Dear Team,
Thank you so much for your extraordinary efforts and dedication to our business. Over the past year we successfully reversed two years of declining year-over-year revenue growth and are pacing towards record annual revenue. We built a sustainable cost structure, resulting in improved earnings and cash flow – again reversing two years of declines. We’ve made enormous progress growing our community to reach more than 850 million people, while growing content time spent +25% globally in Q2. Successful turnarounds are the exception and not the rule in business, and our progress to-date returning to growth is the result of your perseverance, focus, and teamwork. In the year ahead, we will prove that our progress is sustainable while further accelerating the growth of our advertising business and diversifying our revenue with Snapchat+.
You may be wondering why, with all of the progress we’ve made in our business over the last year, our share price performance has lagged the overall market. The answer is simple: our advertising business is growing slower than our competitors. The growth of our digital advertising business is one of the most important inputs to our long term revenue potential, and investors are concerned that we aren’t growing faster. Our lower growth rate reflects the ongoing evolution of our advertising business from one primarily driven by a small number of large customers spending against brand-oriented upper funnel goals to one that has a greater balance among different advertiser types and goals, with a much larger number of small- and medium-sized customers who are bidding against lower funnel goals. This evolution is well underway: In Q2, even as our upper funnel brand revenue declined by 1%, our lower funnel direct response revenue grew by 16%.
Over the years, we have found that lower funnel revenue generated by small- and medium-sized customers is more predictable and stable than upper funnel revenue. It also represents a larger long term opportunity for revenue growth. Lower funnel revenue is ‘stickier’ because it is more closely tied to key business objectives and positive returns on ad spend, and as its scale increases it becomes more predictable because it is diversified across a larger number of advertisers and sectors. As we have learned from navigating the volatile macroeconomic environment, our business will be more resilient if more of our revenue is generated from a larger number of advertisers focused on lower funnel goals. With active advertisers more than doubling year over year in Q2, we’ve made a lot of progress, but there is more work to do.
As we look ahead to 2025, we need to grow our lower funnel business even faster while simultaneously reaccelerating the growth of our upper funnel business. We’re going to do that by changing the way that we go to market, introducing new ad placements powered by automation, and continuing to invest in our machine learning platform to deliver powerful results for our advertising partners.
When we first introduced vertical video ads they were a novel and unique offering, but today this format has been embraced by most of our competitors. That means vertical video is less differentiated than it once was, and despite our unique and unduplicated reach in many of the world’s largest digital advertising markets, we need to further evolve our ad products and strategy to stand out. Unlike our competitors, we offer a lot more than a content platform. People use Snapchat to communicate with their friends and family, use our camera and Lenses, peruse their Memories, see what their friends and family are up to on the Snap Map, and more. Despite the many and differentiated ways that people use our service, we’ve historically focused our go-to-market efforts on the vertical video ad format within our content offerings. There is a significant opportunity to better surface insights based on the unique ways that people use Snapchat, generate actionable recommendations for advertisers, and deliver better outcomes by leveraging new ad placements across our service.
In the coming months, we’re going to start surfacing more unique and actionable insights to advertisers based on the diversity of engagement on Snapchat. Privacy-safe insights around store visitation powered by the Snap Map, interactions with Lenses through our camera, and public content posts in Stories and Spotlight can help advertisers drive better performance and engagement with our community. Today, many of these insights are only accessible through disparate tools that made it harder to serve our advertising partners. Bringing these insights together into a single, self-serve tool and helping convert them into actionable recommendations will allow us to demonstrate the power of our differentiated platform to advertisers while giving them the tools they need to resonate with the Snapchat community.
In addition to differentiated insights, we are also experimenting with two new ad placements: Sponsored Snaps and Promoted Places. These placements will help us meet the goals of our advertising partners by aligning our unique insights with differentiated solutions to drive return on investment across Snapchat. Importantly, both of these placements are designed to leverage the same full-screen vertical video Snap Ad format already used across Snapchat so that advertisers can automate placement across our service without having to develop bespoke creatives.
