Snap Inc. (SNAP) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance, with improved net income and free cash flow. The strategic focus on AI, AR, and partnerships like Perplexity AI suggests growth potential. While regulatory risks exist, the overall sentiment from management is optimistic, especially with plans for Snap specs and revenue diversification. Despite some concerns in the Q&A, the guidance and strategic initiatives point towards a positive outlook, likely resulting in a stock price increase of 2% to 8%.
Key Financial Performance
Total Revenue $1.72 billion in Q4, up 10% year-over-year. Growth driven by strong demand for Pixel Purchase and app purchase optimizations, and strength in the SMB client segment.
Advertising Revenue $1.48 billion in Q4, up 5% year-over-year. Growth attributed to demand for DR advertising revenue and SMB client segment.
Other Revenue $232 million in Q4, up 62% year-over-year. Growth driven by a 71% increase in subscribers, reaching 24 million in Q4.
Global Impression Volume Increased approximately 14% year-over-year. Driven by expanded advertising delivery across sponsored Snaps and Spotlight.
Total eCPMs Declined approximately 8% year-over-year. Moderation in decline attributed to growing demand for sponsored Snaps.
Adjusted Cost of Revenue $699 million in Q4, up 4% year-over-year. Growth rate less than half the rate of top-line growth.
Infrastructure Cost per DAU $0.86 in Q4. Below the top end of the full-year cost structure guidance range.
Adjusted Gross Margin 59% in Q4, up from 55% in Q3 and 57% in Q4 of the prior year. Improvement due to revenue growth outpacing infrastructure cost growth and favorable shift in impression delivery mix.
Adjusted Operating Expenses $660 million in Q4, up 8% year-over-year. Growth driven by an 8% increase in personnel costs and higher legal costs, partially offset by reductions in community growth marketing spending.
Adjusted EBITDA $358 million in Q4, an improvement of $82 million compared to the prior year. Adjusted EBITDA margins expanded 9 percentage points to reach 21% in Q4.
Net Income $45 million in Q4, up from $9 million in the prior year. Improvement reflects adjusted EBITDA flow-through, offset by increased interest expense.
Free Cash Flow $206 million in Q4. Trailing 12 months free cash flow was $437 million.
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Operating Highlights
AI-powered camera enhancements: Snapchat is enhancing its camera with AI-powered capabilities, including generative AI lenses, which have been engaged with over 17 billion times by 700 million users.
Imagine Lens: Launched in September, it has been engaged with nearly 2 billion times, showcasing strong early traction.
Specs (AR glasses): Planned for public launch in 2026, with significant development and ecosystem support, including compatibility with existing lenses.
Global monthly active users: Increased by 3 million quarter-over-quarter to 946 million, nearing the goal of 1 billion users.
Snap Map engagement: Monthly active users reached 435 million in Q4, up 6% year-over-year, driving both organic engagement and monetization opportunities.
Advertising revenue growth: Advertising revenue reached $1.48 billion in Q4, up 5% year-over-year, driven by SMBs and direct response advertising.
Gross margin improvement: Achieved 59% gross margin in Q4, with a goal to exceed 60% in 2026.
Subscription growth: Subscribers grew 71% year-over-year to 24 million in Q4, contributing to a 62% increase in other revenue.
Cost management: Infrastructure cost per DAU was $0.86 in Q4, reflecting better alignment of costs with monetization potential.
Focus on profitable growth: Shifted investments to prioritize profitable growth, reducing community growth marketing spending.
AI-driven advertising: Leveraging AI for ad platform improvements, including smart campaigns and dynamic product ads, to enhance advertiser performance.
Revenue diversification: Expanding subscription offerings and introducing new revenue streams like Lens+ and Memories storage plans.
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Risk or Challenges
Regulatory Environment: The implementation of platform-level age verification in Australia, in compliance with a new law, led to the removal of approximately 400,000 accounts. This regulatory requirement may adversely affect engagement metrics as similar implementations progress globally.
Community Growth Marketing Investments: The decision to reduce community growth marketing investments has resulted in a decline in global daily active users by 3 million quarter-over-quarter, reflecting a trade-off between engagement and profitability.
