Snap(SNAP) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q4 2025 was $1.72 billion, representing a 10% year-over-year increase [32] - Advertising revenue reached $1.48 billion in Q4, up 5% year-over-year, primarily driven by growth in direct response (DR) advertising [32] - Other revenue increased by 62% year-over-year to $232 million, with subscribers growing 71% year-over-year to 24 million [32] - Adjusted gross margin reached 59% in Q4, up from 55% in Q3 and 57% in Q4 of the prior year [34] - Positive net income of $45 million in Q4, up from $9 million in the prior year [37] - Free cash flow was $206 million in Q4, with total free cash flow over the trailing twelve months at $437 million [38] Business Line Data and Key Metrics Changes - The advertising business is focusing on three core initiatives: fostering direct connections between brands and users, enhancing ad performance through AI, and expanding the advertiser base [6][7] - The subscription business, particularly Snapchat+, has become a significant growth driver, with a 71% increase in subscribers year-over-year [8] - Global impression volume increased approximately 14% year-over-year, driven by expanded advertising delivery across Sponsored Snaps and Spotlight [33] Market Data and Key Metrics Changes - Monthly active users reached 946 million, with a focus on growing in monetizable markets [5] - Global daily active users declined by 3 million quarter-over-quarter to 474 million, reflecting reduced community growth marketing investments [16][17] - Monthly active Snap Map users reached 435 million in Q4, up 6% year-over-year [15] Company Strategy and Development Direction - The company aims to balance community growth with top-line growth to pivot towards more profitable growth [6] - Plans to launch Specs in 2026, focusing on augmented reality and enhancing user experiences [19] - The strategy includes diversifying revenue streams and improving gross margins through higher-margin ad placements and subscription growth [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving net income profitability and emphasized the importance of community engagement in developed advertising markets [10][18] - The regulatory environment poses near-term risks, particularly regarding age verification policies, but management believes the impact on revenue will be minimal [66] - The company is committed to maintaining long-term trust with its community while navigating regulatory challenges [18] Other Important Information - The company has authorized a new share repurchase program of $500 million to manage share count for long-term shareholders [38] - Adjusted operating expenses were $660 million in Q4, growing at a slower rate than revenue [36] - The company plans to invest in community safety and product development for Specs, which will contribute to adjusted operating expense growth [41] Q&A Session Summary Question: Insights on Snap Specs and its integration into the business - Management highlighted the excitement around Specs and the development of various use cases by developers, emphasizing the importance of engaging early adopters [46][47] Question: Q1 growth expectations and advertising trends - Management noted strong growth in active advertisers, particularly in the medium customer segment, and plans to build on this momentum in 2026 [54][55] Question: Subscription growth drivers and user engagement in North America - Management indicated that memory storage plans significantly contributed to subscriber growth and retention, while also addressing the need to balance user growth with revenue generation [60][62] Question: Regulatory risks and their impact on user engagement - Management acknowledged the potential impact of regulatory changes but expressed confidence in Snapchat's positive impact on user well-being compared to other platforms [66] Question: Synergy between Specs and Snap services - Management discussed the importance of developing a standalone brand for Specs and the potential for raising additional capital to support its rollout [74] Question: Deployment of AI tools and their benefits - Management noted that AI-generated code now constitutes a significant portion of new code at Snap, enhancing productivity and enabling faster development of new services [78]