Sponsored Snaps empower advertisers to communicate visually with the Snapchat community, making the core functionality of Snapchat accessible to advertisers. Sponsored Snaps appear in the chat inbox as a new Snap without a push notification, and opening the message is optional. This allows advertisers to engage prospective customers all the way down the funnel all within a single ad unit; raise awareness with broad reach in the chat inbox, improve consideration with people who choose to view the Snap, and drive conversion with an in-message call-to-action. As we continue to evolve Sponsored Snaps, we are excited to enable more messaging features powered by generative AI and integrated into advertiser CRMs to help our partners communicate with their customers at scale. As always, your conversations with friends are private and are not used for advertising purposes.
With more than 350 million people using the Snap Map, we now offer one of the most used maps on mobile. Instead of using our map to get directions from A to B, people use the Snap Map to see what their friends are up to, explore new places, and keep track of their favorite spots. We’ve also found that places highlighted on the map can drive incremental visitation. For example, there is a typical visitation lift of 17.6% for frequent Snap users shown Top Pick-annotated places, relative to users shown a place without an annotation. With Promoted Places, businesses can use the Snap Map to reach incremental customers who are exploring places nearby and easily measure the visitation lift with our closed-loop and privacy-safe measurement.
We’ve made tremendous progress improving our advertising platform over the past year, growing our investment in ML infrastructure and building larger models using fresher data. We will continue to invest in our ML engineering team and infrastructure to better utilize privacy-safe signals, further consolidate our models to improve performance and reduce operational burden, improve cold start, and develop new model architectures with better feature representations. We will focus on key product offerings like dynamic product ads, app objectives, target cost bidding, and value optimization. We will help advertisers better optimize for in-session conversions and remove friction from the purchase flow by making it easier for Snapchatters to make purchases in-app. All of these investments will be enhanced by new, simplified, and automated tools to streamline buying across different placements, enable intelligent audience expansion, and optimize budgets across ad sets to maximize campaign performance.
The growth of our advertising business is only possible because our community loves to use Snapchat. Our product strategy has been inspired in part by In-N-Out Burger. In-N-Out has developed a loyal following by using high quality ingredients, focusing on doing a few things exceptionally well, and obsessing over customer satisfaction to deliver an excellent customer experience. Their hamburger, cheeseburger, and Double-Double are our Snapping, chatting, and watching Stories. You can decide which parts of our product are the milkshake, fries, and secret menu. We’ve learned the benefits of focusing on our core product experiences and making them truly great, and this year we intend to double-down on what is working.
The way we grow our community is by enabling Snapping. Visual communication is at the heart of what we do, it’s universally appealing - fast, fun, and deeply expressive. Snapping brings people together in ways that no other medium of communication yet invented has been able to do, and in doing so makes people feel happier and closer to their friends and family. This year we will continue to make it easier for people to start Snapping and chatting with their friends and family. We know that Snapping is a key driver of retention and frequency of using Snapchat, and most importantly - it makes a positive impact.
Generative AI has been transformative for our camera and Lens experiences, empowering people to express themselves in a Snap. Our AI Lenses are already some of the most used Lenses on Snapchat, and our on-devices model will allow us to further scale these experiences with faster generation and lower cost. This year brings many more opportunities to further improve identity preservation in generative Snaps, enable generative video experiences, and help people reinterpret and reimagine their Memories in new ways. Our innovation in generative AI isn’t limited to the camera. Teams across Snap have been embracing multimodal LLMs, powering everything from My AI to new trust and safety tools. Everyone at Snap should brainstorm ways that generative AI can make our business more efficient and better at serving our community. If you have an idea, we want to hear about it!
The growth we’ve observed in our content business this year has primarily resulted from improvements to personalization and increases in content supply, especially from creators of public Stories and Spotlight videos. We’ve been testing a combined content experience that brings together Stories and Spotlight into one full screen and easy-to-navigate interface. This helps improve the discoverability of new creators and content genres by moving beyond the tile-based discovery we offer today in Discover. We’re also testing a further simplified version of Snapchat that aims to improve accessibility and usability. While early tests have been directionally positive, we will be thoughtful and deliberate about making a change of this magnitude. Rolling out this simplified version of Snapchat should also provide new opportunities to improve application performance and load times.
We’ve also been working hard to help creators realize their full potential on Snapchat. Creators often share that they value Snapchat because of the relationship that they are able to develop with their audience through tools like Story replies. This year we are working on new ways for brands to collaborate with creators to develop unique ad creative and promote their products. We’re proud of the significant revenue share that we provide to creators and publishers and these new brand collaboration tools will offer further opportunities for creators to benefit from their creativity and reach on Snapchat. We’ll have more to share at our upcoming Snap Partner Summit on September 17th.
