Snap Inc. (SNAP) Q1 2019 Earnings Call Transcript

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As of the end of Q1, our new Android application is available to everyone. Compared to the prior version, it is 25% smaller, opens 20% faster on average, and is modularized to allow for efficient ongoing innovation. On some of the lowest-performing devices, this resulted in a 6% increase in the number of people sending Snaps within the first week of upgrading to the new Android build.

While these early results are promising, improvements in performance and new user retention will take time to compound and meaningfully impact our top-line metrics. There are billions of Android devices in the world that now have access to an improved Snapchat experience, and we look forward to being able to grow our Snapchat community in new markets.

Following the expansion of our Discover platform with last year’s redesign, we have been focused on broadening our content offerings and growing engagement. We now offer more than 450 premium content channels worldwide. We doubled the number of non-US partners we work with in the past six months, and launched over 50 new Shows and Publisher Stories in international markets in Q1 alone. After seeing incredible engagement with Snap Originals, we will be launching 10 new original shows while also renewing some of last season’s hit shows.

The number of people watching Discover and their time spent watching content continue to grow as Discover becomes part of their daily routine. In Q1, nearly half of our daily Discover viewers watched Discover every day of the week. This growth in engagement is benefiting our content partners who have been able to reach a new audience on Snapchat. ESPN’s Emmy-nominated Discover content added an incremental 13% to the total viewership across ESPN’s U.S. mobile presence among people 13 and older in January, as measured by ComScore.

In March, our partners increased their total mobile monthly reach in the U.S. by an average of more than 30% just by publishing to Discover, as measured by ComScore. Our augmented reality platform continues to evolve, with our community now spending more than 250 million minutes playing with AR experiences every day on average in the Snapchat camera.

This represents a 10% increase in play time per DAU compared to last year. With this growing engagement, we are also focusing on our growing community of Lens creators as well as extending the capabilities of our AR platform. When we launched Lens Studio just over one year ago, a talented community of creators began creating and sharing AR experiences.

Creators are now submitting thousands of new Lenses on a daily basis, and Lenses from our community are viewed hundreds of millions of times every day. We are constantly adding new functionality to Lens Studio, while also investing directly in our creator community. For example, we recently launched Creator Profiles, where creators can showcase their portfolios and build a following among our 190 million daily active users, more than three quarters of whom are engaging with AR on Snapchat every day.

Augmented reality allows our Snapchat community to overlay their creativity on the world. We started by building augmented reality for selfies and then surfaces, and are currently working on powering an even broader range of real-world interactions. With our new Landmarkers product, our camera can now interact directly with iconic buildings around the world, making it possible to land an Ice Dragon on top of the Flatiron building in New York for the Game of Thrones premiere.

With Scan, our camera can also recognize what it’s looking at and deliver a contextually relevant experience. For example, our camera might surface pet-friendly Lenses when you’re scanning your dog or help you identify a particular product you are scanning to help you buy on Amazon. We recently launched Snap Games, which allows our community to play high-quality mobile games with their friends in real-time through our chat service.

This was the result of more than two years of investment to create a new way to have fun with your close friends. We worked with some amazing

partners to build a platform focused on unique gaming experiences designed specifically for our platform and community, with communication between friends and thoughtfully integrated monetization. We’ve been so excited to see the response from our community and we can’t wait to

continue developing games.

Our advertising business is continuing to scale following our transition to self-serve monetization, with nearly all of our products, including Lenses, now available via our Ads Manager. We invested heavily in this platform over the past year, including launching dozens of new capabilities to deliver scalable ROI for an increasing variety of advertisers, including bid optimization for conversion events. This has helped us scale our direct response revenue, which more than doubled when compared to Q1 last year.

Brand buyers are also seeing great results from our improvements over the past year. We now allow advertisers to optimize against important brand goals like efficient reach and targeting, which helps our vertical video and camera marketing products work together to deliver a brand narrative. We have also seen that our growing reach and engagement among Millennials and Gen Z is an important differentiator in the marketplace. These generations are unprecedented in size and spending power, are still in the process of developing their brand loyalties, and are difficult to engage on other platforms or with traditional advertising formats.

For example, Nestle recently ran a multi-product campaign for DiGiorno Pizza across Snap Ads and Filters, enabling them to deliver a comprehensive narrative across the different parts of our platform and allowing them to reach new buyers. One third of incremental sales were driven by new buyers to the DiGiorno portfolio, as measured by Nielsen Catalina Solutions. This resulted in a 3.3% sales lift driven almost entirely by increased penetration, and a 3.6x return on ad spend, as measured by Nielsen Catalina Solutions.

We are so excited to see advertisers achieve great results on Snapchat and we are looking forward to continuing to improve our advertising products and platform. We have worked hard to thoughtfully balance our long-term investments in product innovation with operating cost discipline. The improvements we have made to our cost structure over the past year were largely due to efficiencies we found in our products and operations that outpaced our growing investments across our content, gaming, augmented reality, and advertising platforms.

As we look toward the future, we see many opportunities to increase our investments, and we will continue to manage our business for long-term growth. Our team is energized by our progress and the many opportunities in front of us. We will continue to drive product innovation, enhance our advertising platform, and strengthen our team and business.

With that, I’ll turn the call over to Jeremi to talk more about our advertising business.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”70″>Jeremi Gorman — Chief Business Officer

Thanks, Evan.

It’s been a pleasure to be a part of Snap for the past six months, and I’m thrilled to continue to work together with the rest of our leadership to build upon our strong foundation. We continue to see significant upside and opportunity in the future of our business.

There are three primary drivers of our optimism. The first is our opportunity to scale the learnings from our successful brand partnerships across a wider variety of partners and industries, the second is our rapid progress with performance advertisers, and the third is the health of our advertising ecosystem given the strength of our ad products and growing user engagement.

