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Snap Inc (SNAP) Q3 2025 Earnings Summary

Executive Summary

  • Q3 delivered solid top-line and profitability: revenue grew 10% YoY to $1.51B, Adjusted EBITDA rose 38% YoY to $182M, and FCF was $93M, while GAAP diluted EPS was ($0.06) . Versus S&P Global consensus, SNAP beat on revenue ($1.507B vs $1.490B*) and on Primary EPS ($0.104 vs $0.054*) as estimate benchmarks *.
  • Mix and execution dynamics: Global impressions +22% YoY with total eCPMs ~13% lower given inventory growth (notably Sponsored Snaps, Spotlight). Adjusted gross margin expanded to 55% (from 52% in Q2), aided by delivery mix and cost scaling .
  • Outlook and capital return: Q4 revenue guided to $1.68–$1.71B (8–10% YoY) with Adjusted EBITDA of $280–$310M; company authorized a new $500M repurchase program and further trimmed FY SBC guidance to $1.08–$1.10B .
  • Watch the trade-offs: Management cautioned DAU may decline in Q4 as it prioritizes ARPU and compliance (age verification; regulatory changes), and recalibrates cost to serve by geography; North America Large Client Solutions remains the primary growth headwind despite strong SMB momentum .

What Went Well and What Went Wrong

What Went Well

  • Revenue and profitability momentum: Revenue +10% YoY to $1.507B, Adjusted EBITDA +38% YoY to $182M, FCF $93M; Adjusted gross margin improved to 55% (from 52% in Q2) on mix and cost scaling .
  • Direct revenue expansion: “Other Revenue” (largely Snapchat+) +54% YoY to $190M; Snapchat+ subscribers +35% YoY approaching 17M; annualized direct revenue run-rate >$750M .
  • Ad platform execution and SMB strength: DR revenue +8% YoY (+3ppt acceleration vs Q2), purchase-related ad revenue +30% YoY; SMB ad revenue in North America grew >25% YoY; Sponsored Snaps showing up to 22% more conversions and up to 19% lower CPA .

Quotes:

  • “Our focus on performance, creativity, and simplicity is helping advertisers achieve stronger results while giving our community more ways to communicate.” — Evan Spiegel, CEO .
  • “Adjusted gross margin reached 55% in Q3, up from 52% in Q2 and 54% in Q3 of the prior year.” — CFO commentary in investor letter .

What Went Wrong

  • North America large clients remain soft: North America ad revenue grew just 1% YoY; LCS declined modestly and remains the primary headwind to overall growth .
  • Monetization-engagement trade-offs and regulatory friction: Company expects Q4 DAU may decline due to internal ARPU initiatives (Sponsored Snaps, Promoted Places, Lens+, storage plans), cost-to-serve recalibration, and age verification/regulatory changes (e.g., Australia) .
  • eCPM pressure from inventory growth: Impressions +22% YoY with total eCPMs down ~13% YoY given Sponsored Snaps/Spotlight inventory expansion, though performance outcomes improved .

Financial Results

Headline P&L and Cash Flow

MetricQ3 2024Q2 2025Q3 2025
Revenue ($M)$1,372.6 $1,344.9 $1,506.8
Diluted EPS (GAAP)($0.09) ($0.16) ($0.06)
Adjusted EBITDA ($M)$132.0 $41.3 $182.0
Adjusted EBITDA Margin %10% 3% 12%
Operating Loss Margin %(13)% (19)% (9)%
Adjusted Gross Margin %54% 52% 55%
Operating Cash Flow ($M)$115.9 $88.5 $146.5
Free Cash Flow ($M)$71.8 $23.8 $93.4

Q3 2025 Actuals vs S&P Global Consensus

MetricConsensusActualDelta
Revenue ($M)$1,490.4*$1,506.8 +$16.4
Primary EPS ($)$0.054*$0.104*+$0.050

Values with asterisks (*) retrieved from S&P Global.

Revenue Mix and Regional Detail

  • Revenue by Type (Q3 2025): Advertising $1.32B; Other Revenue $190M .
Region Revenue ($M)Q3 2024Q2 2025Q3 2025
North America$857.6 $820.6 $897.8
Europe$248.9 $265.3 $298.0
Rest of World$266.1 $259.0 $311.1

