SNAP INC. Q2 2020 TRANSCRIPT DAVID OMETER, INVESTOR RELATIONS Thank you, and good afternoon, everyone. Welcome to Snap’s Second Quarter 2020 Earnings Conference Call. With us today are Evan Spiegel, Chief Executive Officer and Co-Founder, Jeremi Gorman, Chief Business Officer, and Derek Andersen, Chief Financial Officer. Earlier today we made a slide presentation available that provides an overview of our user and financial metrics for the second quarter 2020, 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 second quarter 2020 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, future market conditions, or the impact of COVID-19 on our business and on the economy as a whole, 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 year ended March 31, 2020, 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.
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SNAP INC. Q2 2020 TRANSCRIPT
DAVID OMETER, INVESTOR RELATIONS
Thank you, and good afternoon, everyone. Welcome to Snap’s Second Quarter 2020 Earnings
Conference Call. With us today are Evan Spiegel, Chief Executive Officer and Co-Founder, Jeremi
Gorman, Chief Business Officer, and Derek Andersen, Chief Financial Officer.
Earlier today we made a slide presentation available that provides an overview of our user and financial
metrics for the second quarter 2020, 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 second quarter 2020 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, future market
conditions, or the impact of COVID-19 on our business and on the economy as a whole, 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 year ended March
31, 2020, 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.
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EVAN SPIEGEL, CHIEF EXECUTIVE OFFICER AND CO-FOUNDER
Thanks everyone for joining our call.
This has been an extremely challenging time, and our team has done an outstanding job continuing to
support the growth of our community, which increased 17 percent year-over-year to 238 million daily
active users, as well as building our business, with revenue growing 17 percent year-over-year to $454
million. While our revenue growth rate continues to be impacted by ongoing market disruptions, the
fundamentals of our business are strong, and the high levels of engagement on our service are backed
by years of investment in our self-serve advertising platform, which is helping our partners achieve
success and grow their businesses in this uncertain environment.
I am most proud of our team for the work they did to create our Snap Partner Summit this quarter,
which was delivered virtually in an augmented world. We announced several new products like Minis,
Voice Scan, Camera Kit, Places on the Snap Map, Bitmoji for 3rd Party Games, as well as several new
partnerships and a fresh slate of content. We also made Snapchat easier to navigate with our new
Action Bar which provides top-level navigation to more easily access the Snap Map, Chat, Camera, and
Discover, resulting in more surface area and accessibility for each of these platforms.
We are working hard to overlay new computing experiences on the world through augmented reality,
and the Snap Partner Summit showcased some of our latest AR products, including Local Lenses that
allow people to share augmented reality experiences together overlaid on their neighborhood
cityscape, and SnapML, which empowers members of our community to bring their machine learning
models directly into Lenses on Snapchat. This enabled Gucci to leverage Wannaby’s foot-tracking
technology to help people try on their latest sneakers in Snapchat, and even buy them directly within
the Lens. These sorts of augmented reality experiences are especially powerful in the post-COVID retail
environment, where brands are investing more in virtual try-on.
In addition to our new augmented reality products, we also released Minis to enable developers to build
interactive and social experiences for our community. For example, when movie theaters reopen,
friends will be able to browse and purchase tickets together in the upcoming Atom Tickets Mini. We’re
excited to help our partners understand how they will benefit from our long-term vision for Snap, and
the many ways that they can use our products and platform to connect with our community and build
their businesses.
Our community grew by 17 percent year-over-year, with 238 million people using Snapchat every day
on average in the quarter. This continues our recent momentum in daily active user growth, with the
last three quarters seeing our highest year-over-year growth rates since 2017. We now reach more than
100 million people in the US alone, and are also seeing strong growth in our core markets in North
America, Europe, and Australia. We are also continuing to invest in app performance and localization to
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make our service more accessible to people all over the world, with Snapchat now available to over two
billion people in their native language. These efforts have helped us grow even faster in emerging
markets like India, where we’ve seen over 100 percent growth in daily active users over the past year.
As the changing public health landscape accelerates the adoption of digital products, we believe there
is a large opportunity for us to further empower new behaviors with AR, entertainment, and commerce.
For example, we continue to see increasing engagement with our camera, and the number of Snaps
created every day grew at double the pace of our daily active user growth over the past year, making
Snapchat one of the world’s most-used cameras. We’re especially excited to see that the adoption of
our AR platform is also accelerating, with the number of people playing with Lenses every day growing
by 37 percent year-over-year.
