Snap Inc. (SNAP) had a rough Thursday morning. The stock fell in premarket trading after the company reported third-quarter results that featured an earnings beat, a marginal revenue miss, and an advertising business growing at a pace that nobody, including the boss, is happy with.
Earnings came in at 3 cents per share, beating Wall Street's break-even estimate. Revenue reached $1.722 billion, slightly below analysts' estimate of $1.731 billion. Snap ended the quarter with $2.77 billion in cash and marketable securities.
The User Numbers Look Fine. The Ad Numbers Do Not.
Snap reported 495 million daily active users and 977 million monthly active users. Daily messages increased 8% year over year. Spotlight viewers jumped 40%, and the number of content creators surged 130%.
Advertising revenue grew 4%, driven by direct-response campaigns. App purchases more than doubled, while web purchases rose more than 31%. However, brand advertising declined.
CEO Evan Spiegel acknowledged that the company's 4% advertising revenue growth fell short of expectations. "Certainly, you know, 4% ad growth is below our ambitions," Spiegel said during Wednesday's earnings call. However, he expressed cautious optimism about improving advertising trends in the fourth quarter.
The company also expanded its AI-powered advertising tools. Sponsored Snaps revenue increased 56% from the previous quarter, while Spotlight's effective cost per thousand impressions rose 22% year over year. The company expanded Promoted Places to 14 countries.
Other revenue surged 84%, supported by Snapchat+, memory storage and Lens offerings. Paid subscribers across these services exceeded 30 million.
AI Is Doing the Work Behind the Scenes
Snap said its AI investments helped improve productivity and customer support. Merged pull requests more than doubled, while software defect rates fell more than 71%. AI-powered search now resolves more than 92% of Help Center sessions. Advertiser support cases also declined 35% year over year.
Meanwhile, the company continues developing Specs, its augmented reality glasses, for consumer and enterprise markets.
What Snap Expects Next Quarter
Snap forecast fourth-quarter revenue of $1.95 billion to $1.985 billion, compared with Wall Street's estimate of $1.948 billion. The company expects adjusted EBITDA of $490 million to $525 million.
For the full year, the company projects infrastructure costs of $1.65 billion to $1.66 billion. Other revenue costs, excluding infrastructure expenses, are expected to account for 16% to 17% of revenue.
Snap also plans a multiyear program to manage share dilution and maintain a stable fully diluted share count in 2027.
Starting in the first quarter of 2027, the company will replace daily active users with monthly active users as its primary audience metric. Revenue per monthly active user will become its main monetization metric.
SNAP Price Action: Snap shares were down 8.95% at $5.39 during premarket trading on Thursday, according to market data.
