Social network Snapchat (NYSE: SNAP) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 8.7% year on year to $1.34 billion. Its non-GAAP profit of $0.01 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Snapchat's second quarter saw management attribute performance to an expanding user base and new product features, but the market reacted negatively to execution issues in advertising. CEO Evan Spiegel noted that Sponsored Snaps and ongoing investments in augmented reality contributed to user engagement. However, CFO Derek Andersen acknowledged an ad platform change that resulted in some campaigns clearing at reduced prices, impacting advertising revenue growth. Management also cited the timing of Ramadan as an external headwind. While the company made progress on strategic priorities, the quarter was marked by operational missteps and adjustments.

Looking ahead, management is focused on leveraging artificial intelligence and automation to enhance ad platform performance and drive monetization across both direct response and brand advertising. Spiegel emphasized the importance of rolling out new features for Snapchat+, Lens+, and AR glasses, with a particular focus on developer ecosystems and new monetization models. Andersen highlighted efforts to balance investment in AI and machine learning with cost control, stating, "We are updating our full year cost structure guidance to reflect our current investment plans." The company believes further adoption of Sponsored Snaps and new subscription tiers will be key to improving top-line growth.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to the rollout of new ad formats, increased focus on automation, and notable growth in subscription products, while also acknowledging operational challenges.

• Advertising platform adjustments: A significant platform change led to reduced auction prices for some ad campaigns, temporarily lowering ad revenue growth before being reversed. This, combined with Ramadan’s timing, contributed to volatility in ad revenue trends.
• Sponsored Snaps rollout: Management highlighted Sponsored Snaps as a major evolution in the ad business, delivering higher engagement and conversion rates compared to other placements. Early signs indicate a meaningful increase in incremental reach, although increased inventory initially lowered pricing.
• Snapchat+ and Lens+ growth: The subscription business, led by Snapchat+, saw subscriber numbers approach 16 million. The new Lens+ tier, offering exclusive AR features, is expected to further drive subscription revenue and user engagement.
• Augmented reality (AR) investment: Snap continued major investments in its vertically integrated AR platform, including plans to launch stand-alone AR glasses (Specs) in 2026 and new developer tools like Easy Lens and Lens Studio for broader content creation.
• SMB advertising strength: Small and medium-sized businesses (SMBs) were the largest contributors to ad revenue growth, aided by new AI-powered campaign tools and simplified ad buying experiences, which management sees as a durable growth engine.

Drivers of Future Performance

Snap expects AI-driven ad platform improvements, new AR product launches, and increased automation to shape performance in the coming quarters, while monitoring cost discipline.

• AI and automation investments: Management plans to deepen investment in machine learning capabilities to improve ad targeting and campaign performance, particularly through smart bidding and auto-targeting tools, aiming for higher advertiser returns and platform efficiency.
• AR ecosystem expansion: Continued development of AR glasses and tools for creators is expected to support engagement and eventually open new monetization opportunities, as Snap leverages its developer community and partnerships for differentiated AR experiences.
• Subscription and ad product growth: The company sees further upside in scaling Snapchat+ and Lens+, as well as broader adoption of Sponsored Snaps, while acknowledging risks from evolving competitive dynamics and the need to balance new inventory with advertiser demand.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be watching (1) the pace of advertiser adoption and revenue contribution from Sponsored Snaps, (2) expansion and retention in Snapchat+ and Lens+ subscriptions as new features are introduced, and (3) the public launch and reception of Snap’s AR glasses and related developer innovations. Execution on AI-driven advertising tools and engagement initiatives in mature markets like North America will also be key areas to monitor.

Snap currently trades at $7.29, down from $9.38 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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