First, we have been working closely with many large brand advertisers as we build out our ad platform and products, learning and iterating with them, and we’ve made major strides following our switch to a self-service platform. Over the past year, we’ve been building some of the best tools for brand marketers into Snap Ads Manager to enable them to achieve business results.

For example, advertisers can now buy our core ad products based on Reach & Frequency which allows brand marketers the flexibility and customization of self-service tools with the transparency and predictability of reserved pricing. It has only been less than a year since we launched Reach & Frequency for Lenses, and it is now

the dominant way marketers are buying AR advertising on Snap.

We see a significant opportunity to scale the learnings from this group of successful brand advertisers to a broader set of customers. For example, while we’ve seen success with a number of key QSR brands, there are remaining advertisers in the category with whom we can do more, and now, with the teams organized by vertical, these advertisers can be serviced by our team members with relevant categorical expertise.

Like in this example, in order to fully realize these opportunities, we needed to set up a more scalable structure for our sales teams. As of April 1st, the reorganization has taken effect in the US, and the International reorganization is under way as we speak. We have split the team into three segments to organize around advertiser needs.

A significant portion of our US revenue is transitioning between sales team members, and while we expect some disruption to our near-term business, we are confident that this is the right long-term structure. Our Enterprise sales team is focused on large brand advertisers with complex buying structures, and is now structured by vertical rather than by region. This allows our teams to share learnings across categories and gain expertise in the industries in which our advertisers operate, especially as these relationships and campaigns become increasingly sophisticated.

Alongside this Enterprise team is an Emerging Advertiser team focused primarily on Direct Response advertisers, such as app install and direct-to-consumer brands. This is a category seeing growing success on our platform. Lastly, our newly formed Scaled Services organization is focused on one-to-many marketing and sales tactics to continue to bring more and more advertisers to our platform.

Overlaying this structure is a newly developed Agency team to focus specifically on deepening our relationships with our Agency partners. We are excited about these changes and the opportunities that come with them. This new structure will allow us to better drive adoption of some of the most engaging and innovative ad units in the industry.

As Millennials and Gen Z are increasingly favoring short-form video and other rich mobile experiences over desktop and television, we are creating mobile ad units so that brands can reach our audience using these formats. Earlier this month, we announced a new slate of Snap Originals and our new Snap Games platform. Both of these products are monetized by Commercials, our six-second non-skippable mobile video product.

We designed this specifically to work well for both our users and our advertising partners. Brayden Ainzuain, Head of Digital and Innovation at Publicis in MENA told us “the launch of commercials on Snapchat answers the growing desire among brands to reach a mobile audience with compelling branded video content. Being the launch partner of this new format with our forward-thinking clients gave us a first view of its impact. We saw incredible results for BMW, MINI, Nestle, and Samsung locally achieving really efficient CPMs, CPCVs and view-through rates.”

We continued to build on our industry-leading AR technology. Brands can now leverage our image recognition technology and location-enabled AR to immerse our community in an impactful content experience. For example, Nike and Foot Locker recently brought the House of Hoops to life by having LeBron James emerge from the wall to dunk, all inside our camera. On average, three quarters of our daily active users engage with AR experiences every day, and we are excited to partner with brands to bring even more AR experiences to our camera.

We see an interesting opportunity at the intersection of our self-serve tools, our video ads, and our AR ads. Our Ads Manager empowers advertisers to run sophisticated campaigns that leverage multiple formats, helping brands tell a cohesive story across our service. Combining our optimization and delivery capabilities with formats native to the Snapchat Generation allows our products to work better together and delivers compelling storytelling at scale.

For example, Toyota ran a sophisticated campaign across our various video and AR products to promote the Corolla Hatchback among Millennials. Snapchatters engaged with the ads, watching more than 90% of their Commercials on average, and playing with their Lens for more than 10 seconds each on average. By combining different video and AR experiences in an optimized and efficient way, Toyota was able to deliver a rich narrative that lead Snapchatters 25 and older who saw the ads to be 40% more likely to identify the car as having the particular brand attributes the ads were designed to promote as measured by Kantar.

Second, we’ve made remarkable progress with performance advertisers and our direct response platform generally. In less than two years, we built a self-service ad platform from scratch that is nearly at feature parity with industry leaders on things like targeting and delivery capabilities. That’s why Wish one of the most sophisticated e-commerce advertisers is seeing success with our newest formats, such as a 75% lower cost per install when leveraging our new app-install optimization capabilities, and an even lower cost per install when using our new Shoppable Catalog Ad format.

Additionally, our progress in this area allowed us to increase the volume of always on performance advertisers that are not as affected by seasonal brand advertising trends, with our total direct response revenue more than doubling year-over-year. Advanced DR advertisers such as Pocket Gems, makers of the popular mobile game Episode have seen improved return on ad spend on our platform over time.

For instance, in Q1, our app-install ads drove 300 percent more purchase volume inside Episode as compared to Q1 2018. We continue to learn alongside close partners like Pocket Gems, improving measurement, optimization, and relevance to drive stronger downstream results for performance-oriented campaigns.

Lastly, while our advertising business is still young, it is powered by very strong underlying fundamentals, including a hard-to-reach audience with high-quality engagement, and auction dynamics to drive better results as we scale our business. We have high penetration among a valuable and growing audience, who engages heavily with both premium mobile video and interactive AR every day in Snapchat. With demographic and behavioral trends pointing in our favor, we are increasing inventory within our ad products, such as high-quality Shows and Games, which have the potential to attract incremental online video budgets into our hand-curated, brand-safe environment.

We also have a lot of opportunities to improve and expand our business. Our advertising products and self-serve platform have proven to deliver ROI at scale, with a lot of headroom for continued improvement. In the past year alone, we introduced several new capabilities, from lower-funnel bidding optimizations for downstream events like website and in-app purchases, to innovative new ad formats like Story Ads, Commercials, and AR Lenses with Direct Response Attachments.