This growth has been driven in part by the community of talented Lens creators and partners that are
creating and distributing Lenses on Snapchat. Creators are quickly adopting new Lens Studio
capabilities to create Lenses that put a lightsaber in your hand, turn the entire world into spaghetti, and
let you try on clothes and makeup. Today Snapchatters play with Lenses created by our community six
times as often as they did just last year, and these Lenses now drive more than a quarter of all Lens
engagement on Snapchat. We are excited to see that our product innovation in AR is empowering the
creativity of our Lens creator community, which in turn has driven growth in user engagement.
With so much happening around the world today, our Discover platform is more important than ever in
helping our community stay educated and informed about current events. Snapchat has become a go-
to destination for credible and accurate news content during the pandemic, with more than half of the
entire US Gen Z population watching COVID-related news created by our partners. Additionally,
following the murders of George Floyd, Ahmaud Arbery, and Breonna Taylor, we published curated
Community Stories featuring powerful Snaps from our community, which ranged from breaking news
about peaceful protests to a dialog about what it means to be Living While Black in America. We are
also rolling out Happening Now, a dedicated section of Discover that provides breaking news from
media partners such as NBC News and ESPN summarized in a single Snap.
In addition to news, Discover has also provided a premium mobile entertainment experience for our
community as they are sheltering in their homes. For example, Will From Home, which culminated in a
Fresh Prince of Bel Air cast reunion, was watched by more than 35 million people. Snap Originals
continue to attract audiences that rival those of top TV series, and have reached more than 75 percent
of the US Gen Z population so far this year.
In addition, many of our media partners are finding success adapting their television properties for our
platform in order to reach an incremental audience that is not watching TV. According to eMarketer,
the average US adult spends 29 more minutes with mobile content compared to TV, which is up from
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six fewer minutes on mobile in 2018. We believe this trend is driven primarily by the younger
generation, whose time spent watching TV is a fraction of their older counterparts'. This creates an
opportunity for our media partners, several of whom spend significant resources to create high-quality
content for TV, to expand their total audience to include these younger viewers. Several Shows that are
finding success on Discover were originally shot for linear TV, and these shows have reached an
audience of over 100 million people on Snapchat so far this year. We added more than 180 new
Discover channels this quarter, and recently announced newly-expanded partnerships with Disney,
ESPN, NBC, ViacomCBS, the NBA, and the NFL as we continue to expand our curated content business.
The strong engagement with our platform and products is driving results in our advertising business
despite the many macro headwinds currently experienced by our partners. Our advertising business
grew 17 percent year-over-year to $454 million in revenue. We are pleased to see the continuing growth
in our revenue especially in the face of extreme dislocations in the market. As heavily-impacted
companies like travel and in-theater entertainment pull back spend, we have transitioned to helping
them plan for a future recovery led in part by our audience. We have also seen that certain industries
like CPG, gaming, streaming services, and e-commerce have benefited from some of the COVID-
related changes in consumer behavior, and have been leaning in as advertisers on our platform. Our
significant investments over the past few years in our team and our ad platform helped us provide
substantial value to both direct response and brand advertisers as they navigate these rapid and
unprecedented shifts in the market.
Our direct response business continues to drive meaningful return on investment at scale, especially
during the current environment where performance-oriented apps and e-commerce advertisers look to
reach customers who are increasingly engaging and transacting on the Internet rather than in-person.
This has been accelerated by the major improvements we continue to make to our ad products and
backend optimization, which have helped us increase the scale at which we're able to deliver results for
direct response advertisers. For example, we are rolling out Dynamic Ads globally, so that retailers like
Sephora and Adidas can run e-commerce campaigns on Snapchat that automatically optimize across
their entire catalog. These product improvements also drive a virtuous cycle for our direct response
business. As we onboard more advertisers, the increased quality and diversity of our advertising
demand means that we have more relevant ads to choose from when deciding which ad to show to a
particular person at a particular time. This in turn drives more value for advertisers with fewer wasted
impressions, while simultaneously reducing the perceived ad load for our community.
While these uncertain times have impacted many businesses in different ways, one consistent theme
across all brands has been the focus on reaching customers in thoughtful and genuine ways. Brands
have collaborated on many of the new products we are building, including by investing heavily in our
new AR capabilities to engage an audience that is not able to visit their stores or see their products in
person. We recently launched Brand Profiles, an important first step toward building a native home for
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all of the organic experiences that brands are building. Snapchatters can now visit the profiles of brands
like Dior, Target, and Tim Hortons to watch their Stories, play with their AR experiences, and even buy
their products through our native commerce integrations. We are excited to evolve our relationships
with brands of all sizes as we continue to build tools for brands to organically engage with our audience.
