SNAP INC. Q4 AND FULL YEAR 2018 PREPARED REMARKS

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1 SNAP INC. Q4 AND FULL YEAR 2018 PREPARED REMARKS DAVID OMETER, INVESTOR RELATIONS Thank you, and good afternoon, everyone. Welcome to Snap s Fourth Quarter and Full Year 2018 Earnings Conference Call. With us today are Evan Spiegel, Chief Executive Officer and Co Founder, Jeremi Gorman, Chief Business Officer, and Lara Sweet, Interim Chief Financial Officer. Earlier today we made a slide presentation available that provides an overview of our user and financial metrics for the fourth quarter and full year 2018, which can be found on our Investor Relations website at investor.snap.com. Now I will cover the Safe Harbor. Today's call is to provide you with information regarding our fourth quarter and full year 2018 performance in addition to our financial outlook. This conference call includes forward looking statements. Any statement that refers to expectations, projections, guidance, or other characterizations of future events, including financial projections or future market conditions, is a forward looking statement based on assumptions today. Actual results may differ materially from those expressed in these forward looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from forward looking statements, please refer to the press release we issued today, as well as risks described in our quarterly report on Form 10 Q for the quarter ended September 30, 2018, particularly in the section titled Risk Factors. This information can be found in our other filings with the SEC, when available. Our commentary today will also include non GAAP financial measures and we believe that the use of these non GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends. These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Reconciliations between GAAP and non GAAP metrics for our reported results can be found in our press release issued today, a copy of which can be found on our Investor Relations website. Please note that when we discuss all of our expense figures they will exclude stock based compensation and related payroll taxes as well as depreciation and amortization and non recurring charges. At times in our prepared remarks, or in response to questions, we may offer additional metrics to provide greater insight into our business or our quarterly and annual results. This additional detail may be one time in nature, and we may or may not provide an update in the future on these metrics. Please refer to our filings with the SEC to understand how we calculate our metrics. With that, I'd like to turn the call over to Evan.

2 EVAN SPIEGEL, CHIEF EXECUTIVE OFFICER AND CO FOUNDER Hello everyone, and thanks for joining our call. In 2018, we focused on building a foundation for Snap to scale over the long term by driving sustainable product innovation, scaling our advertising platform, and hiring the leadership team that will help us achieve our future goals. We ended the year with user engagement stabilizing in advance of the broad rollout of our Android improvements, with overall Q4 daily active users flat quarter over quarter and average time spent above 30 minutes per day. Despite a 0.3 percent decline in daily active users year over year, we feel we have made significant progress towards our mission of contributing to human progress because we are now able to offer a higher quality content experience while simultaneously empowering people to express themselves with their close friends and family. These sorts of long term investments will serve our business well as we continue to expand our product offerings and grow our business. We are substantially closer to achieving profitability, with our Q4 adjusted EBITDA loss of $50 million representing a 68 percent improvement when compared to Q4 of last year. We have maintained a relatively flat cost structure across the past five quarters while growing full year revenue 43 percent year over year, with 100 percent of our incremental Q4 revenue flowing through to our bottom line. This limited our Q4 losses to just 13 percent of our revenue, compared to just one year ago when our Q4 losses totaled more than 50 percent of revenue. We are proud of the progress we have made as we enter 2019 focused on growing our business and driving towards profitability. We have worked hard to develop our team and culture in The transitions we made in both the Snapchat platform and our business last year were necessary and created many of the opportunities we have ahead of us, but change is always difficult and this past year was no exception. We focused on building the leadership team we need in order to execute against our long term opportunity, and recently welcomed several talented and experienced leaders for the next stage of our company s growth, including Jared Grusd, our Chief Strategy Officer, Jeremi Gorman, our Chief Business Officer, and Julie Henderson, our incoming Chief Communications Officer. We are excited to benefit from their leadership and wealth of experience at some of the world s leading tech and media companies as we scale our business moving forward. We accomplished one of our boldest goals of 2018 with the redesign of our application, which laid the foundation for our long term success by providing a platform that expands our content offering while continuing to reinforce communication with close friends. The new layout for Discover vastly expanded our content opportunity, allowing us to significantly increase our premium content offerings with the addition of hundreds of new Shows and Publishers in