We are also expanding existing self-serve products for camera advertising to bring the benefits of optimization and scale to even more of our ad products. As these improvements have given advertisers of all types and sizes the capacity to win on Snap, we also have opportunities to not only deepen our relationships with the world’s largest companies, but also expand into new industries, geographies, and advertiser types to increase the overall advertiser breadth and depth on the platform.

Furthermore, trends in our business also point to auction dynamics that can drive both growth and performance. This past year has demonstrated that we’re able to grow our advertiser base and revenue while simultaneously decreasing average costs per conversion for our advertisers, showing how our ongoing improvements in our efficiency and optimization have plenty of room to flow through to deliver better results at a larger scale.

We also recently announced the upcoming Snap Audience Network, which will allow us to help our publisher and advertiser partners reach their customers in a variety of environments in a privacy-safe way. This will be a long-term investment and we are getting started with a few select partners.

We are committed to our advertisers’ success in every way possible, and the results of the past few quarters show this. I feel so fortunate to be here at this fantastic moment in Snap’s history and I am confident that there is an incredible amount of opportunity ahead of us.

With that, I’d like to turn the call over to Lara.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”97″>Lara Sweet — Interim Chief Financial Officer

Thanks, Jeremi. Our Q1 2019 financial results reflect our continued focus on driving growth, revenue, and long-term operational efficiencies.

Our Q1 2019 operating cash flow improved $166 million to negative $66 million compared with Q1 2018 and improved $60 million compared with Q4 2018. The year-over-year change in operating cash flow is driven by a $94 million improvement in adjusted EBITDA, offset by changes in the timing of working capital.

Similarly, the sequential change in operating cash flow is driven by changes in the timing of working capital, reflecting the seasonality of our business between Q4 and Q1, partially offset by a $73 million decline in adjusted EBITDA. Our capital expenditures, which are nominal, are mainly associated with the build out of our office facilities. Q1 2019 capital expenditures were $12 million, compared to $36 million in Q1 2018 and $23 million in the prior quarter.

Our Q1 2019 free cash flow improved $190 million to negative $78 million compared with Q1 2018 and improved $71 million compared with Q4 2018. Common shares outstanding plus shares underlying stock-based awards outstanding totaled 1,544 million on March 31st, 2019 compared with 1,457 million a year ago.

We ended the quarter with $1.2 billion of cash and marketable securities. Our change in cash for the quarter was negative $70 million. The change in cash was $151 million better than the prior year and improved $65 million versus the prior quarter as we continue to make progress toward generating free cash flow.

For the quarter, we generated record Q1 revenue of $320 million, an increase of 39% year-over-year, and a decrease of 18% sequentially, reflecting the expected seasonality in our business from Q4 to Q1. Daily active users were 190 million in Q1 2019 compared to 191 million in Q1 2018 and 186 million in Q4 2018.

Our results in Q1 benefited from positive momentum at the beginning of the quarter due to seasonality that we observed as a result of the holiday season. Average revenue per user was $1.68, an increase of 39% year-over-year and a decrease of 19% sequentially, again reflecting seasonality in our business. In Q1 2019, North America ARPU increased 34% year-over-year, compared to a 23% year-over year increase in Q4 2018 and a 16% year-over-year increase in Q1 2018.

In terms of our advertising business, total impressions were up 155% year-over-year and 6% sequentially, while pricing was down 42% year-over-year and was down 22% sequentially. The price decrease was driven primarily by an increase in available supply. Infrastructure costs per daily active user were $0.72 in Q1 2019 down from $0.73 in Q1 2018 and flat sequentially. We have maintained our focus on unit cost efficiencies, while growing daily active users by 4 million quarter-over-quarter.

Our cloud infrastructure costs moving forward are expected to be driven by three primary factors. The first is the size of our community and the depth of engagement per user of our application. If engagement trends continue in a positive direction, we expect to observe higher infrastructure costs despite improving unit costs for the underlying cloud services and user actions.

The second factor is the cost structure of our cloud partners, where we continue to benefit from their growing economies of scale, which are passed on to us in the form of lower rates. The third factor is how efficiently we utilize our cloud infrastructure. On this last front, we are seeing continuous improvements in the unit cost of delivering various services to our users, including, for example, the cost to serve an advertising impression and the cost to deliver a Snap.

In addition to infrastructure costs, the remainder of cost of revenue is primarily made up of content costs and payments to third-party ad sellers, which declined 11% sequentially and increased 10% year-over-year, primarily due to seasonality in our business.

Gross margin expanded substantially year-over-year, which continues to demonstrate that our business model is scaling profitably. Gross margin was 39%, improving over 2,100 basis points year-over-year, although gross margin declined by 900 basis points sequentially, again reflecting the seasonal nature of our business.

Operating expenses in the quarter were $248 million, down 4% year-over-year, and up 4% sequentially. We continue to focus on driving operating-cost productivity across our business. Our operating expenses are primarily driven by employee-related costs, which represent about two-thirds of our operating expenses. We continued to see fixed cost leverage in employee-related costs, which declined 2% year-over-year and were up 4% sequentially. Operating expenses as a percentage of revenue were 77% compared with 112% in Q1 2018, and 61% in Q4 2018.

Q1 2019 adjusted EBITDA was negative $123 million, an improvement of $94 million over the prior year and a decline of $73 million over the prior quarter. This was the fourth consecutive quarter that we had an improvement in year-over-year adjusted EBITDA. Adjusted EBITDA margin for Q1 2019 improved significantly year-over-year to negative 39% compared with negative 94% in Q1 2018. Adjusted EBITDA leverage was 105% in the quarter, compared to 104% in the prior quarter.

Finally, Q1 operating loss improved $76 million over the prior year to negative $316 million. Our Q1 operating loss increased $121 million over the prior quarter. With respect to the second quarter of 2019, the positive trends we are observing in per-user engagement may increase our infrastructure costs overall.

