Earnings Call Insights: Snap Inc. (SNAP) Q3 2025
Management View
- Evan Spiegel, Co-Founder, CEO & Director, opened with a focus on Snap’s long-term strategy: “In Q3, we made meaningful progress on our long-term strategy to grow our global community, deliver stronger performance for advertisers and invest in the future of augmented reality.” The company reported reaching 477 million daily active users and 943 million monthly active users, with revenue increasing to $1.51 billion, reflecting a 10% year-over-year rise driven by improved advertising demand and direct revenue streams.
- Key product and strategic highlights included the rapid expansion of Snapchat+ subscriptions, which reached an annualized run rate of more than $750 million, and the rollout of new AI-powered experiences such as Lens+ and Platinum bundles. Spiegel noted, “We expanded our premium offerings, introducing new storage plans for memories and launched AI-powered experiences in Lens+ and Platinum bundles that we believe will deliver incremental value to our most engaged community members.”
- The company emphasized progress in augmented reality and AI, with Spiegel stating, “Every day, Snapchatters use AR lenses more than 8 billion times and more than 350 million Snapchatters engaged with AR experiences daily.” Snap introduced its first open prompt image generation lens and announced the upcoming public launch of Specs, AR glasses, supported by Snap OS 2.0 and Snap Cloud.
- CFO Derek Andersen reported, “In Q3, total revenue was $1.51 billion, up 10% year-over-year. Advertising revenue reached $1.32 billion in Q3, up 5% year-over-year, driven primarily by growth in DR advertising revenue, which increased 8% year-over-year.”
Outlook
- The company provided Q4 revenue guidance of $1.68 billion to $1.71 billion, implying year-over-year revenue growth of 8% to 10%. Andersen indicated, “Given the revenue range above and the progress we have made to optimize our cost structure, we estimate that adjusted EBITDA will be between $280 million and $310 million in Q4.”
- Adjusted operating expenses are expected to end the year near the low end of the revised range of $2.65 billion to $2.7 billion. Stock-based compensation and related expenses guidance was further reduced to $1.08 billion to $1.1 billion for the full year.
- Spiegel cautioned, “We expect overall DAU may decline in Q4 given these internal and external factors,” referencing ongoing regulatory changes, age verification rollouts, and trade-offs in engagement as monetization initiatives expand.
Financial Results
- Snap reported $1.51 billion in total revenue for Q3, with advertising revenue at $1.32 billion and other revenue, including Snapchat+ subscriptions, increasing 54% year-over-year to $190 million. The company delivered $182 million of adjusted EBITDA, $93 million in free cash flow, and reduced its net loss year-over-year to $104 million.
- Adjusted gross margin reached 55%, up from 52% in Q2. Global impression volume rose 22% year-over-year, though total eCPMs declined 13% due to inventory expansion from Sponsored Snaps and Spotlight.
- Infrastructure costs per DAU were $0.85 in Q3, while the balance sheet held $3 billion in cash and marketable securities.
Q&A
- Richard Greenfield, LightShed Partners, LLC, asked about the Perplexity AI partnership. Spiegel responded, “We don’t expect to recognize any of the 400 million until we begin to roll out the integration likely towards the beginning of next year. And Perplexity will control the responses from their chatbot inside a Snapchat. So we won’t be selling advertising against the Perplexity responses.”
- Greenfield also queried cost leverage; Andersen replied, “In Q3 specifically, we’re seeing the benefit of a mix shift in where impressions are being delivered, in particular to Sponsored Snaps and to a certain extent, Spotlight and as you’ve noted, these surfaces have higher margins, and this contributed directly to gross margin improvement of 55% in Q3.”
- Mark Shmulik, Sanford C. Bernstein & Co., LLC., asked about engagement and regulatory headwinds. Spiegel indicated, “I do think there will be trade-offs there in terms of engagement. But ultimately, as we focus on more profitable growth, I think those are trade-offs that we’re going to want to accept.”
- Michael Morris, Guggenheim Securities, LLC, inquired about direct response advertising. Andersen stated, “Direct response revenue was up 8% year-over-year in the most recent quarter. It was an acceleration of 3 percentage points over the prior quarter.”
Sentiment Analysis
- Analyst tone was probing but constructive, focusing on monetization, regulatory risks, cost control, and engagement trade-offs. Questions reflected slight caution, particularly around future DAU trends and profitability.
- Management maintained a confident outlook in prepared remarks and Q&A, emphasizing progress in core metrics and strategic initiatives. Andersen stated, “We’re pretty pleased with what we’re seeing on both the ad platform and our ad units there in terms of driving improvement on revenue and the business generally.”
- Compared to the previous quarter, management expressed greater confidence in margin expansion and monetization, but flagged more explicit headwinds on user growth due to regulatory shifts. Analyst tone remained steady, with some increased focus on emerging risks.
Quarter-over-Quarter Comparison
- Revenue growth accelerated from 9% in Q2 to 10% in Q3, while adjusted EBITDA improved from $41 million to $182 million. Other revenue, including subscriptions, maintained momentum, but the pace of subscriber growth decelerated slightly.
- Management language shifted to emphasize profitability over pure user growth, with explicit warnings of possible DAU declines in Q4. Strategic focus is increasingly on monetization, cost efficiency, and AI partnerships.
- Analysts maintained focus on Sponsored Snaps, cost controls, and engagement headwinds, with new attention to regulatory impacts and AI integrations.
Risks and Concerns
- Management cited potential negative impacts on engagement due to global rollout of monetization features, recalibrated infrastructure investments, and new age verification requirements.
- External regulatory pressures, such as Australia’s minimum age bill and potential similar regulations in other countries, were highlighted as ongoing uncertainties.
- Infrastructure and personnel cost increases, as well as legal and compliance expenses, remain operational risks.
Final Takeaway
Snap’s Q3 2025 call spotlighted expanding monetization through new AI-powered partnerships and product innovations, while cautioning that regulatory changes and monetization trade-offs could impact daily active user growth in the near term. The company remains focused on driving profitability, operational efficiency, and long-term growth, supported by a strengthened balance sheet and a diversified global revenue base.