Cost Structure Adjustments: Efforts to better align infrastructure costs with long-term monetization potential of geographies may lead to challenges in maintaining user engagement and operational efficiency in less profitable regions.
Advertising Revenue Growth: The focus on higher-margin ad placements and subscription-based revenue streams involves trade-offs with user engagement, potentially impacting the overall user experience and retention.
Legal and Regulatory Costs: Elevated legal and regulatory compliance-related costs, including litigation, are contributing to increased operating expenses, which may strain financial resources.
Augmented Reality (AR) and Specs Launch: The planned launch of Specs in 2026 requires significant investment in product development and go-to-market strategies, posing risks related to execution, adoption, and return on investment.
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Guidance & Outlook
Revenue Growth: Snap Inc. projects revenue growth in 2026, with Q1 revenue guidance set between $1.5 billion and $1.53 billion. The company aims to accelerate top-line growth and diversify revenue streams.
Gross Margin Expansion: The company has set a near-term goal to achieve 60% gross margins, with expectations to exceed this target in 2026. This will be driven by infrastructure cost alignment, higher-margin ad placements, and subscription business growth.
Advertising Business: Snap Inc. plans to grow its advertiser base, focusing on small- and medium-sized businesses, and improve advertising performance through AI-driven tools. The company aims to increase advertising revenue and gain market share over time.
Subscription Growth: The company will focus on growing its subscription offerings, including Snapchat+ and Memories storage plans, with subscriber growth being a critical metric. The goal is to increase the annualized run rate for other revenue.
Augmented Reality and Specs Launch: Snap Inc. plans to launch its Specs product in 2026, marking a significant step in its augmented reality platform. The company is investing in AR tools and developer ecosystems to support this launch.
Community Growth and Engagement: The company aims to reach 1 billion global monthly active users while focusing on monetizable markets. Efforts will include enhancing AI-powered camera capabilities and fostering engagement in developed advertising geographies.
Cost Management and Profitability: Snap Inc. plans to align infrastructure costs with monetization potential and reduce community growth marketing expenses. The company is targeting meaningful net income profitability over the medium term.
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Shareholder Return Plan
Share Repurchase Program: Snap Inc. has authorized a new share repurchase program in the amount of $500 million. This decision is aimed at opportunistically managing the company's share count for the benefit of long-term shareholders. Share repurchases completed throughout 2025 helped limit share count growth to 3% in Q4.
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Key Q&A
Q:With Snap specs as a key priority in the next 1-2 years, can you elaborate on the platform, application, and use case development, and how it aligns with your strategic priorities for spatial computing?
A:Evan Spiegel discussed the excitement around Snap specs, transitioning from R&D to broader consumer adoption. He highlighted the development of prior versions, including the 2024 version for developers, and the forthcoming version later this year. Developers have created utilities, educational tools, and augmented reality experiences. The focus is on engaging early adopters and developers, with a long-term vision of lightweight, affordable, and powerful glasses for immersive real-world experiences.
Q:The 1Q guide assumes growth at the high end. Can you explain the drivers between DR and brand, and trends in the ad business for 2026?
A:Derek Andersen explained that ad growth is driven by increased active advertisers (up 28% YoY in Q4) and SMB go-to-market operations. Medium customer segments, especially in North America, contributed significantly. Challenges remain in the North America large customer business, but there are bright spots in financial services and autos. New products like sponsored Snaps and promoted places are being developed. The Q1 guide assumes a stable macro environment.
Q:What drove the acceleration in subscription growth in Q4, and what is happening in the North American user market?
A:Evan Spiegel attributed subscription growth to Memories storage plans, which improved retention rates. He emphasized the importance of diversifying revenue through subscriptions and SMB growth. Regarding North American users, he noted a focus on balancing community growth with ARPU growth, reducing community growth marketing spend, and rolling out paid features. Regulatory changes and shifting engagement patterns also impact user growth.
Q:What is the potential impact of regulatory risks, such as age verification policies and teen social media restrictions, particularly in North America?