The reason that I’ve dedicated so much of my life to building Snap is because I believe deeply in the power of technology to make a positive impact in people’s lives. Over the past 250 years, the productivity gains resulting from continual technological advancements have driven the most extraordinary increase in overall human well-being in history. I worry that the techno-utopianism brought about by the COVID-19 pandemic, when people were overly reliant on the Internet to live their lives, has given way to a regressive and alarmist moral panic about technology that threatens further societal progress. We need a balanced approach to, and a healthy relationship with, the technological advancements that improve our lives.
We believe that the responsibility to make a positive impact with technology begins with our own actions and I am so profoundly proud of our team for contributing in a positive way through the service we provide. New independent research validates what we have long known about Snapchat and how we are different from social media:
Recent research from the Netherlands into adolescent use of large social media platforms concludes that Snapchat is the only platform that positively impacts well-being. Snapchat also has a strong positive effect on friendships and no net negative effect on self-esteem. The researchers conclude that:
"We found a consistent negative impact of time spent on TikTok, Instagram, and YouTube across all three mental health dimensions. Conversely, spending time on Snapchat positively affected friendship closeness and well-being but had no significant impact on self-esteem. Using WhatsApp had a notably strong effect on friendship closeness but no significant effect on well-being and self-esteem."
"The positive and null effects associated with Snapchat and WhatsApp indicate that we should avoid a blanket condemnation of all social media platforms."
"Given their widespread and frequent use among adolescents, the negative effects of TikTok, YouTube, and Instagram on well-being, self-esteem, and friendship closeness are highly concerning. These particular platforms employ advanced algorithms to curate personalized content, capturing users’ attention and keeping them continuously engaged. These algorithms can draw users into a near-hypnotic cycle of infinite scrolling. And indeed, nearly half of adolescents report that they use social media much longer than intended, leading to feelings of time wasted and time taken away from other valued activities. Consequently, the design of these platforms may play a critical role in adversely affecting adolescents’ mental health. Therefore, more research is urgently needed to explore how specific design features may contribute to – and can potentially counteract – these negative outcomes."
As part of the Australian Parliament’s investigation into social media and Australian society, three Australian mental health organizations recently jointly submitted research results to Parliament with similar findings. These results were derived from The Future Proofing Study, Australia’s largest longitudinal study into youth mental health, and found that:
"[A] higher number of hours spent each day on TikTok was significantly associated with greater depression, anxiety, insomnia and disordered eating. A higher number of hours on Instagram was associated with greater depression and anxiety. However, a higher number of hours on Snapchat was not found to be significantly associated with any of the mental health symptoms examined….
The differences between these apps are attributed to differences in the way that adolescents use them. The study showed that more frequently using social media to passively consume content was associated with higher symptoms of depression, anxiety, insomnia, and disordered eating. The design of TikTok and Instagram encourages its users to passively consume content; using algorithms to deliver its users targeted content and various features such as ‘infinite scroll’ that keep its users engaged for long periods of time. By contrast, the study found no evidence to indicate that using social media to facilitate social connections was associated with poorer mental health. Rather, it found that more frequently using social media to communicate with people teens knew in real life was associated with lower symptoms of depression and anxiety. This may explain why higher number of hours using Snapchat was not associated with any of the mental health symptoms examined, because Snapchat is a messaging app that adolescents primarily use to communicate with their friends."
This doesn’t mean that bad things can’t happen when people use Snapchat. That’s why we’ve invested hundreds of millions of dollars in our trust and safety teams over the past several years and designed our service to help keep people safe by moderating content and only allowing people to communicate with the friends they’ve selected. We’ll continue these investments, leveraging powerful large language models to help us scale moderation with higher accuracy. We’ve also developed new resources for educators and parents to help them learn more about using Snapchat responsibly. Our work to keep our community safe is never done, and we will continue to dedicate ourselves to these efforts.
Despite our extraordinary efforts to make the smartphones we use every day better by introducing vertical video, ephemeral messaging, Stories, Lenses, and more, we continue to bump up against the limitations of screens. Smartphone screens distract us from the real world, require us to use small touchscreens to express ourselves, and aren’t designed to be shared with friends. That’s why we’ve been working to build augmented reality glasses for over a decade. Glasses are already worn by billions of people and allow us to interact with the real world using see-through lenses. As Alan Kay said, “People who are really serious about software should make their own hardware” and we’ve been focused on enabling extraordinary new software experiences brought to life through Spectacles.