Finally, the growing focus on brand safety and privacy across the entire industry places us in a unique
position of strength as we have invested in these areas from the beginning of our business. The very
foundation of both our consumer product and our advertising business has been built around our
commitment to protecting the privacy of our community, and to delivering a safe environment for
brands. We believe that building trust with our community and providing a safe environment on
Snapchat is critical to our long-term success and helps us live up to the high expectations of both our
community and our advertising partners.
This reflects our broader commitment to making a positive impact with our company and our products.
Our strategy is simple. We try to do the right thing, even when it’s hard, and we work to acknowledge
and fix our mistakes quickly. Looking forward, we expect that the current operating environment will
become more complex—this year alone, we have seen sweeping changes to our global economy, the
privacy and regulatory landscape, public health and social behaviors, and the direct confrontation of a
legacy of injustice and extreme inequality in America. This means that our strategy of trying to do the
right thing isn’t just a moral imperative. We believe that it is the only way to achieve the long-term
vision for our business. We have a lot to learn as we grow our global audience and expand our
advertising and content partnerships, and it gives me great hope to see our team, community, and
partners actively engaged in building a better future.
Thank you again for joining us today. I’ll now turn the call over to Jeremi to share more about our
business.
JEREMI GORMAN, CHIEF BUSINESS OFFICER
Thank you Evan.
We’re pleased with our results for this quarter amidst a challenging and evolving global environment,
and we continue to see significant upside and opportunity for our business as we support our
community and advertising partners. In Q2, we generated total revenue of $454 million dollars, an
increase of 17 percent year-over-year. We are confident that our business is well-positioned for the long
term, evidenced by the resilience we are seeing with direct response advertisers, as well as our
continued success helping brands craft valuable messages and effectively reach our community.
We’ve had a lot of conversations within Snap about how our team, our products, and our business can
be forces for positive change in the world. In the U.S., our platform reaches 90 percent of 13-24 year
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olds and 75 percent of 13-34 year olds. This audience is critical for advertisers as the Snapchat
Generation develops lifelong habits, but also because young people are focused on driving change in
the world and building a better future. We take our responsibility to educate, inform, and support this
incredible generation very seriously, and we have committed to using our business as a force for good.
Given the relationship we have built with the Snapchat community worldwide, we’ve been able to help
brands deliver timely messages that resonate with 13-34 year olds who see the world differently than
their parent’s generation. This is particularly important against the backdrop of current events, as
advertisers look to appropriately align their messages with what our community seeks; positivity, good
will, and most-importantly, authenticity. We have partnered with many brands in verticals that are well-
positioned in the current environment, such as consumer packaged goods, gaming, streaming, and
ecommerce, while also helping our partners with recovery roadmaps for industries that have
experienced an outsized impact from COVID-19.
We had the opportunity to work closely with Monster Energy to adapt a new campaign for Snapchat in
response to stay-at-home orders with their #CrushQuarantine campaign across Snap Ads,
Commercials, Story Ads and Lenses. Monster’s multi-ad product exposure ultimately generated a 12
point lift in ad awareness and a 5 point lift in message association. Our large audience, creative formats,
and advanced measurement tools provided a significant opportunity for brands such as Monster Energy
to reach Snapchatters during the global pandemic.
Our team has also been working hard to provide useful products and resources for businesses as they
manage the current economic landscape. We added multi-country targeting capabilities, allowing
advertisers to optimize for the best performing customers, regardless of location, catering to location
agnostic products and services, like commerce, fintech, and games. In addition, we launched Places on
our Snap Map, which highlights businesses that are popular with our community and offers information
like hours, reviews, and delivery options via third party partners. While we are just getting started with
this opportunity, as parts of the world begin to reopen safely, we will be there to help the Snapchat
Generation support their favorite local businesses and discover new ones.
We remain focused on making progress against our ARPU opportunity through our three key priorities:
First, investing in our ad platform in order to drive improved relevance and deliver measurable ROI.
Second, efficiently scaling our sales and marketing functions to support our advertising partners
globally. And third, building innovative ad experiences through video and augmented reality that
deliver real business value. Our three priorities—along with our unique reach and growing, global
audience—allow us to drive performance at scale.
Since completing the transition to our self-serve ad platform, we have been able to reliably translate
improvements in relevance, optimization, and measurement into revenue growth by delivering
increased ROI. During a time of disruption, marketers must make difficult decisions. They need
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flexibility, creativity and strong relationships, but most importantly, they need performant media.