3 We also introduced new features on Discover that have helped generate a greater depth of engagement. For example, you can now choose to be notified when the next episode of your favorite Show comes out, and easily watch prior episodes in the meantime. In Q4, more than 60 percent of ESPN SportsCenter s audience tuned in three or more times per week. We launched The Dead Girls Detective Agency, a new Snap Original Show produced by our joint venture with NBCUniversal, and over 40 percent of the people that completed the first episode went on to watch the entire season. Bitmoji Stories, a new cartoon starring Snapchatters and their friends, reached over 40 million viewers in December. Following our redesign and product improvements, 30 percent more people are now watching Publisher Stories and Shows every day compared to last year, and each one is consuming more of these Stories every day on average. This also means that our partners can now reach more of our unique audience, and NBC News recently announced that two thirds of the million Snapchatters watching Stay Tuned represented a net new audience for them, meaning they were able to reach people that did not otherwise watch, read, or listen to NBC News on any other platform. We also launched Commercials, which complement the high quality, narrative experience of Shows with a premium non skippable video advertising format. These new products, along with the increase in the breadth and depth of engagement with our Discover product following the redesign, helped us more than double the advertising revenue that we generated from premium content in Q4 when compared to last year. By separating professional content creators from relationships with friends, we were able to achieve this content expansion while also reinforcing Snapchat s core value of providing a fast way for people to communicate visually with their friends and family. We believe that conversation and self expression between friends is extremely fulfilling for our community, which in turn makes Snapchat more valuable over the long term. As a result of this behavior, Snapchat has become one of the most used cameras in the world. We continued to invest in the value of these close relationships with our recent release of Friendship Profiles, which makes it easy to look back over the shared memories that have been saved in your conversations with your friends. This high frequency camera usage also drives our augmented reality platform, with the vast majority of our community engaging with augmented reality every day. More than 70 percent of our daily audience plays with or views a Lens every day on average, and our community played with or viewed Lenses over 700 million times on New Year s Eve, up 40 percent compared to last year. We recently expanded our augmented reality platform to new devices with the launch of Snap Camera, which empowers people to use their favorite Lenses when creating or streaming video on desktop and laptop computers. We re excited to continue broadening the augmented reality experiences we provide to our community in the future. 2

4 We are seeing our investments in improving the Snapchat experience beginning to bear fruit on ios. In Q4, our ios daily active users increased both quarter over quarter and year over year, and average time spent on ios grew faster during Q4 than it did last year. This is great progress following our redesign, and we look forward to continuing to grow engagement on our platform. Our engineering team remains focused on rebuilding our Android application to improve performance and quality. Early tests show promising results especially on less performant devices, including a 20 percent reduction in the average time it takes to open Snapchat. Given these results, we have started rolling out the new version to a small percentage of our community, and we look forward to providing an improved Android experience to more devices and regions over time. Our advertising business has progressed significantly following our transition to self serve last year, and in 2018 we focused on building our core ad platform and products to improve performance and scalability for both brand and performance marketers. Furthermore, we are now able to reach 70 percent of the total 13 to 34 year old U.S. population with premium mobile video ads on a monthly basis. Our best in class advertising products and unique audience have set us up to become an indispensable partner for both brand and performance marketers. Craig Stimmel, who leads digital partnerships for Procter & Gamble, recently told us, To continue driving growth across our businesses, it is critical to connect with Gen Z and Millennials; Snapchat has been an important part in that strategy. Across big brands like Crest and Gain to some of our newest direct to consumer brands including Native, we continue to see strong engagement against current and new buyers. Now that we have built the fundamental self serve infrastructure for our advertising platform, we have the foundation to scale our advertising business in Although 2018 was challenging in many ways, we are proud of the significant changes we have made to strengthen our company and grow our business over the long term. We brought together a more experienced leadership team, improved our core product to better serve our community, and built scalable infrastructure for our advertising business. We did all of this while growing full year revenue 43 percent year over year and bringing profitability within reach. We are excited for the year ahead and we are confident that we are well positioned as we enter the new year with a stronger product, a stronger business, and a stronger team. Now I d like to introduce Jeremi Gorman who joined us in November as Chief Business Officer. In this role, Jeremi oversees revenue and customer operations across our business and we re really excited to have her at Snap. 3

5 JEREMI GORMAN, CHIEF BUSINESS OFFICER Thanks, Evan. I was thrilled to join Snap in November as Chief Business Officer. I see significant opportunities for our business in 2019 and beyond. First, we have a large, highly engaged Millennial and Gen Z audience who can be difficult to reach on other channels. Our community is leaned in and having fun because they use Snapchat to communicate with close friends and watch made for mobile content. Second, 2018 was a pivotal year in our maturation into a scalable advertising business, as long standing strategies around an auction based, self service model came to fruition. We improved our tooling, optimization, and pricing capabilities, and advertisers can now bid against a range of key performance indicators, such as purchases, sign ups, and app installs. We continue to deliver incredibly competitive CPMs and low cost per outcomes, resulting in highly performant campaigns. In addition, we made significant improvements to our machine learning models for app installs and lower funnel bidding events, which means that advertisers will see efficiency even as prices increase, showing our commitment to performance advertisers is paying off. Finally, Snapchat is home to many of the most innovative and engaging formats ever built for mobile. One theme we heard repeatedly in advertiser conversations throughout 2018 was their desire to leverage Snapchat to break out of the sea of sameness, as social media content and ad campaigns converged upon a similar look and feel. This has led many advertisers to seek new ways to stand out. Thanks to our creative and innovative content, paired with brand oriented buy models such as reserved reach & frequency, we are in the best position to fulfill all these needs in For instance, we believe that our groundbreaking augmented reality ad formats are the first time advertisers can organically participate in conversations between friends at scale. Conversation in Snapchat starts with a Snap: a picture or a video. Monetizing this with augmented reality, in an engaging way that empowers creativity, represents a significant opportunity for brand advertisers. These strengths have delivered strong results for our partners. For example, New Balance ran a highly creative Sponsored AR Lens campaign to increase brand awareness among US soccer enthusiasts over the age of 25. They created an augmented reality experience which allowed fans to try on uniforms in an authentic stadium environment. As measured by Millward Brown, the campaign drove over a 13.5 point lift in brand favorability. New Balance then utilized Snap Pixel and other campaign tools to re engage those same users with direct response Snap Ads, driving a 2.6x return on ad spend. 4

6 Direct response advertiser Pura Vida, a jewelry company founded in Costa Rica that supports hundreds of artisans worldwide, reported that Snapchat drove a 33 percent lower cost per acquisition than competing paid channels. In 2019 and beyond, we will continue to improve our tooling, optimization, and formats to both deepen our relationships with existing partners, and rapidly onboard new ones. We have experienced quarterly growth in the number of active ad accounts every quarter since we launched our Self Service tool in Q2 of Adding advertisers allows our marketplace to show more relevant and engaging ads to our users, which increases ad engagement rates overall, and subsequently helps the ad platform as a whole, simultaneously raising prices on a per impression basis but decreasing cost per outcome for advertisers. We recognize that the lines between performance and brand advertising continue to blur, and that every advertiser needs to prove strong, quantitative results no matter their key performance indicators. We have reshaped Snap s business teams to better support our partners by adopting a vertical model, so that Snap team members become deep experts in their partners businesses and industries. This combination of vertical expertise, coupled with their knowledge of the Snapchat audience and platform will make for a more consultative and successful sales organization, and will enhance our relationships with our advertising partners. We are building a mobile first, engagement driven, sustainable advertising business in a privacy safe way for our users that drives real business outcomes. We believe this will be a strategic advantage for us as we continue to drive the success of our ad platform going forward. I couldn t be more excited to be here at Snap, and look forward to sharing more about our plans for 2019 and beyond. Thank you, and now I d like to turn the call over to Lara. 5

7 LARA SWEET, INTERIM CHIEF FINANCIAL OFFICER Thanks, Jeremi. Our fourth quarter 2018 financial results reflect our focus on driving growth and operational efficiencies. This quarter we delivered strong financial performance compared to the prior year and the prior quarter. We generated significant growth and record results on the top line. We also had strong improvements in gross margin, Adjusted EBITDA, Adjusted EBITDA margin and free cash flow. Our Q operating cash flow improved $50 million to ($126) million, compared with Q4 2017, and improved $6 million, compared with Q The year over year change in operating cash flow is driven by a $109 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 an $88 million improvement in Adjusted EBITDA, offset by changes in the timing of working capital. Our capital expenditures, which are nominal, are mainly associated with the build out of our office facilities. Q capital expenditures were $23 million, up $2 million from Q and $4 million lower than the prior quarter. Our Q free cash flow improved $49 million to ($149) million compared with Q4 2017, and improved $10 million compared with Q Common shares outstanding plus shares underlying stock based awards outstanding totaled 1,507 million on December 31, 2018, compared with 1,453 million a year ago. We ended the quarter with $1.3 billion of cash and marketable securities. Our change in cash for the quarter was ($135) million. The change in cash was $120 million better than the prior year and improved $20 million versus the prior quarter as we continue to make progress towards generating free cash flow. We feel good about our cash position as we move forward and scale our business. We have a number of drivers of revenue growth. For the quarter, we generated record revenue of $390 million, an increase of 36 percent year over year and 31 percent sequentially, and our full year 2018 revenue was $1.2 billion, up 43 percent from Daily active users were 186 million in Q4 2018, compared to 187 million in Q and 186 million in Q As a reminder, we experience seasonality in our user engagement, generally seeing higher engagement in December. Average revenue per user increased to $2.09, an improvement of 37 percent year over year and 31 percent sequentially. 6