Our efforts to build Spectacles are part of what the business school crowd calls Blue Ocean Strategy, a concept introduced by W. Chan Kim and Renée Mauborgne that describes new, unknown market space where there is no competitor and demand is created rather than fought over. Blue Ocean Strategy plays to our strengths as an innovator and leader in augmented reality. Interestingly, Kim and Mauborgne find “large R&D budgets are not the key to creating new market space. The key is making the right strategic moves. What’s more, companies that understand what drives a good strategic move will be well-placed to create multiple blue oceans over time, thereby continuing to deliver high growth and profits over a sustained period. The creation of blue oceans, in other words, is a product of strategy and as such is very much a product of managerial action.” Or, in other words, a product of things that are under our control.
Today, the market for augmented reality glasses is nascent. While we continue to differentiate and win share in the highly competitive market for digital advertising (a “red ocean”), we are investing in creating augmented reality glasses that allow people to interact with computing, the world, and one another in totally new ways. Unlike in digital advertising, where we were a late entrant in a market with established, scaled players, we are a leader in the market for this new type of glasses and in the development of our augmented reality platform that is already used by hundreds of thousands of developers and hundreds of millions of Snapchatters.
Reflecting on the past two years, I am in awe of our team’s ability to navigate an incredibly challenging environment with resilience and determination. Sometimes the most important thing is survival, and our team and business adapted to major upheavals in mobile advertising, increased competition, international conflict, and a challenging and volatile macroeconomic environment with interest rates at their highest levels in more than two decades. Former USA and Duke basketball coach Mike Krzyzewski, known as Coach K, talks about the importance of leaders turning bad things into something that will work for the team. He says, “Don’t worry about losing. Think about winning. In other words, even when you have a loss, you must ask yourself, ‘What is good about this? How can I turn a defeat into something that works for us?’” When I think about our teams and leaders that have made the biggest impact over the past two years, they have always focused on creating opportunities and finding a way to win.
As we plan for the coming year, we can’t predict the future but we can extrapolate from what we know today. Economic data shows that the United States economy is slowing, with recession indicators like the yield curve and the Sahm Indicator flashing warning signs. Countries around the world are grappling with high debt loads and large ongoing budget deficits. Both US presidential candidates are floating new revenue raisers including tariffs and taxes, which could further slow economic growth. The rapidly evolving regulatory environment continues to strain our team, and new legislation around the world may introduce further compliance burdens if we get lumped in with other tech companies despite the different design choices we made while building our service. Court proceedings on the TikTok divestment legislation loom in the coming months.
In short, we must continue to expect the unexpected. The uncertainty we’re anticipating around the world further emphasizes the importance of diversified revenue streams including an advertising business serving a large number of advertisers bidding against lower funnel, direct response objectives, and subscription revenue from Snapchat+. It also means that we are investing conservatively against a baseline plan that assumes modest ad revenue growth, while we work towards higher growth rates. This means that in a downside scenario, we are still well positioned to generate free cash flow with our current cost structure. We’ve also taken steps to further fortify our balance sheet with more than $3 billion in cash and marketable securities and no meaningful debt maturities until 2027. We believe that this conservative approach allows our team to focus on driving the long term growth of our business without having to worry as much about external volatility.
One of the consequences of constrained resourcing in our functionally-organized business is that leaner teams must work even more closely together to get work done, which makes them more prone to conflict. This is especially relevant as we have worked through the enormous challenges of the past few years, where adverse outcomes make it harder for us to take accountability for our own actions, and easier to point fingers and blame others. It’s never been more important to clearly and rigorously prioritize our highest impact initiatives, and take shared goals across teams to drive more alignment.
One of the ways that we can do this is by having “fierce conversations” that directly raise the toughest issues that we face. Susan Scott writes, “the conversation is the relationship” in her book Fierce Conversations, a sentiment I know will be familiar to our team as we work hard to enable hundreds of millions of people to have real conversations on Snapchat. Scott believes that burnout is the result of trying to solve the same problem over and over and provides several tools, including the one below entitled “Presenting the Issue,” to give team members a simple framework for raising issues directly with one another that is both kind and clarifying:
