Snap : Investor Letter

Investor Letter

Q3 2022

October 20, 2022

This Investor Letter contains forward-looking statements and non-GAAP financial measures, please see Appendix for additional information.

Our business continued to face significant headwinds in the third quarter, and we took action to further focus our business on our three strategic priorities: growing our community and deepening their engagement with our products, reaccelerating and diversifying our revenue growth, and investing in augmented reality. We believe that we can be successful in this new operating environment - with elevated inflation, increasing interest rates, and heightened geopolitical tensions - by rigorously prioritizing our investments and continuing to delight our community with our products while driving success for our advertising partners.

Our focus on serving our community contributed to our daily active user growth in Q3, with daily active users (DAU) reaching 363 million, an increase of 57 million or 19% year-over-year. The overall growth and engagement of our community is a fundamental input to our long-term opportunity, and we are working to diversify our community's engagement with Snapchat across our various platforms, including our map, content, and augmented reality. Historically, we have found that advertising revenues follow engagement, so while we are facing near-term headwinds to our revenue growth, we remain optimistic about our long-term opportunity based on

the growth of our community and engagement. Today, we reach more than 75% of 13- to 34-year-olds in over 20 countries, representing over 50% of global advertising spend.

Our revenue grew 6% year-over-year to $1.13 billion, and we generated adjusted EBITDA of $73 million and free cash flow of $18 million. While these results are far from our aspirations, we are using this period of reduced demand to pull forward and accelerate changes to our advertising platform and auction dynamics that we believe will deliver better results for our advertising partners over the long term. When auction density is elevated, these enhancements can be more difficult to make because they run the risk of being disruptive in the short term as we experiment with new machine learning (ML) models and user interface elements. We are working closely with our advertising partners through these changes, so that we can continue to deliver strong returns on advertising spend, which is especially important during such a challenging time.

Our large and growing community, track record of innovation, strong balance sheet, and the adjustments we have made to drive focus and reduce our cost structure give us the flexibility to think and act long term to best support our advertising partners and make the right investments for our business. We expect that the operating environment will continue to be challenging in the months ahead and believe the actions we are taking provide a clear path forward for Snap.

SNAP INC. | Q3 2022 | INVESTOR LETTER

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DAILY ACTIVE USERS	Community Growth
	Our team remains focused on expanding our product offering
	and deepening engagement with our global community, which
	increased 19% year-over-year to reach 363 million DAU in Q3.
	Our community continues to grow, and we continue to deliver
	rapid product innovation with new features like Snapchat for Web
	and updated Lens Studio features. We were pleased that our
	community in North America, Europe, and Rest of World continued
	to show meaningful growth in Q3. DAU in North America grew by
	4 million year-over-year to reach 100 million, DAU in Europe grew
	by 9 million year-over-year to reach 88 million, and DAU in Rest of
	World grew by 45 million year-over-year to reach 175 million. Our
	core product continues to resonate with close friends and family
	who use our visual messaging tools to stay in touch and build
	deeper relationships, and we continue to see strong engagement
	growth around core communication behaviors, with Snapchatters
	creating more than 5 billion Snaps with our camera every day, on
	average.
	The vast majority of our monetization today is driven by
Our community grew	engagement with advertising on our content platforms. In Q3,
19%	overall time spent watching content globally grew on a year-
year-over-year to reach	over-year basis, driven primarily by growth in total time spent
363 million	watching content on Discover and Spotlight. We grew global
	time spent across our content platforms by continuing to invest
	in personalization, driving more subscriptions to creator content,
	improving content ranking through better understanding of new
	Snapchatter interests, scaling our Creator and Partner ecosystem,
Snapchatters are creating	and investing in operations to maximize return on content supply
5 billion+ Snaps	and capacity. We believe that product improvements to Friend
with our camera every	Stories, Discover, and Spotlight, as well as increased content
day on average	diversity and investments in creator success, provide a path to
	meaningful content time spent growth over the long term.
	Time spent watching Friend Stories continues to be a headwind
	to overall growth in time spent watching content, even as the
	number of Snapchatters viewing Friends Stories has grown year-
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LA LIGA

