advertising growing faster?
A: DR advertising grew 16% year-over-year in Q2, consistent with Q1. The Q3 guidance overcomes a prior year's 9-point acceleration. The guide implies an 8% to 11% quarter-over-quarter improvement, historically strong. Snap continues to invest in DR products with a solid roadmap ahead. -
Advertiser Count Doubling Among SMBs
Q: What's driving the doubling of advertiser count, especially among SMBs?
A: Active advertisers more than doubled year-over-year in Q2 , driven by Small and Medium-sized Customers (SMCs). Tools like Snap Promote help advertisers start in-app, and automation reduces friction with preconfigured campaigns and codeless setups. SMC business is seen as the most important driver of long-term revenue growth. -
Brand Advertising Visibility and Stickiness
Q: How can you improve visibility and stickiness of brand advertising?
A: Driving performance for advertisers is key, with solutions that are highly performant and measurable through various tools. Emphasizing full-funnel solutions, building brand awareness improves lower funnel conversion rates. Working with advertisers to leverage full-funnel offerings and performance brand solutions is important for the back half of the year. -
App Interface Changes Impact on Engagement
Q: How are product improvements affecting engagement?
A: Snap is building a new back-end ranking stack combining Stories and Spotlight to improve content discovery. While this has caused some choppiness, North America DAU and content time spent were both up quarter-over-quarter. Combining content types reduces friction and leverages signals across formats. -
Spotlight Monetization Progress and Potential
Q: How is Spotlight monetization progressing and what's its growth potential?
A: Snap is excited about growth in Spotlight time spent and uptake, increasing inventory. There's significant headroom compared to other short video services. Focusing on combining Stories and Spotlight for a compelling experience, improving model freshness to serve fresh content. -
Consideration of Shifting from Camera-First Interface
Q: Any plans to shift from opening to camera to more monetizable content?
A: Opening to the camera is integral to Snapchat, encouraging creation and connection with friends, and serving as a top funnel for AR. While there's an opportunity to simplify the experience, the camera-first approach differentiates Snap. More updates will be shared at the Snap Partner Summit. -
Investment Priorities for Long-Term Growth
Q: What are the key investment priorities moving forward?
A: Snap aims to match revenue resilience with engagement from its 850 million users. Focusing on the SMC segment leverages scale and drives advertiser results. Building a diversified customer base enhances long-term revenue resilience, with continued focus on monetization and machine learning improvements. -
Brand Advertising Trends by Vertical
Q: How are soft verticals in brand advertising trending in Q3?
A: Snap does not assume a significant rebound in brand advertising for Q3. Growth is expected from DR business and Snapchat+. While working on innovations for brand advertisers, focus remains on delivering scalable performance results. -
Headwind from Brand Advertising in Q3 Guidance
Q: How much of a headwind is brand advertising in the Q3 guidance?
A: Brand advertising decelerated due to weakness in consumer discretionary verticals like technology, entertainment, and retail. No big recovery is assumed for Q3; focus is on DR and Snapchat+.