Advertisers are becoming more performance-oriented, and the economic conditions only accelerated
that trend this quarter. Our flexible and advanced self-serve platform, our strong suite of performance
ad products, and our relentless focus on measurement and ROI, continue to help our advertising
partners deliver positive results.
The global health crisis has also accelerated the shift to a more digital economy. Our advertising
partners are exploring more ways to offer services digitally, including at-home fitness apps, online
education programs, retail stores and restaurants offering online ordering and delivery services, and
mobile-first banking and trading. This crisis is encouraging all business owners to adopt digital
marketing methods to engage with their customers globally, and we are well-positioned to take
advantage of this shift. Our early investments in building the fundamentals of our global business have
paid off, and have resulted in our highest number of active advertisers to date this quarter.
We’ve built a full suite of ad products designed to meet advertisers’ needs in this new world—
particularly for ecommerce—such as swipe-to-call, pixel-verified purchase, app re-engagement, and
Dynamic Ads. We recently launched Dynamic Ads globally, and we are finding that advertisers are
already seeing early success with this new ad format.
Rob Seidu, Senior Director of Media Activation at Adidas, said "In the wake of the COVID-19 epidemic,
Adidas has further accelerated its digital business. With ecommerce a key focus for us in 2020 and
beyond, we were excited to Beta test Snapchat's Dynamic Ads in the UK, Germany, France and the
Netherlands. Within weeks we saw 52 percent growth in Return on Advertising Spend and we have
subsequently grown our investment."
More and more ecommerce businesses are adopting our Snap pixel to optimize for down-funnel
purchase objectives, demonstrating the increased demand we are seeing from businesses measuring
campaigns via first party attribution. For example, in Q2 2020 Chipotle launched a new ‘free delivery’
campaign on Snapchat to drive purchases both on Chipotle.com and within their app. Their campaign
drove over 3x the number of attributed purchases as compared to their Q1 2020 campaign and a 171
percent increase in Return on Ad Spend compared to the prior quarter. We remain focused on helping
businesses such as Chipotle translate measurement and optimization into meaningful conversions and
strong ROI.
Our second priority is to grow demand through better service of our advertising partners. We continue
to hire talented sales professionals to build out and improve our verticalized coverage that serves many
advertisers across the globe. While we are not able to host in-person meetings with our advertising
partners, our teams have quickly pivoted efforts to ‘virtual’ industry education, and our team has led
thought-leadership webinars during quarantine and partnered with many industry leaders like Shopify
and Smartly.io to further educate advertisers about our robust ad tools and capabilities. We are also
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supporting advertisers by building out more on-demand learning tools such as Snap Focus, which
includes six learning courses that walks through everything advertisers need to know to create their
first ad campaign.
Our third priority is to lead the way with innovative advertising. Over the past five years, we’ve been
building a powerful video business with the goal of connecting brands and advertisers to the Snapchat
Generation. For example, COVERGIRL Clean Fresh came to Snapchat to get in front of the hard-to-
reach Gen Z and Millennial female audience. Their campaign leaned heavily into Premium Video,
featuring Snap Select Commercials, Snap Ads and Filters. Of the total audience reach, 62 percent was
unique to Snap. The campaign drove a 9 point lift in Ad Awareness, and a lift in Purchase Intent that
was 4.5x the Snap US CPG Norm.
This is just one example of many that signals a broader shift in how Gen Z and Millennials consume
content. It is getting harder and harder to reach this audience on linear TV or commercial-supported
streaming, and it is not just the younger generation: average daily Discover content viewership by
people over 35 has increased by over 40 percent year-over-year.
Based on this growth and in response to the evolving needs of our advertising partners, we introduced
First Commercial, giving advertisers a way to reserve the first Commercial a Snapchatter sees during
the first Show they watch—allowing brands to make that all-important first impression. Our
Commercials are designed for both Social Video and Online Video buyers, with the goal of attracting
incremental Online Video and TV budgets into our hand-curated, brand-safe content environment.
In fact, the content on our Discover platform is brand-safe by design. In order to provide advertisers
with fixed priced, reserved inventory next to this content, we introduced Snap Select, where ads only
appear in our hand-curated selection of Shows and content from media brands like ESPN, NBC, and
People. In Q2 we expanded our Snap Select curated ad placement options to five topics, 'Sports',
'Entertainment', 'Beauty', 'Lifestyle', and 'News', enabling advertisers to reach viewers within each
vertical.