Additionally, as Evan mentioned earlier, we plan to make additional investments in marketing, content, engineering, and sales to support our long-term strategic objectives, and to build on the momentum we see in our business today. We believe that these investments will create value over the long-term, but in the immediate term they will put downward pressure on the very high operating leverage we have observed in recent quarters.

These forward-looking statements reflect our expectations as of April 23rd, 2019, and are subject to substantial uncertainty. As mentioned at the start of the call, our results are inherently unpredictable and may be materially affected by many factors.

Now I’ll share our Q2 2019 outlook. Revenue is expected to be between $335 million and $360 million or to grow between 28% and 37% year-over-year compared to $262 million in Q2 2018. Adjusted EBITDA is expected to be between negative $150 million and negative $125 million compared to negative $169 million in Q2 2018.

This guidance assumes, among other things, that no business acquisitions, investments, restructurings or legal settlements are concluded in the quarter. While we are not going to give specific guidance on daily active users, we have previously seen stronger daily active user growth rates in Q1 when compared to Q2.

With that, let’s open up the line for questions.

Questions and Answers:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”119″>Operator

And that concludes the prepared remarks for today’s earnings call, and we will now begin the question-and-answer session. (Operator Instructions) And today’s first questioner will be Ross Sandler with Barclays. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Ross Sandler — Barclays — Analyst” data-reactid=”121″>Ross Sandler — Barclays — Analyst

Great, thanks. Evan, just a question on the DAU commentary for 2Q. So, you just mentioned in the prepared remarks that the growth rate will be lower than 1Q. I assume you guys are referring to the 2% sequential growth that you just realized in the first quarter in terms of being lower than that, but just a clarification, would be helpful. And then I guess big picture, when do you see Snap getting back to the cadence of DAU growth that you had kind of pre-redesign now that Android is fully rolled out and is Android at this point growing month-over-month. Any color would be helpful on that? Thank you.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”123″>Lara Sweet — Interim Chief Financial Officer

Hey, Ross, this is Lara, and thanks for the question. I think, to be clear, as you pointed out, we were talking about our sequential growth rate that we’ve previously seen stronger quarter-over-quarter. Daily active user growth rates in Q1 when compared with Q2. Additionally, as we look out, we don’t provide guidance outside of what we’ve reflected in Q2 and our assumptions on DAU are reflected in our guidance on revenue and adjusted EBITDA. And we think that as we are rolling out the early results on Android excuse me are promising improvements in performance and new user retention take time to compound and meaningfully impact our top line metrics.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”125″>Operator

And our next questioner today will be Heath Terry with Goldman Sachs. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Heath Terry — Goldman Sachs — Analyst” data-reactid=”127″>Heath Terry — Goldman Sachs — Analyst

Great, thanks. I mean, I know you touched on it a little bit in the remarks, but any deeper discussion you want to have around the initial returns you’re seeing on the Android app levels of engagement geography in terms of where that’s showing sort of the most benefit. And then from an — on an advertising revenue side of things as you think about benchmarking yourself versus your peers. When you look at the mix that you’ve got, whether it’s brand versus direct response or self-serve versus direct sales. Is there a particular opportunity or gap there that you’re more focused on in terms of closing maybe that’s a better question for Jeremi, but appreciate any thoughts you have?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”129″>Evan Spiegel — Chief Executive Officer

Hey, thanks for the questions. I’ll let Jeremi handle the second one. As it pertains to Android, we’re definitely excited by what we’re seeing. We talked about the improvements especially on resource constrained devices, which is really exciting for us because that opens up a new market opportunity for folks who really weren’t able to use Snapchat as effectively in the past. So, excited by what we’re seeing, I can’t provide any specifics beyond what we shared earlier, but it’s early, and I think really for us this is sort of the price of admission to international markets. So, I think, the next chapter is really going to be about localizing our content experiences or augmented reality experiences things like that as we look to grow internationally.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”131″>Jeremi Gorman — Chief Business Officer

And thanks, I’ll take the second part of the question. It’s part of what have driven the strong results for this quarter have been performance advertisers who have more than doubled their spend year-over-year in Q1. This followed the launch of our lower-funnel tools in the past year, such as goal-based bidding for in-app conversions pixel events. We’re very pleased that we’ve also seen growth from brand advertisers as we continue to iterate on the ad product ecosystem specific to Reach & Frequency Lenses that are available. Our commercial format which is the full-screen unskippable video format that’s in brand safe environments, which are really strong for brand advertisers. So, we are seeing strong growth in both segments and expect that to continue.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”133″>Operator

And the next questioner today will be Rich Greenfield with BTIG. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Richard Greenfield — BTIG — Analyst” data-reactid=”135″>Richard Greenfield — BTIG — Analyst

Hi. Thanks for taking the questions. I’ve got a few. First, Evan, at the Partner Day you’ve kind of talked about gaming being you thought was kind of the most exciting part of the series of announcements. I was hoping you could elaborate for everyone listening kind of why gaming is so important to Snapchat. Is it more about engagement revenues or both. Two Ad Kit, I think, Jeremi mentioned this. I know what kind of a new announcement at the Partner Day. Any partners yet or any third-party platforms or any third-party mobile apps using Ad Kit and actually using your ads anywhere yet and how should we think about the timing of that? And then just lastly on the Android rollout. Obviously, you’ve had a lot of people for the last few years that have been kind of frustrated with Snapchat on Android, which is why you rebuilt it. Well in markets like India where you’re a new launch, I don’t assume you need a win back campaign, but in markets like Europe where people may have been frustrated. What’s your plan for kind of helping tell people that there is a new rebuilt app in a much better experience like what’s that marketing strategy look like over the next several months? Thanks.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”137″>Evan Spiegel — Chief Executive Officer

Thanks, Richard, for the questions. As it pertains to gaming, I think, what’s great about the gaming platform is that it really leverages the unique attributes of Snapchat to bring friends together. So, I think, what we’re excited about over the long-term is that it may create more monetization opportunities around the communication side of our business, but it’s very early. And we’re excited by the enthusiasm around that platform. So, that will be great.