We announced a new global partnership with LaLiga, one of the major European football leagues, bringing the best of the game to fans on Snapchat

over-year. We have seen the depth of Friend Stories engagement per viewer decrease, and total time spent watching Friend Stories remains below pre-pandemic levels. We are focused on investing in our content experiences to drive the overall depth of engagement with content on our platform through new products such as Spotlight and content publishers through Discover,

as well as ongoing improvements to the user experience and personalization. While we are encouraged by the progress we are seeing from these investments, including 55% year-over-year growth in total time spent viewing Spotlight in the most recent quarter, this growth is building on a lower base of engagement when compared to Friend Stories.

While growth in our global community is helping to offset these headwinds on global time spent, this is not the case in some of our more mature markets. As a result, total time spent watching content in the United States decreased 5% year-over-year as the diminished depth of engagement with Friend Stories was not fully offset by the growth in viewership and growth in time spent with Discover and Spotlight in the US. While depth of engagement with Friend Stories has been a headwind in the US, the number of individual viewers of all content types has continued to grow year-over-year, which we believe is an important input to revenue generation, given the value of incremental reach for advertisers. Friend Stories remain a very popular product for our community, with the number of viewers of Friend Stories increasing year- over-year in the US, and we are seeing positive trends in viewers of Private Stories for groups of friends that we believe are encouraging for this product. In addition, we are working to innovate on our user experience to better help Snapchatters transition from engaging with their closest Friends Stories into retentive content experiences in Discover and Spotlight.

Discover's expansive selection of content is helping to drive engagement with an increasingly diverse global audience. For example, daily average time spent for Snapchatters aged 35 and older engaging with Shows and Publisher content increased

SNAP INC. | Q3 2022 | INVESTOR LETTER

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SPOTLIGHT	by more than 40% year-over-year. We announced a new global
	partnership with LaLiga, one of Europe's major football leagues,
	bringing the best of the game to fans on Snapchat. Through new
	broadcast partnerships with beIN SPORTS in Qatar and France, ITV
	in the UK, MediaPro in Spain, and Bell in Canada, among others,
	there will be greater official coverage of the 2022 FIFA World
	Cup on Snapchat in more markets than ever before. Coverage
	will include localized highlights and every goal from every game
	available in 29 countries. Complementing this extensive coverage,
	Snapchat will launch dedicated 2022 FIFA World Cup activations
	through AR Lenses, Filters, Stickers, Bitmoji experiences, Cameos,
	and more. We also further strengthened our international
	content offerings by partnering with top publishers discovery+,
	Aftonbladet, and Expressen in Sweden.
	We are excited about the long-term potential of Spotlight. Total
	time spent watching Spotlight content grew 55% year-over-year
	and Spotlight monthly active users exceeded 300 million in Q3.
	We continue to support our growing creator ecosystem, and today,
	there are many different ways for creators to build a business on
	Snapchat. Creators can monetize their content by enrolling in our
	midroll ad program, open shops to sell merchandise, and receive
	virtual gifts from fans. In addition, we launched our first-ever
	Snapchat Sounds Creator Fund - a new grant program designed
55%	to recognize emerging, independent artists for the critical role
year-over-year growth in total time	they play in driving video creations, inspiring internet trends, and
spent viewing Spotlight in Q3	defining cultural moments. The Fund provides monthly grants to
	top Sounds creators who are distributing music on Snapchat via
	DistroKid, driving content creation across the platform.
	The Snap Map is a personalized map that helps Snapchatters stay
	in touch with their closest friends and find places to visit together.
	Over the past year, we have added new features to make it easier
	to discover interesting places, local restaurants, and concerts
	happening nearby, all personalized for each Snapchatter. We were
	encouraged to see that Snapchatters opened Places from the map
	nearly twice as much this quarter when compared to Q3 2021. We
	SNAP INC. | Q3 2022 | INVESTOR LETTER	5