SNAP Q2 2025 Sponsored Snaps lift ad growth to 3-4% after auction fix
- Sponsored Snaps are delivering compelling engagement: Q&A responses highlighted that sponsored snaps drive 2x conversion, 5x click-to-convert ratios, and 2x longer website dwell times compared to alternative ad formats, signaling strong potential to boost revenue growth as adoption scales.
- Differentiated AR and AI capabilities bolster the long-term growth story: The management emphasized their fully integrated AR ecosystem, including innovative tools like EZLens and specs glasses, positioning Snap to lead in a market poised for transformational user interface and content experiences.
- Robust growth in the small and medium customer segment drives scalable ad revenue: Improved ad automation through initiatives such as smart bidding and auto targeting is resonating strongly with SMB advertisers, with this segment noted as the largest contributor to ad revenue growth in Q2, supporting a strong and expanding revenue base.
- Auction pricing mishap: Issues with the ad platform rollout led to significant pricing distortions—especially impacting the Doctor ad revenue—which suppressed overall ad revenue growth during the quarter.
- Flat brand advertising performance: Brand advertising revenue remained flat in Q2 despite growth in other segments, suggesting potential weakness in attracting higher-quality or large-scale advertiser spending.
- Reliance on nascent ad products: Heavy reliance on emerging inventory like sponsored snaps, which, while promising, remains in early stages and could be volatile, potentially limiting revenue stability until broader market adoption is achieved.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
DAU | Q3 2025 | no prior guidance [N/A] | 476 million | no prior guidance |
Revenue | Q3 2025 | no prior guidance [N/A] | $1,475 million to $1,505 million | no prior guidance |
Adjusted EBITDA | Q3 2025 | no prior guidance [N/A] | $110 million to $135 million | no prior guidance |
Infrastructure Costs per DAU | FY 2025 | $0.82 to $0.87 per quarter, anticipated to fall near the midpoint with 468 million | $0.82 to $0.87 per quarter, anticipated to be in the top half | no change |
All Other Cost of Revenue | FY 2025 | 19% to 20% of revenue | 19% to 20% of revenue | no change |
Adjusted Operating Expenses | FY 2025 | $2.65 billion to $2.7 billion | $2,650 million to $2,700 million | no change |
Stock-Based Compensation | FY 2025 | $1.13 billion to $1.16 billion | $1,100 million to $1,130 million | lowered |
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Sponsored Ads
Q: How effective are sponsored snaps and auction pricing?
A: Management explained that sponsored snaps are delivering 2x conversion increases and 5x click-to-convert ratios, although a temporary platform change led to lower auction prices—issues that were reversed, resulting in ad revenue growth recovering from about 1% in April to 3–4% post-rollback. -
Advertising Mix
Q: How are Doctor and brand ad revenues trending?
A: Management noted that Doctor ad revenue grew by 5% while brand advertising remained flat, indicating a strategic shift toward lower‐funnel products that have helped stabilize overall ad revenue despite auction pricing challenges. -
Cost & Spotlight
Q: What’s the update on SBC costs and Spotlight monetization?
A: The team has cut SBC guidance by $30M through focused hiring, and Spotlight monetization is progressing well as its inventory and contextual placements are increasingly driving direct response performance. -
US DAUs & Q3
Q: What are the plans for growing US DAUs and Q3 revenue?
A: Management is focused on launching new conversation-driven features to reaccelerate U.S. engagement, while Q3 revenue guidance reflects continued recovery in auction dynamics and increased sponsored snaps, targeting 3–4% ad revenue growth. -
SMC Growth
Q: How is the small and medium customer segment performing?
A: The SMC segment has emerged as the largest contributor to ad revenue growth, with automation improvements like smart bidding and auto targeting effectively supporting lower‐funnel advertisers. -
Lens Plus
Q: What is the early reception to Lens Plus?
A: Though early in its rollout, management is encouraged by Lens Plus, which builds on the 8 billion daily Lens engagements to offer exclusive, AI-powered experiences that could significantly boost subscription value. -
User Engagement
Q: How are overall user engagement and Snapchat Plus trends?
A: Despite slight variations in daily active numbers, core engagement remains robust—with calling up 30% year-over-year—and Snapchat Plus continues to expand, evidenced by a 64% increase in its revenue run rate, reinforcing the enduring appeal of the platform.
Research analysts covering Snap.