And I think as it pertains to Android and sort of the win back, it’s going to take time to rebuild that trust. I think the best way for us to do that is really to deliver on the product, continue our pace of innovation on Android and deliver those improvements over time. We’re of course supplementing that with marketing and other sort of end-market activities. But I think it’s going to be a process.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”140″>Jeremi Gorman — Chief Business Officer

And I’ll jump in on the Ad Kit question, Rich. Thank you for the question. The Ad Kit has not launched yet for the Snap Audience Network. It’s a long-term strategy and still obviously very early days, we just announced that a couple of weeks ago, but we’re really excited by the response from publishers, who want to work with us and our ad partners on connecting with our hard to reach audience, but they spend time outside of Snapchat.

We’re growing the list of partners deliberately and we’re going to have more to share in the months to come. But it is, we don’t expect it to have a material impact on revenue in 2019, as we’re making this a very deliberate long-term strategy for the business.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”143″>Operator

And our next questioner today will be Justin Post with Merrill Lynch. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Justin Post — Merrill Lynch — Analyst” data-reactid=”145″>Justin Post — Merrill Lynch — Analyst

Great. In the prepared remarks you talked about engagement up. I was wondering if you could talk about what people are really growing on Snapchat? Is Discover is other areas? And any impact on total time spent? And then secondly, related to that impressions were up 155%, where are you serving the majority of those new ad impressions? And are those deals to advertisers are good with those new impressions? Thank you.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”147″>Evan Spiegel — Chief Executive Officer

So, on the engagement growth, we’re really seeing it across the board. We’ve shared the times that remains over 30 minutes per user per day. So, really excited about that. And I think there is lots of opportunity to grow on the content side of the business, but also with our augmented reality products and communication.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”149″>Jeremi Gorman — Chief Business Officer

And then as far as the diversification of where we run our advertising, we’re very fortunate to continue to have these innovative areas such as games and the forthcoming audience network of course. As we continue to grow DAU, there are more opportunities to show more ads, more story ads for instance. And then with the Commercial format that runs in Discover and across games and as we start to see increased engagement in those two areas. We have more opportunities to show more ads to our Snapchat community without impacting their experience.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”151″>Operator

And our next questioner today will be Lloyd Walmsley with Deutsche Bank. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lloyd Walmsley — Deutsche Bank — Analyst” data-reactid=”153″>Lloyd Walmsley — Deutsche Bank — Analyst

Great. I have two, if I can. First, Jeremi, lot of changes to the sales force with some verticalization, some emerging ad team, agency team. Can you kind of rank order the most interesting opportunity to drive revenue in the next year or two and talk about maybe how conversations with advertisers in the changing? And then second one kind of related to this. It seems like most of the focus right now is around performance advertisers. You said performance that’s been doubled and assuming that’s the majority of ad spend. It implies kind of a flattish or decline in brand spend. I don’t know if that’s really the right if you really over half on performance. But if you can give us a sense of mix and then how that brand spend is trended and kind of where the focus is there? Thanks.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”155″>Jeremi Gorman — Chief Business Officer

Thanks for the questions, Lloyd. I will answer them in generally reverse order. We just started our performance advertising business about a year ago. So, the growth trends do not imply a decline in brand spend. It’s just newer, so it’s growing more quickly.

As it pertains to the sales reorganization in particular, I’m actually really excited about the split, because if you look at it in segment, specifically to the enterprise customers, what our sales team used to have was the list of somewhere between 60 to 100 advertisers on whom they were calling, and we’ve shrunk that list in the enterprise world allowing them to go much more deeper with the advertisers they service and then that’s consistent across industries as well.

So, everyone who calls on QSR for instance across the whole country rolled up into the same manager. In terms of the emerging pieces, because we were seeing such high growth specific to app install as well as direct to consumer. For example, we group those together so that we have people like optimization experts that are focused on those kinds of clients that require different level of service.

And so really what we’ve done is organized the team against advertiser needs, a very specific to how they like to be serviced. Some want to have more optimization specialists. Some want to have more white glove service as their advertising mix becomes more sophisticated. So, I’m excited about all of that. It would be hard to rank order them in terms of the most interesting, but the horizontal that making the business both horizontal and vertical, we expect to yield dividends for years to come. We feel it’s a very durable structure.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”160″>Operator

And our next questioner today will be Mark Mahaney with RBC Capital Markets. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Mark Mahaney — RBC Capital Markets — Analyst” data-reactid=”162″>Mark Mahaney — RBC Capital Markets — Analyst

Hey, thanks. Just some color please on the DAU growth in the March quarter. I think last quarter you provided a little bit of color on how much of the growth came from iOS versus Android. Could you do that for the March quarter? Secondly, could you talk a little bit about the success you’ve had in expanding the demographic appeal above the 34-year age, 34-year-old age cut off or whatever it is? I know there’s a few of us above there. And then third, in the Q2, in these investments that you’re making in the June quarter, is it just an increase in magnitude of investments in these areas marketing engineering content and sales or are there new areas that you’ve not invested before that you plan to invest in now? Just talk about whether it’s qualitative or quantitative increase? Thank you.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”164″>Jeremi Gorman — Chief Business Officer

Thanks. I’ll take two of those questions. One, we’re not breaking out our iOS versus Android expectations as it relates to DAU. And then, similarly, as we look at our investments, these are things that we are continuing to invest in. We always have a focus on driving growth and innovation in our business and our Q2 guidance reflects our continuation of that.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”166″>Evan Spiegel — Chief Executive Officer

Mark, I think, as we look at expanding our audience, we are most focused today on the international audience that’s 13 to 34. We know that our product really resonates with our core demo. We’re going to focus our efforts there, and I think the age up strategy is a longer-term strategy for us, and will require more investments in terms of content and augment reality experiences that appeal to that demographic. But that’s something that we’re certainly working on.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”168″>Operator

The next questioner today will be John Egbert with Stifel. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="John Egbert — Stifel — Analyst” data-reactid=”170″>John Egbert — Stifel — Analyst

Thanks. I know it’s extremely early, but I’m wondering, if you can share any early learnings from user behavior on the games platform, whether it’s behavior you observe directly or feedback you’ve gotten from your development partners? And I’m sure it will differ by game and you might have a very, very broad group of different types of games eventually, but in general, is there a meaningful difference in infrastructure costs for real-time games relative to other forms of content consumption on Snapchat?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”172″>Jeremi Gorman — Chief Business Officer

We don’t provide the breakout of how we look at the cost per engagement across our various forms of content. As we look forward into Q2, we do see that the positive trend that we’re observing overall and per user engagement may increase our infrastructure costs overall.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”174″>Operator

And the next questioner today will be Eric Sheridan with UBS. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Eric Sheridan — UBS — Analyst” data-reactid=”176″>Eric Sheridan — UBS — Analyst

Thanks for taking the question. Maybe a little bit of color on the increased success you’ve had on the direct response side? Can you give us a little bit of color about how direct response advertisers might be trending year-on-year from a budget standpoint or what’s driving more success in the direct response size? Is the depth of advertisers in the auction, as you continue to widen out dept or is it upward price from the auction dynamics? Just want a little bit more color on what’s driving the growth both in terms of mix and on the advertiser side and direct response? Thanks so much guys.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”178″>Jeremi Gorman — Chief Business Officer

Thanks for the question, Eric. And there are a couple of reasons that we’re seeing so much success is — most of those things, it’s an increased number of active ad accounts. In fact, the number of active ad accounts is higher than it has ever been in our history.

We are seeing increased budgets. We’re seeing success in app install and we are seeing success in commerce as we continue to iterate on the ad products such as catalogs that allow advertisers like Wish to find success in their direct response advertising. And at the end of the day, we believe that our innovative mobile first ad formats provide both brand AMDR advertisers, an opportunity to reach their customers at scale in an engaging way and still believe there’s significant upside.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”181″>Operator

And our next questioner today will be Mark May with Citi. Please go ahead. Mark May, your line is open for questions. Okay. Moving on our next questioner today will be John.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Mark May — Citi — Analyst” data-reactid=”183″>Mark May — Citi — Analyst

Can you hear me?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”185″>Operator

Yes. Go ahead , sir.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Mark May — Citi — Analyst” data-reactid=”187″>Mark May — Citi — Analyst

Hi. Sorry about that. I mean in terms of your philosophy around balancing growth and profitability and this is kind of ties into your prepared remarks regarding operating leverage going forward. How are you thinking about delivering on your stretch goal? I think it was of EBITDA breakeven this year. And just in general around delivering on improvements in margins and EBITDA, say, over the next year. So, thanks.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”189″>Evan Spiegel — Chief Executive Officer

Thanks for the question. Yes, I think, as we look at our progress over the last year or so, we’ve really been able to hold our cost structure roughly flat for more than a year. And I think as we look forward, it is our second quarter of more than 100% incremental flow through on year-over-year incremental revenue. And so I think as we’re looking at the growth opportunities in front of us, not only will increasing engagement translate to higher infrastructure costs.

But we also see more opportunities to invest in our content business, our augmented reality business and more. So, I think, just as we look to the future we’re of course going to do our best to balance, our operating efficiency along with our long-term investments, but we see a lot of opportunities right now and we want to make sure we’re doing the right thing for the long-term.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”192″>Operator

And the next questioner today will be John Blackledge with Cowen. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="John Blackledge — Cowen — Analyst” data-reactid=”194″>John Blackledge — Cowen — Analyst

Thank you. With the sales reorg, you mentioned, some disruption to the near-term business. Could you discuss that a little bit more broadly. How long it might persist and also perhaps quantify or give a range of the impact. The second question is on user engagement definitely here strong despite rising outflows over the past year or so. How do you feel about your ability to continue to raise ad load over the near and intermediate term? Thank you.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”196″>Jeremi Gorman — Chief Business Officer

Hey, John, thanks for the question. This is Jeremi. I’ll answer the first part and then turn it over to Lara. Regarding the sales reorg Snap like any other organization has some potential disruption when you do a reorganization I think particularly acute to us, but just general sentiment when you do a reorganization that is reflected in our guidance. Thus far we’ve mitigated as many risks as we possibly can with revenue changing hands or clients changing hands.

An example of that would be that if an account was turning over from a account executive to a different account executive with whom that client hadn’t worked. We had a month overlap with that advertiser in March between the two teams to ensure continuity of service and we put another number of other mitigating risk factors in there as well.

So, nothing specific to us, but just general disruption as things change hands and that is again reflected in our guidance. I’ll turn it to Lara for the second part.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”200″>Lara Sweet — Interim Chief Financial Officer

Great. Thanks, Jeremi. And I think as it relates to that as well as Jeremi mentioned we did factor that into our guidance as these are inherently disruptive events. When we look at our ad load broadly. When we looked at Q1, we consistently increased supply while monitoring the effect on users. This allowed more and more brand and performance advertisers to achieve return on investment and see success with our growing suite of ad products. We expect this result will increase demand going forward.

