Q4 2023 Summary
Published Jan 27, 2025, 11:31 PM UTC- Purchase-related conversions grew over 90% year-over-year in Q4, demonstrating strong progress in Snap's Direct Response advertising business. Additionally, the number of small and medium-sized advertisers increased by over 20% year-over-year, indicating more resilient revenue streams.
- Snap sees significant opportunity in growing user engagement in highly monetizable geographies like North America and Europe, where there is still headroom for user growth. The company is not expecting further declines in North America Daily Active Users (DAUs), and aims to resurrect users who tried Snapchat or aren't coming as often.
- By unifying the Stories and Spotlight experience, Snap aims to enhance the user experience and increase ad inventory and revenue. Leveraging high levels of brand safety (close to 99% brand-safe content) serves as a differentiator for advertisers.
- Competitive Disadvantage Due to Smaller Scale: Snap faces challenges due to its smaller scale compared to larger competitors like Meta, potentially limiting its growth prospects and ability to invest in areas like AI and machine learning at the same level as larger peers.
- Declining User Engagement in Key Markets: The company experienced softness in North America Daily Active Users (DAUs), indicating potential difficulties in growing or maintaining its user base in highly monetizable regions, which may require increased investment to address.
- Restructuring and Workforce Reduction: Snap announced a reduction of approximately 10% of its full-time workforce in Q1 2024 to reduce management layers and concentrate team members, suggesting internal challenges that could affect morale and productivity, with cost savings not expected until Q2.
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Direct Response Advertising Growth
Q: Why isn't DR ad growth matching industry levels?
A: Evan Spiegel explained that while DR ad growth was comparable at 3% for Q4, Snap is seeing significant progress in the lower funnel business, with purchase-related conversions growing 90% year-over-year in Q4. Additionally, the number of small and medium-sized advertisers grew 20% year-over-year. The top end of Q1 guidance reflects a 10-point acceleration, indicating ongoing progress in the DR business. -
Cost Restructuring and Savings
Q: What's the motivation for recent cost changes, and when will benefits appear?
A: Evan Spiegel stated that the company is motivated to move faster by reducing hierarchy and increasing collaboration. Derek Andersen added that Snap made the difficult decision to reduce about 10% of the team, which will help in making progress toward adjusted EBITDA and positive free cash flow. The cost savings are expected to be fully reflected in Q2 and beyond, with $55 million to $75 million in restructuring costs incurred mostly in Q1. -
Competitive Positioning and Scale
Q: Is Snap's smaller scale relative to Meta a long-term issue?
A: Evan Spiegel acknowledged that while Snap isn't as large as some competitors, serving over 800 million people worldwide makes it one of the largest internet services. Snap is focusing on pivoting to lower funnel objectives for advertisers, especially small- and medium-sized businesses, and is seeing evidence that this shift is working. The company believes there's enormous opportunity to continue growing its business. -
Q1 Revenue Acceleration
Q: What gives confidence in Q1 revenue acceleration?
A: Derek Andersen noted that Snap is off to a good start in Q1, reflecting progress from fundamental improvements to the ad platform and go-to-market strategy. Key indicators include more than 90% growth in purchase-related conversions in Q4 and over 20% growth in small- and medium-sized customers. At the high end of guidance, Snap anticipates a 10 percentage point acceleration in year-over-year growth rate. -
North America and Europe User Growth
Q: Why was there softness in North America DAU, and what's being done?
A: Evan Spiegel explained that the Q4 decline was mostly an artifact of rounding, and no further decline is expected in Q1. Snap sees an opportunity to invest more in growth in North America and Europe by focusing on resurrecting users and improving onboarding for those who tried Snapchat or are less active. The company believes there's headroom to grow in these markets. -
My AI and Revenue Benefit
Q: How does My AI contribute to revenue?
A: Evan Spiegel mentioned that signals from My AI can serve as inputs to models that deliver more relevant advertising. Snap has made progress in reducing the cost-to-serve for My AI. Additionally, generative AI efforts in image and video models enhance user engagement and act as an on-ramp to Snapchat+, which reached over 7 million subscribers in Q4. -
Unifying Stories and Spotlight
Q: What's the plan to unify Stories and Spotlight content?
A: Evan Spiegel stated that unifying the UI and navigation of Stories and Spotlight is aimed at enhancing user experience. While changing user behavior is challenging, the benefits of improved personalization and broader inventory are expected to outweigh potential disruptions. Snap is excited about bringing ranking and model improvements from Spotlight to Stories. -
Big-Picture Opportunities and Challenges
Q: What are the key opportunities and challenges ahead?
A: Evan Spiegel highlighted that Snapchat is built around core smartphone uses like connecting with friends, taking pictures, and watching content. The strategic advantage lies in the relationship between the camera, messaging, and content platform. By focusing on helping close friends and family stay connected, Snap sees significant opportunities for growth.