A:Evan Spiegel acknowledged pending legislation and regulatory risks but noted that ad revenue from users under 18 is not material. He emphasized Snapchat's positive impact on well-being and friendships, contrasting with other social media platforms. He highlighted challenges in communicating Snapchat's differences to regulators and the need to prove its positive impact over time.
Q:Can you discuss the synergy between specs and Snap services, and how you plan to capitalize on specs development?
A:Evan Spiegel explained that specs aim to make computing more human and address smartphone limitations. The focus is on developing a standalone brand for specs, appealing to a different audience than Snapchat. He mentioned potential opportunities to raise additional capital for specs development while balancing ownership and dilution. The immediate priority is delivering a successful product launch.
Q:How is agentic coding being deployed at Snap, and what are the potential benefits?
A:Evan Spiegel stated that 40% of new code at Snap is AI-generated, improving trust and safety, customer service, and sales workflows. AI tools accelerate creativity and enable rapid development of new services. Snap is leveraging AI as a force multiplier to enhance productivity and creativity across the enterprise.
Q:Why is Snap moderating infrastructure spending while others are ramping up?
A:Derek Andersen explained that infrastructure spending has been driven by ML and AI investments for ad and content businesses. Snap is focusing on cost-to-serve efficiency and aligning infrastructure growth with monetization potential. Initiatives like Memories storage plans turn costs into revenue sources. Investments in AI and ML remain critical for ad and content performance.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about the potential impact of regulatory risks in North America. While Evan Spiegel acknowledged pending legislation and emphasized Snapchat's positive impact, he did not provide specific details on how these risks might affect the business or user base.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AR card
CPI purchase
Crucible Moment
DPA
Memories storage
ROAS
Snapchatters advertiser
Snapchatters friend
Snaps funnel
Snaps place
Spotlight
Star Wars
action conversion
adoption
advertiser Snapchatters
advertiser base
advertising focus
advertising geography
base market
benchmark
brand Snapchatters
campaign setup
card game
community relationship
connection brand
conversation
decision
development campaign
engagement world
expansion
friction
lens
margin
player
purchase format
reduction cost
spec
term goal
SNAP Transcript
Snap Inc. (SNAP) Q4 2025 Earnings Call Transcript
Positive2-4
The earnings call summary indicates strong financial performance, with improved net income and free cash flow. The strategic focus on AI, AR, and partnerships like Perplexity AI suggests growth potential. While regulatory risks exist, the overall sentiment from management is optimistic, especially with plans for Snap specs and revenue diversification. Despite some concerns in the Q&A, the guidance and strategic initiatives point towards a positive outlook, likely resulting in a stock price increase of 2% to 8%.
Snap Inc. (SNAP) Q3 2025 Earnings Call Transcript
Positive11-5
Snap Inc. demonstrated strong financial performance with increased revenue, improved EBITDA, and reduced net loss. The Q&A section revealed solid strategies for growth, especially in AI and advertising. However, some uncertainties exist, particularly regarding the Perplexity partnership and regulatory impacts. Overall, the optimistic guidance and strategic investments suggest a positive stock price movement.
Snap Inc. (SNAP) Q2 2025 Earnings Call Transcript
Positive8-5
The earnings call reflects a positive sentiment with strong financial performance, product development, and market strategy. The Q&A highlights promising growth in Snapchat+ and ad revenue, despite some uncertainties in auction pricing and management's vague responses. However, the overall focus on AR, strong engagement metrics, and strategic initiatives indicate a positive outlook. The stock-based compensation reduction and strong financial flexibility further enhance the positive sentiment, leading to an expected stock price increase in the range of 2% to 8%.
Earnings call transcript: Snap Inc Q1 2025 beats EPS forecast, stock drops
Unknown4-29
The earnings call presents mixed signals. Financial performance shows positive growth in revenue and reduced losses, but challenges persist in advertising demand and macroeconomic conditions. The Q&A reveals management's cautious stance and some unclear responses. Despite positive trends in North America and strategic cost management, the lack of strong guidance and macroeconomic uncertainties balance the positives, leading to a neutral sentiment. The stock price is likely to remain stable within a -2% to 2% range over the next two weeks.
SNAP Slides
SNAP Report
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