Snap(SNAP) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue increased by 10% year over year to $1,510,000,000 driven by improved advertising demand and expansion of direct revenue streams [6][35] - Advertising revenue reached $1,320,000,000, up 5% year over year, with direct response advertising revenue increasing by 8% year over year and 13% quarter over quarter [6][35] - Net loss reduced by more than 30% year over year to $104,000,000, reflecting progress towards sustained profitability [7][42] - Adjusted EBITDA was $182,000,000, an improvement of $50,000,000 compared to the prior year, with adjusted EBITDA margins expanding to 12% [7][42] - Free cash flow was $93,000,000 in Q3, contributing to a trailing twelve-month free cash flow of $414,000,000 [7][42] Business Line Data and Key Metrics Changes - Other revenue, including Snapchat Plus subscription revenue, increased by 54% year over year to $190,000,000 [6][35] - The SMB advertising business grew at a rate of more than 25% in Q3, while the large client solutions business posted a modest decline [36][75] - Global impression volume grew approximately 22% year over year, with total eCPMs down approximately 13% year over year due to increased inventory from sponsored snaps [39][40] Market Data and Key Metrics Changes - Advertising revenue growth in Europe accelerated to 12% year over year, while the Rest of World segment grew by 13% year over year [36][74] - North America advertising revenue growth lagged at 1% year over year, with the large client solutions segment accounting for approximately 43% of total global revenue [36][37] Company Strategy and Development Direction - The company aims to reach 1,000,000,000 monthly active users globally, focusing on improving average revenue per user through monetization of core products [17][32] - Investments in augmented reality and AI are prioritized, with new features and tools being introduced to enhance user experience and engagement [6][18][24] - The company is recalibrating investments in community growth and cost structures to improve financial efficiency [14][64] Management's Comments on Operating Environment and Future Outlook - Management anticipates potential declines in daily active users in Q4 due to internal and external factors, including regulatory changes and age verification implementations [17][64] - The company remains committed to long-term growth despite short-term engagement headwinds, focusing on monetization efficiency and compliance with evolving regulations [16][64] Other Important Information - The partnership with Perplexity AI is expected to enhance personalization and drive additional subscribers, with monetization from this partnership anticipated to begin in 2026 [34][51] - The company has authorized a new share repurchase program of $500,000,000 to manage share count for long-term shareholders [46] Q&A Session Summary Question: On the Perplexity partnership, is the cash stock split already determined? - Management expressed excitement about the Perplexity partnership, noting that monetization will not begin until the integration rolls out, likely in early 2026 [51][52] Question: How do you see Snap's role evolving as a distribution channel? - Management highlighted the opportunity to open up the chat interface to more AI agents and conversational commerce experiences, indicating a focus on enhancing distribution for advertisers [60][61] Question: Can you provide an update on direct response advertising growth? - Direct response revenue was up 8% year over year, with strong performance in pixel purchase demand and app optimizations, particularly in Europe and the Rest of World [72][74] Question: What is the conviction level on keeping infrastructure costs flat next year? - Management indicated a focus on improving capacity utilization and efficiency in infrastructure costs, aiming to maintain flat costs into 2026 [80][81] Question: Any updates on Spectacles and potential financial partners? - Management confirmed ongoing preparations for the public release of Spectacles, leveraging existing software and developer tools to enhance technical leadership in the AR space [85]