Snap Inc. 2026 Q2 Earnings Call

Thank you. Good afternoon, everyone. Welcome to Snap's second quarter 2026 earnings conference call. With us today are Evan Spiegel, Chief Executive Officer and Co-founder, and Doug Hott, Chief Financial Officer. Please refer to our investor relations website at investor.snap.com to find today's press release, earnings slides, and investor letter. This conference call includes forward-looking statements which are based on our assumptions as of 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 these forward-looking statements, please refer to the press release we issued today, as well as risks described in our most recent Form 10-K or Form 10-Q, particularly in the section titled Risk Factors. Today's call will include both GAAP and non-GAAP measures.

Reconciliations between the two can be found in today's press release and earnings slides available on our IR 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 certain other items. Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today's call. With that, I'd like to turn the call over to Evan.

Hi, everyone. Welcome to our call. Snapchat is now one of the largest internet communities in the world, approaching 1 billion people using our service every month. Over the past few years, we worked intensely to rebuild our monetization platform and improve our go-to-market strategy, and those efforts are producing stronger results. Our objective now is to turn our scale into durable growth and stronger cash generation while demonstrating the long-term value of our investment in Specs. We are approaching this work with a more focused AI-enabled operating model. AI is helping us improve our service faster, deepening engagement, and improving outcomes for advertisers. That supports revenue growth, margin expansion, and free cash flow. Free cash flow gives us the flexibility to continue investing in long-term opportunities, offset dilution, and strengthen our balance sheet.

That is why free cash flow per share will be our primary financial objective going forward. Our largest long-term opportunity is Specs, a new kind of computer built into see-through glasses. Specs are designed for a future in which AI does more work on our behalf and people spend less time operating screens. I believe we can pursue that future from a much stronger position by continuing to improve our core business and remaining disciplined about how we invest. Last fall, I outlined three priorities for Snap: strengthen our community and engagement, accelerate and diversify revenue growth, and build a more profitable, cash-generative core business. Q2 was a meaningful step forward across all three. Monthly active users grew to 971 million, and daily active users reached 493 million. Revenue increased 19% year over year to $1.6 billion.

Advertising revenue grew 9% to $1.28 billion, while other revenue grew 85% to $316 million. Gross margin reached 58%, net loss was $164 million, and operating cash flow was $176 million. Adjusted EBITDA was $250 million, and free cash flow was $121 million. At its core, Snapchat helps close friends and family stay connected. Over time, we have built Spotlight, Snap Map, and augmented reality around that foundation, giving our community more reasons to open Snapchat, discover something new, and share it with the people that they care about. I think about this as a simple flywheel that drives the growth of Snapchat. Sharing starts conversations strengthen friendships, and stronger friendships lead to more sharing and creativity. Spotlight is becoming a more important part of that flywheel.

In the U.S., the number of people posting to Spotlight grew more than 115% year over year, while Spotlight daily active users grew more than 20%. This growth was supported by our investment in creators and AI-powered recommendations. We also saw improving momentum in our advertising business. After several quarters of improving our ad products and go-to-market approach, we saw better momentum with large advertisers in North America and stronger revenue growth internationally. World Cup-related spending contributed during the quarter alongside continued strength among small and medium-sized businesses. Smart Campaign solutions, our suite of AI-powered automation and optimization tools, is making it easier for advertisers to achieve better outcomes with less manual work. Those outcomes continue to improve. For app advertisers, cost per install declined 8% year over year, cost per purchase declined 18%, and app purchase volume increased 128%. Greater adoption by retailers also drove 43% growth in dynamic product ads revenue. Advertisers increased spending across native services such as Sponsored Snaps, where roughly one-third of the Snapchatters reached were incremental to other services on Snapchat.

These results reflect the progress we are making across automation, optimization, measurement, and attribution. Our audience in the U.S. continues to broaden quarter over quarter, led by people aged 35 and older. That is increasing our relevance in categories such as automotive, healthcare, home goods, financial services, insurance, and business-to-business services while helping us diversify our advertiser base.