KPIs and Platform Metrics

KPIQ3 2024Q2 2025Q3 2025
DAU (M)443 469 477
MAU (M)883 932 943
ARPU ($)$3.10 $2.87 $3.16
Impression Growth YoY—+17% (Q1 ref) +22%
Total eCPM YoY—(7)% (Q1 ref) (13)%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2025—$1.68B–$1.71B New
Adjusted EBITDAQ4 2025—$280M–$310M New
Infrastructure Cost per DAUFY 2025 (quarterly)$0.82–$0.87 (maintained since Q1) Track mid-point in Q3; Q4 infra cost $420–$435M Maintained; Q4 level set
Other Cost of Revenue (% of revenue)FY/Q4 2025FY guide 19%–21% Q3 at 18%; Q4 18%–19% Lower near-term mix
Adjusted Operating ExpensesFY 2025Reduced earlier to $2.65B–$2.70B Expect near low end of $2.65B–$2.70B Bias lower end
SBC & RelatedFY 2025Reduced earlier to $1.10B–$1.13B Further reduced to $1.08B–$1.10B Lower
DAU OutlookQ4 2025—DAU may decline on ARPU initiatives/regulatory/age verification New qualitative
Share RepurchaseNext 12 months—New $500M authorization New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025; Q2 2025)Current Period (Q3 2025)Trend
AI/ML in Ads & DR PerformanceModel freshness/scale improvements, tCPA, DPA gains; SKAN app purchases +30% YoY (Q1) . Sponsored Snaps proving effective; Smart Campaign Solutions launched (Q2) .DR +8% YoY; purchase-related ad revenue +30% YoY; Smart Targeting +8.8% conv., Sponsored Snaps up to +22% conversions/−19% CPA .Improving
Direct Revenue (Snap+, Lens+)Other Revenue +75% YoY to $152M; Snap+ ~15M subs (Q1) . Other Revenue +64% YoY (Q2) .Other Revenue +54% YoY to $190M; Snap+ subs +35% YoY approaching 17M .Improving
Regional Ad TrendsNA +12% YoY (Q1); Europe +14%, RoW +20% (Q1) .Europe +12% YoY (accel +6ppt QoQ); RoW +13% YoY (accel +10ppt QoQ); NA +1% YoY; NA LCS weak, SMB >25% YoY .Europe/RoW up; NA LCS lagging
Engagement & ContentSpotlight views <24h doubled YoY (Q1) .Spotlight views <24h +>300% YoY in US; unified user model & lower latency .Improving
AR/SpecsSpectacles momentum, tools, developer challenges (Q1) . Plans to launch consumer Specs in 2026 (Q2) .Snap OS 2.0; Specs public launch next year; Snap Cloud; Commerce Kit; subsidiary structure to enable partnerships .Building toward launch
Regulatory/Compliance—Anticipated impacts from age verification and Australia’s minimum age bill; expect DAU decline in Q4 .New headwind

Management Commentary

  • Strategic focus: “We’re improving key components of our service… ensuring our service remains simple, accessible, and enduring,” while scaling differentiated ad formats and AI-driven personalization .
  • On DR and SMB execution: “SMBs remained our largest contributor to ad revenue growth… realigning sales teams and agency partnerships… a meaningful growth lever through 2026” .
  • On Perplexity partnership and monetization: “We don’t expect to recognize any of the $400 million until we begin to roll out the integration… Perplexity will control the responses… we won’t be selling advertising against the Perplexity responses” — Evan Spiegel (Q&A) .
  • Cost and margins: “Adjusted gross margin reached 55% in Q3, up from 52% in Q2 and 54% in Q3 of the prior year,” supported by mix and cost-to-serve efforts — Derek Andersen .
  • Tone on growth vs discipline: Expect near-term DAU softness due to ARPU initiatives, geo cost-to-serve recalibration, and age verification, but “right actions to strengthen our business for the long term” .

Q&A Highlights

  • Perplexity integration: Cash/equity consideration of $400M recognized with rollout in 2026; no ads sold against Perplexity responses inside Snapchat; potential to expand to more AI partners and leverage Sponsored Snaps for conversational experiences .
  • Cost of revenue leverage: Mix shift to Sponsored Snaps/Spotlight and content program optimization driving gross margin gains; continued work to align cost-to-serve with market monetization potential .
  • Engagement headwinds: Management reiterated Q4 DAU could decline due to ARPU/product changes, infra recalibration, and age verification; product roadmap to spark conversations and share Spotlight content to offset headwinds over time .
  • DR trajectory and stability: DR +8% YoY with strength in Pixel/App optimizations and SMB; NA LCS remains soft but targeted GTM adjustments underway; continued vigilance on bidding/optimization stability .
  • Infrastructure costs outlook: Focus on capacity utilization, pricing, and engineering efficiency to work toward flat infra into 2026; Q4 infra costs guided to $420–$435M .

Estimates Context

  • Q3 2025 vs S&P Global consensus: Revenue $1.507B vs $1.490B*; Primary EPS $0.104 vs $0.054*; both beats. On a GAAP basis, diluted EPS was ($0.06) *.
  • Q4 2025 consensus revenue $1.700B* vs company guidance $1.68–$1.71B (midpoint ~$1.695B), essentially in line *.
  • Target price consensus was $9.88* through the period.

Values with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat with improving margins: Strong revenue/Primary EPS beats and a notable uptick in Adjusted gross margin to 55% signal mix and cost progress; expect continued leverage as Sponsored Snaps/Spotlight scale *.
  • SMB and Europe/RoW are the growth engines; North America LCS is the swing factor. Any re-acceleration in NA large clients would be a key upside driver .
  • Near-term engagement risk is deliberate: Management is prioritizing ARPU, compliance, and cost-to-serve efficiency; watch Q4 DAU trend and offsetting engagement features (e.g., Spotlight-sharing mechanics) .
  • Q4 guide is balanced vs consensus: Revenue midpoint roughly in line; Adj. EBITDA $280–$310M offers incremental margin progress if cost controls persist *.
  • Strategic AI optionality: Perplexity integration (2026 recognition) highlights potential for platform-native AI distribution and future partnerships; not a 2025 P&L driver but a medium-term optionality asset .
  • Capital return and dilution management: New $500M buyback authorization plus lower FY SBC guidance should help manage share count growth and support per-share metrics .
  • Trading setup: Positive estimate revisions likely on DR momentum, mix-driven margin expansion, and in-line Q4 guide; offset by flagged DAU headwinds and NA LCS softness. Monitor NA LCS trajectory, DAU in Q4, and Sponsored Snaps monetization ramp .

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