We believe that the future of customer interactions is immersive. The most engaging and creative ads
on our platform are powered by our augmented reality Lenses. Brands from every vertical have worked
with us to provide Snapchatters with fun ads that they play with and share with friends. Ultimately we
want to enable advertisers with the tools to build the digital layer around their products.
For example, we recently launched our augmented reality Lens ‘try-on’ campaign with luxury brand
Gucci, which allows Snapchatters to virtually try on and purchase some of Gucci’s most iconic shoes via
Snapchat. The Lens was played with by our community for 22 seconds on average and in some markets
generated a 5x Return on Ad Spend. Snapchatters are actively looking for more and more ways to
engage with brands on our platform, and we’re excited to help partners like Gucci connect with them
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during this time. We believe that AR try-on is going to be incredibly important to the future of
commerce and we are excited to work with more partners to build out incredible experiences for our
community.
Longer-term, we see a significant opportunity for brands to provide utility for Snapchatters while
generating real business value across our service—not just via ads in content. Brands are starting to
invest in Snapchat beyond advertising by building fun, engaging, and useful experiences for
Snapchatters. The launch of Brand Profiles this month, which Evan highlighted earlier, is a key pillar of
this future. Today, our focus is on giving Brands a home for all the innovative AR experiences that they
create, alongside their Stories. In the future, we believe that Snapchatters will engage naturally with
businesses of all sizes across our service. For a brand like Target, this could mean they visit the Target
Store on the Map to check local store hours; use a Mini to find the best offers with friends; try on the
latest looks via an AR Lens; and more.
In the five years since we launched ads on Snapchat, we’ve created the industry’s first-ever vertical
video format, brought branded AR experiences to the mainstream, and pioneered privacy-safe, mobile-
first advertising in order to help advertisers everywhere reach our community. We will continue to
invest for the long-term by demonstrating measurable ROI for our advertising partners, empowering
our teams to speak strategically to the value of our ads, and leading the way with innovative advertising
products and services to help advertisers scale. We’ve built a robust advertising platform to reach the
Snapchat Generation, who are digitally native and uniquely positioned to help jumpstart the recovery.
Given our young and influential community, their depth of engagement on our platform, and our
overall opportunity to take share of the growing digital advertising market, we believe we are well-
positioned to drive business results for advertisers over the long term.
With that, I’ll turn the call over to Derek.
DEREK ANDERSEN, CHIEF FINANCIAL OFFICER
Thanks Jeremi. Our Q2 financial results reflect our priorities of growing our community, making
focused investments in the future of our business, and scaling our operations efficiently in order to drive
towards profitability and positive free cash flow.
As Evan mentioned earlier, our community grew to 238 million daily active users in Q2, reflecting year-
over-year growth of 17 percent or 35 million. Growth in our community was robust, however, the final
result fell below our earlier estimate of 239 million. At the onset of widespread shelter in place orders,
as people sought to stay connected and entertained from home, we observed an increase in Daily
Active Users that informed our initial estimate. This initial lift dissipated faster than we anticipated as
shelter in place conditions persisted. Despite the unusual circumstances influencing user growth in the
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quarter, we were pleased with the overall level of growth and that growth continued month over month
from April to May and May to June.
The growth in our community continued to be broad based in Q2. In North America, DAU grew by 9
percent year-over-year to reach 90 million. In Europe, DAU grew by 12 percent to reach 71 million. In
Rest of World, DAU grew by 37 percent to reach 77 million. The outsized growth in Rest of World follows
the rebuild of our Android application in 2019, and our subsequent efforts to further localize the
product. A good example of this momentum can be seen in India, where daily active users more than
doubled year over year in Q2. We see a significant opportunity to continue to grow our community as
we further invest in localization of our product through language support, local content, and marketing
partnerships across a variety of geographies.
Q2 Revenue was $454 million, an increase of 17 percent year-over-year. While our growth rate for the
full quarter exceeded the early quarter to date result we shared in our prior call, the path to this
outcome was not a straight line. The operating environment has remained challenging as COVID-19
continues to impact macro economic conditions, and the businesses of our advertising clients. Many of
our advertisers have seen interruptions in their businesses, especially those that rely on in-person
interaction with their customers such as restaurants, entertainment venues, transportation services,
physical retailers, and hospitality providers among others. In addition, many advertisers paused
spending for periods of time during the quarter in order to swap out their ad creative for messaging that
was more appropriate for the given moment. These challenging circumstances interrupted otherwise
robust momentum in our self serve platform.
We continue to see strong adoption of our goal based bidding products, driven by demand for down