An independent third-party study from Measured also found that for the brands in their portfolio, Snapchat delivered approximately 19.3% higher incremental return on ad spend than the blended incremental return from their social advertising overall. Taken together, these results give us confidence that advertisers are seeing more value on Snapchat and increasing their investment as we improve the platform across the full funnel. We have also built a meaningful second revenue stream. Snapchat+, Memories Storage, and Lens+ help drive 85% year-over-year growth in other revenue to $316 million in Q2. Less than 3% of our monthly active users are paying subscribers, and we see substantial room to grow direct revenue over time through premium features, AI-powered creative tools, and additional subscription products. AI is transforming Snapchat and the way Snap operates. It powers better recommendations, more automated and performant advertising campaigns, and new creative tools for our community.

Internally, it is helping our smaller, more focused team move faster and accomplish more. In Q2, code commits per engineer increased 75% year-over-year, while major reliability issues declined 57%. Our internal AI code reviewer now reviews 90% of pull requests across Snap and has saved an estimated 30,000 hours of code review time. Our AI-powered support agent answers approximately 3.9 million questions from Snapchatters each month and has reduced support ticket volume by approximately 62% since the start of the year. In advertising, AI increased first-pass image review automation from 40% in Q2 2025 to nearly 90% in Q2 2026, resulting in faster approvals for advertisers, stronger content safety, and lower operating costs. In addition to leveraging AI to improve how we operate today, we are building toward the future of computing with Spectacles. I believe AI will fundamentally change our relationship with computers.

We'll spend less time operating them and more time supervising intelligent systems that understand context and complete work on our behalf. Spectacles are built for that future. Unveiling Spectacles in June was an important milestone after more than a decade of work. Spectacles are a new kind of computer built into see-through glasses, more capable than today's limited AI glasses and more wearable than bulky VR headsets. Spectacles can understand the world around you and help with work, learning, entertainment, and shared experiences without pulling you away from the real world. We are excited to share much more about how Spectacles work and what they can do at our launch event in Los Angeles on September 16th. I'll now hand it over to our Chief Financial Officer, Doug Hott, to discuss our financial results and outlook.

Thank you, Evan. In Q2, revenue increased 19% year-over-year to $1.6 billion, including 9% growth in advertising revenue. This growth reflected progress with large advertisers in North America, broader adoption of our AI-powered Smart Campaign solutions, continued SMB momentum, and 85% growth in other revenue, led by Snapchat+, Memories Storage, and our Lens+ subscription. In early Q2, we restructured our cost base Snap can scale more efficiently, and those changes are increasingly visible in our results. Our total adjusted cost structure increased just 4% year-over-year as operating efficiencies offset investments in long-term revenue drivers. Gross margin expanded seven percentage points year-over-year to 58%. Net loss improved by $99 million to $164 million, and Adjusted EBITDA increased by $208 million year-over-year to $250 million. Our focus is to sustain this operating leverage by maintaining disciplined cost growth as we scale revenue, expand margins, and increase free cash flow.

That operating leverage translates into stronger cash generation. In Q2, operating cash flow was $176 million, and free cash flow was $121 million. Over the past 12 months, operating cash flow reached $919 million, and free cash flow reached $706 million. We have now generated positive free cash flow for eight consecutive quarters while limiting fully diluted share count growth to approximately 2% over the past five years through our share repurchase program. Over that period, we repaid more than $2 billion of convertible notes due in 2027 and 2028, as well as the $47 million in convertible notes that were due in August 2026, reducing future debt obligations and strengthening our balance sheet. We ended Q2 with approximately $2.7 billion in cash and marketable securities, giving us the capacity to invest in our core business and long-term opportunities while maintaining a healthy cash balance.

Our planned investment in Specs is included within our existing operating expense outlook. Over time, we intend to pace that investment based on product, ecosystem, and economic milestones while preserving the improving profitability and cash generation of our core business and supporting a stable share count. Going forward, our financial objective is free cash flow per share. We believe this is the right objective because it connects operating performance, disciplined capital allocation, and long-term shareholder value creation. Our goal is to generate enough free cash flow to invest in Snap's long-term potential, offset stock-based compensation dilution, and strengthen our balance sheet. We support these objectives by growing revenue faster than costs, investing with discipline, and using our share repurchase program to offset dilution and compound per-share value.