Snap(SNAP) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q3 2025, total revenue increased by 10% year-over-year to $1.51 billion, driven by improved advertising demand and the expansion of direct revenue streams [5][29] - Advertising revenue reached $1.32 billion, up 5% year-over-year, primarily due to growth in direct response advertising revenue, which increased by 8% year-over-year [29][30] - Adjusted EBITDA was $182 million, an improvement of $50 million compared to the prior year, with a net loss reduced by over 30% year-over-year to $104 million [6][36] - Free cash flow was $93 million in Q3, with a total of $414 million over the trailing 12 months [6][37] Business Line Data and Key Metrics Changes - Direct response advertising revenue increased by 8% year-over-year, with strong demand from small and medium-sized business customers [5][29] - Other revenue, including Snapchat Plus subscription revenue, surged by 54% year-over-year to $190 million [5][29] - The community reached 477 million daily active users, an increase of 34 million or 8% year-over-year [4] Market Data and Key Metrics Changes - Advertising revenue growth in Europe accelerated to 12% year-over-year, while the rest of the world saw a 13% increase [30] - North America advertising revenue grew only 1% year-over-year, with the SMB segment growing over 25% [30][31] - Global impression volume grew approximately 22% year-over-year, although total eCPMs decreased by about 13% due to increased inventory [32] Company Strategy and Development Direction - The company aims to reach 1 billion monthly active users globally and is focusing on enhancing user engagement through new features and conversation starters [4][7] - Investments in augmented reality and AI are prioritized, with plans to introduce new monetization tools and premium offerings [5][20] - The strategy includes recalibrating investments in community growth and optimizing cost structures to improve financial efficiency [11][12] Management's Comments on Operating Environment and Future Outlook - Management anticipates potential declines in daily active users in Q4 due to regulatory changes and internal initiatives [13] - The company remains committed to long-term growth despite short-term engagement headwinds, focusing on monetization efficiency and compliance with regulations [12][13] - Future revenue guidance for Q4 is set between $1.68 billion and $1.71 billion, implying year-over-year growth of 8%-10% [37] Other Important Information - The company has approximately $3 billion in cash and marketable securities, providing financial flexibility for future investments [6][37] - A new share repurchase program of $500 million has been authorized to manage share count for long-term shareholders [39] Q&A Session Questions and Answers Question: On the Perplexity partnership, is the cash stock split already determined? - Management expressed excitement about the Perplexity partnership, emphasizing its potential to enhance Snapchat's role as a messaging service and the unique opportunity to distribute AI agents through the chat interface [41][43] Question: Should we presume that the reason for the leverage in cost of revenue is due to not paying out to content owners? - Management clarified that the improvement in gross margins is attributed to a mix shift towards higher-margin ad formats like Sponsored Snaps and Spotlight, which have lower associated costs [42][46] 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 strategic focus on enhancing customer engagement through these channels [47][49] Question: Could you talk about your conviction level on keeping infrastructure costs flat next year? - Management indicated a strong focus on improving capacity utilization and efficiency in infrastructure costs, aiming to maintain flat costs into 2026 [60][61] Question: What is the latest thinking on Spectacles and potential financial partners? - Management is preparing for the public release of Spectacles and is considering various options to accelerate technical leadership in the AR space, including establishing a standalone subsidiary for better flexibility [63]