Additionally, our monetization efforts always keep the user experience top of mind, which is why we’re focused on optimization and priding the most relevant adds to our users. Healthy engagement from our community is important as it increased engagement opens up available ad inventory as do features like new originals and games.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”203″>Operator

The next questioner today will be Doug Anmuth with JPMorgan. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Douglas Anmuth — JPMorgan — Analyst” data-reactid=”205″>Douglas Anmuth — JPMorgan — Analyst

Thanks for taking the questions. Jeremi, I was hoping you could just talk a little bit about your efforts to improve the on-boarding of advertisers. How you might be doing that faster now. And then, Lara, you talked a little bit about some of those investment areas you’re going to pick up the spend here. The cloud part was pretty clear, just hoping you could talk more on kind of marketing content sales if there’s anything else to call out in those areas? Thanks.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”207″>Jeremi Gorman — Chief Business Officer

Sure, Doug. Thanks for the question. We’re making a couple of different changes on both the product side as well as on the sales side to on-board new advertisers. Right now the sophisticated advertisers, those who have been buying advertising for a long time have a really easy time utilizing our ad manager as the features are nearly at parity with the rest of the industry.

However, for smaller businesses, we know that we need to change the tools a bit to make them a little bit easier, a little bit more automated and simple for smaller advertisers to use. We’re in the process of evaluating those changes and making some of those to activate more advertisers in the tail.

To coincide with that, we’ve also formed the scaled services team whose job is to focus on one to many marketing and sales tactics and such as email marketing and a proper CRM system to guide them through the process to get them on-boarded.

And to ensure that their churn rate stays low, so that we can get more and more advertisers into the ecosystem, ultimately impacting our auction dynamics in a favorable way.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”212″>Lara Sweet — Interim Chief Financial Officer

Great, and I’ll take the next part, if you look at over time. The improvements we’ve made in our cost structure over the past year were largely due to efficiencies we found in our product synopsis. These outpaced our growing investments across content, gaming, augmented reality in our ad platform.

So, as we’re looking forward and building on the momentum of the business, that’s where we’re really focusing on areas to be able to invest in marketing, content, engineering and sales, so that we’re providing more opportunities for our community to deeply engage with our app as well as factors like Jeremi mentioned that the creation of the emerging sales team, which allows us to reach new advertisers and scale. And we plan to do this through things like in targeted investments and people that will really support our long-term strategic objectives.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”215″>Operator

And the next questioner today will be Brian Nowak with Morgan Stanley. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Brian Nowak — Morgan Stanley — Analyst” data-reactid=”217″>Brian Nowak — Morgan Stanley — Analyst

Thanks for taking my question. You’ve been a series of improvements to the overall ad process, the self-serve tools, the reorg salesforce, video ads et cetera. Could you maybe just sort of talk about the one or two biggest hurdles you’re still encountering with branded advertisers to really get them to spend more on the platform. It seems like performance is coming. What’s the one or two biggest improvements you have to make to really start to crack the brands more?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”219″>Jeremi Gorman — Chief Business Officer

Thanks for the question, Brian. And we are the, I would say, the number one hurdle is that our ad formats are different than you would traditionally see on desktop, television or even other digital. So, that’s not assets that everybody necessarily has at their disposal when you think of six second unskippable vertical video, for instance, that’s not something that everybody just has on hand.

The good news is that we are working very closely with the product team, who has been working very hard to help our advertisers create these assets in an automated and simple and scalable ways with more advertisers can advertise on our platform.

Additionally as these formats vertical video, vertical still images become more and more common across the overall advertising ecosystem outside of Snap, we suspect that will have, I mean, that other people have these assets at their disposal and that become less of a hurdle for us.

But we remain focused on improving the ad product suite. We’re investing in relevance, optimization and measurement. And these innovative ad formats to continue, but I would say that is probably our number one hurdle for on-boarding.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”224″>Operator

The next questioner today will be Michael Nathanson with MoffettNathanson. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Michael Nathanson — MoffettNathanson — Analyst” data-reactid=”226″>Michael Nathanson — MoffettNathanson — Analyst

Thanks. I have one for Jeremi, one for Lara. Jeremi, into the question of Brain’s, what are the bullet case ideas is perhaps the category of digital ads on Snap is going to grow because of Instagram’s push into stories. So, is there anyway you can help us understand, if has Instagram stories push maybe made it easier for you to kind of transition people to a different type of format. Is there anything you can share on that?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”228″>Lara Sweet — Interim Chief Financial Officer

I’d say unspecific to you Instagram, but the adoption of the vertical stories format generally across the app ecosystem will help us and again kind of referring to my previous answer, the more advertisers that have that asset, the more easy it is for us to on-board those advertisers into Snap. So, we view that as a success for the entirety of the industry and how people naturally hold their phones native to this generation.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”230″>Operator

And the next questioner today will be Anthony DiClemente with Evercore. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Anthony DiClemente — Evercore — Analyst” data-reactid=”232″>Anthony DiClemente — Evercore — Analyst

Thanks. Maybe for Jeremi. One thing I’m curious about on premium publisher revenue. So, a number of points in the prepared remarks about how well Discover is doing in terms of growing engagement and viewership with Discover. Assuming a lot of that is premium publisher content. It seems like, at the same time, you’ve done a great job controlling revenue share cost, if you just look at the slide that shows the composition of cost of revenue. I think those are up 9%, so staying relatively in check. So can you just help me think about how do those content agreements and revenue share cost work like why shouldn’t we expect premium publisher costs related to Discover expect those to start to pick up or is there — are we — am I thinking about that the right way. In other words, how do those kind of flow through the income statement. Those agreements and how do you see them trending going forward?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”234″>Lara Sweet — Interim Chief Financial Officer

Thanks. This is Lara. I’ll actually take that one. I think that the health of our relationship with our content partners and our content ecosystem is very important to us. And as we talked about one of the areas that we’re focusing on investing in is our content area and these expectations are factored into our guidance for Q2. And I think, additionally, as we look at the P&L, we don’t go into details on how we structure these arrangements. But as you know from an actual income statement standpoint, our cost of revenue is reflected, includes our Rev Share as well as our infrastructure costs.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”236″>Operator

And the next questioner today will be Brent Thill with Jefferies. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Brent Thill — Jefferies — Analyst” data-reactid=”238″>Brent Thill — Jefferies — Analyst

Lara, on pricing, it’s gotten better, but you were down 42% in Q1, down 65% in Q1 last year. At what point do you start to see improvements is that back half of the year from your perspective?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”240″>Lara Sweet — Interim Chief Financial Officer

Price is not an outcome we seek to drive in the short-term. Our focus has always been on building a healthy marketplace that ensures advertisers continued to achieve the best outcomes while maximizing ROI.