8 Countries outside of North America represented 31 percent of total revenue, compared with 23 percent in Q and 30 percent in Q In terms of monetization, total impressions were up 179 percent year over year and 31 percent sequentially, while pricing was down 48 percent year over year and was up 3 percent sequentially. For the quarter, cost of revenue was $202 million, an increase of 10 percent year over year and an increase of 6 percent sequentially. Cost of revenue increased at a much slower rate than revenue growth of 36 percent year over year and 31 percent sequentially. Infrastructure costs were $134 million, an increase of 3 percent year over year, and a decrease of 4 percent sequentially. Importantly, cost of revenue as a percentage of revenue declined meaningfully year over year and sequentially from 64 percent to 52 percent. Gross margin expanded substantially, which continues to demonstrate that our business model can scale profitably. Gross margins were a record 48 percent, improving over 1,250 basis points year overyear and over 1,220 basis points sequentially. We are focused on driving operational efficiencies and improving the unit economics of our multi cloud environment as we scale over time. Additionally, our model benefits from our cloud partners continuous investments in technology innovation and cost efficiencies, which are typically passed along to customers over time. The costs of our infrastructure model are included in Adjusted EBITDA as opposed to capital expenditures, which are excluded from Adjusted EBITDA. This should result in higher Adjusted EBITDA to free cash flow conversion over time. In 2018, we achieved tens of millions of dollars in cloud infrastructure cost reductions as a result of our engineering efficiency programs. For example, we launched an initiative focused on optimizing bandwidth usage on Snapchat, which not only reduced our infrastructure costs but should also result in data usage savings for our users and improved performance of the Snapchat application. Infrastructure cost savings initiatives are a continuous, daily activity and can be achieved by executing client or server optimizations that reduce our overall cloud infrastructure costs. These improvements in our cost structure resulted in leverage in our infrastructure costs in Q and we remain focused on operating efficiencies and unit cost economics over the long term. Operating expenses in the quarter were $238 million, down 9 percent year over year, and down 3 percent sequentially as compared to strong revenue growth of 36 percent year over year and 31 percent 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 saw fixed cost leverage in employee related costs, which declined 10 percent year over year, and decreased 1 percent sequentially. Operating expenses as a percentage 7

9 of revenue improved meaningfully to 61 percent, compared with 91 percent in Q and 82 percent in Q Q Adjusted EBITDA was ($50) million, an improvement of $109 million over the prior year and an improvement of $88 million over the prior quarter. This was the third consecutive quarter that we had an improvement in Adjusted EBITDA year over year. Adjusted EBITDA margin for Q improved significantly to (13) percent, compared with (56) percent in Q and (46) percent in Q Adjusted EBITDA leverage was 104 percent in the quarter up versus 45 percent in the prior quarter. Finally, Q4 Operating Loss improved $166 million over the prior year to ($195) million and improved $129 million over the prior quarter. With respect to the first quarter of 2019, we expect our financial momentum to continue. These forward looking statements reflect our expectations as of February 5, 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 will share our Q Outlook: Revenue is expected to be between $285 million and $310 million, or to grow between 24 percent and 34 percent year over year. As a reminder, our year over year growth rate will be impacted by the Q Winter Olympics. There was a modest revenue boost of less than ten percent of Q revenue from that event. Adjusted EBITDA is expected to be between ($165) million and ($140) million, compared to ($218) million in Q 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 are cautiously optimistic and we do not foresee a sequential decline in daily active users in Q With that, let s open up the line for questions. 8