In Q1 on the supply side, we steadily rolled out new ad products and placements and this capture the growing engagement on our service while monitoring the effect on users. More and more advertisers have been able to come in achieve return on investment, see success with our ad products, and we think this is actually going to increase demand going forward.

So, while we believe this is healthy for our business in the long-term, it got downward pressure on our pricing and also as a reminder, excuse me, for the demand side, our self-serve tools are less than two years old, so demand is still early and we continue to see meaningful growth.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”244″>Operator

And the next questioner today will be Ron Josey with JMP Securities. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Ronald Josey — JMP Securities — Analyst” data-reactid=”246″>Ronald Josey — JMP Securities — Analyst

Great. Thanks for taking the question. Jeremi, just want to follow-up on something you talked about an interesting opportunity at the intersection of self-serve, video and AR. And just maybe understand a little bit more just given how the market has really been adopting video and AR together? Thank you.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”248″>Jeremi Gorman — Chief Business Officer

Sure. Thanks for the question, Ron. I think that it’s a fascinating intersection, because we see that when advertisers use the entirety of our product suite or at least more than just one particular piece that their outcomes are better as specific to their KPIs.

And so when we see people utilized lenses, stories and snap ads for instance together and the campaign those results come out better, and I think that and that’s what I was referring to when I was talking about the intersection. In addition, we’ve moved things like our lenses product into the auction, into the self-service format where advertisers can now bid via things like Reach & Frequency for instance.

And so we’re lenses used to be available only on a per day basis. Now, that can be bought on an audience basis, allowing more advertisers of all types to use our creative tools to drive performance.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”252″>Operator

Our next questioner today will be Youssef Squali with SunTrust. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Youssef Squali — SunTrust — Analyst” data-reactid=”254″>Youssef Squali — SunTrust — Analyst

Great. Thank you very much. Two quick questions please. Can you speak to your performance across geos, it looks like North America did it really well. Europe and Rest of World did a little less well, anything to call out there and then from your early observations, how do you think monetization on Android will compare to that of iOS? Is there anything structural that should actually justify us a delta between the two? Thank you.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”256″>Lara Sweet — Interim Chief Financial Officer

This is Lara, and thanks for the question. North America, growth accelerated 34% year-over-year versus 23% last quarter. We think a lot of the reason for this acceleration was strong advertiser trends in North America and increased spend from those brand and performance advertisers despite seasonality. We believe there’s still a large opportunity with both branded performance businesses in the US and internationally.

So, as you look at that Europe next in that bucket really lagged North America and the shift to self-serve. So, the impacts are more pronounced in our year-over-year revenue and ARPU trends, whereas Rest of World started on the auction, and so we’re able to begin monetizing those markets quickly. And you see results of that in our Rest of World including areas like the Middle East.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”259″>Evan Spiegel — Chief Executive Officer

I think as it pertains to the monetization opportunity on Android versus iOS. We don’t break out the difference there, but I would say that as Android engagement increases, we believe the revenue opportunity will increase as well.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”261″>Operator

And our last questioner for today will be Ray Stochel with Consumer Edge Research. Please go ahead.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Raymond Stochel — Consumer Edge Research — Analyst” data-reactid=”263″>Raymond Stochel — Consumer Edge Research — Analyst

Great. Thanks so much for taking my question. All sort of related to gaming, but could involve things that are non-gaming related. What does rewarded advertising at your capabilities and what feedback are you getting from advertisers so far? And then how important would in-app purchases be over time to success and rewarded advertising and then big picture across gaming and non-gaming, how big could in-app purchases be as a portion of sales and, let’s say, three years to five years? Thanks.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”265″>Evan Spiegel — Chief Executive Officer

Thanks for the question. Yes, our rewarded video products built on top of commercials and that product is seeing, I think, a lot of uptake in the marketplace. It’s a six second unskippable unit premium video and that’s been really well received by advertisers. So, we’re expanding that inventory with our rewarded video units in gaming. I can’t speak to the broader sort of in-app purchase opportunity, but it’s certainly something we’re looking at.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Operator” data-reactid=”267″>Operator

And this will conclude our question-and-answer session as well as Snap Inc’s first quarter 2019 earnings conference call. I just want to thank you all for attending today’s presentation, and you may now disconnect your lines.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Duration: 60 minutes” data-reactid=”269″>Duration: 60 minutes

Call participants:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="David Ometer — Investor Relations” data-reactid=”271″>David Ometer — Investor Relations

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Evan Spiegel — Chief Executive Officer” data-reactid=”272″>Evan Spiegel — Chief Executive Officer

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jeremi Gorman — Chief Business Officer” data-reactid=”273″>Jeremi Gorman — Chief Business Officer

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lara Sweet — Interim Chief Financial Officer” data-reactid=”274″>Lara Sweet — Interim Chief Financial Officer

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Ross Sandler — Barclays — Analyst” data-reactid=”275″>Ross Sandler — Barclays — Analyst

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Heath Terry — Goldman Sachs — Analyst” data-reactid=”276″>Heath Terry — Goldman Sachs — Analyst

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Richard Greenfield — BTIG — Analyst” data-reactid=”277″>Richard Greenfield — BTIG — Analyst

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Justin Post — Merrill Lynch — Analyst” data-reactid=”278″>Justin Post — Merrill Lynch — Analyst

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Lloyd Walmsley — Deutsche Bank — Analyst” data-reactid=”279″>Lloyd Walmsley — Deutsche Bank — Analyst

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Transcript powered by AlphaStreet” data-reactid=”294″>Transcript powered by AlphaStreet

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.” data-reactid=”295″>This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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