💰 Market Cap: $12.6B | 🏢 5.6K Employees | 🌍 Global Platform

👨‍💼 CEO Evan Spiegel | 🎯 AR & AI Innovation | 🇺🇸 Santa Monica, CA

$8.30

📈 +$1.00 (+13.7%) After-Hours

-28% YTD | Rally on Earnings Beat

🚀 Needs:

Perplexity partnership generates $400M in 2026 (cash + equity) with successful global rollout earning default chat inbox placement • Management pursuing "more partnerships" with AI agents as advertisers invest in conversational commerce via Sponsored Snaps • Snapchat+ subscribers accelerate to 25M+ (from 17M) driven by AI features, storage plans, and Lens+ • Direct response ad revenue sustains 30%+ growth as attribution improvements compound • Europe (+12% ads, 6pt accel) and Rest of World (+13% ads, 10pt accel) maintain momentum with ARPU expansion • North America LCS business (43% of revenue) recovers from decline with go-to-market adjustments • AR Spectacles subsidiary structure enables strategic partnerships to accelerate 2026 public launch

⚖️ Needs:

Revenue growth maintains 8-10% (Q4 guide $1.68-1.71B) with balanced contribution from ads and subscriptions • DAUs reach 500M+ despite Q4 decline from age verification (Apple now, Google early 2026) and Australian restrictions • Adjusted EBITDA margins expand to 15-18% (Q4 guide $280-310M) as gross margins improve to 55%+ from Sponsored Snaps/Spotlight mix shift • Operating expenses track to $2.65-2.7B full year (low end of reduced range) with SBC $1.08-1.1B • North America LCS business (currently down modestly) stabilizes with targeted go-to-market adjustments • Infrastructure costs remain $0.82-0.87 per DAU with focus on capacity utilization and cost-to-serve optimization

⚠️ Risk:

Management explicitly warned Q4 DAU "may decline" due to internal/external factors they "cannot currently predict" • Australian under-16 ban takes effect December with global expansion risk as similar regulations pass in other jurisdictions • Apple age verification signals rolling out Q4, Google early 2026 creating signup friction for new users • Management admitted monetization features (Snapchat+, storage plans, Lens+) will cause "adverse impact on engagement metrics" • Infrastructure changes in low-monetization geographies (prefetching, caching, ranking systems) intentionally trade engagement for profitability • North America LCS (43% of revenue) posted modest decline in Q3 with no Q4 recovery "baked in" to guidance • Friend Stories engagement shifting to Spotlight hurts conversation starters requiring product migration

💰

What Happened

Revenue Beat: $1.507B (+10% YoY) vs $1.49B expected, advertising $1.32B (+5% YoY), impressions +22%

EPS Beat: Loss of -$0.06 vs -$0.11 expected, 32% improvement in net loss YoY to $104M

DR Acceleration: Direct response ads +8% YoY, accelerating 3pts QoQ from Q2, purchase-related ads +30%

Adjusted EBITDA: $182M with 12% margin (+$50M YoY), 37% flow-through rate, free cash flow $93M

Snapchat+ Surge: 17M subscribers (+35% YoY), $190M revenue (+54% YoY), $750M+ annualized run rate

📈

Why It Matters

AI Distribution Play: $400M Perplexity deal (cash + equity) positions Snap as distribution channel for AI agents, advertisers focused on conversational commerce via Sponsored Snaps

International Strength: Europe ads +12% (6pt accel), Rest of World +13% (10pt accel), North America SMB +25% offsetting LCS decline

Gross Margin Inflection: 55% in Q3 (up from 52% Q2) driven by Sponsored Snaps/Spotlight mix shift with higher margins than Discover

Cost Discipline: Infrastructure $0.85 per DAU (flat YoY), OpEx tracking to low end of $2.65-2.7B range, SBC $1.08-1.1B

North America Challenge: LCS business (43% of revenue) posted modest decline, "primary headwind" to overall growth requiring go-to-market fixes

🎯

What's Next

Q4 Guidance Solid: Revenue $1.68-1.71B (+8-10% YoY), Adj EBITDA $280-310M, infrastructure $420-435M, other CoR 18-19%

DAU Decline Warning: Management expects Q4 DAU "may decline" due to age verification (Apple Q4, Google early 2026), Australian ban, and monetization friction

Perplexity Rollout: Early 2026 launch with default chat inbox placement, Snap won't sell ads against responses, helps Perplexity drive subscribers

Pivot to Profitability: Infrastructure changes in low-monetization geos, memory storage plans flip cost to revenue, accepting engagement trade-offs for margins

Spectacles 2026: New 100% owned subsidiary created for optionality on partnerships to accelerate AR leadership ahead of public launch

💡

Bottom Line for Retail Investors

Snap delivered its best quarter in over a year but management's commentary reveals a crucial pivot - they're deliberately accepting DAU declines in Q4 to drive profitability. The $400M Perplexity deal isn't just about AI, it's about positioning Snap's chat inbox as a distribution channel for AI agents (advertisers are already building conversational commerce bots). The real story is gross margins expanding to 55% from mix shift to higher-margin Sponsored Snaps/Spotlight, while they intentionally reduce infrastructure spend in low-monetization markets. The fly in the ointment: North America's large client business (43% of revenue) posted a decline and is the "primary headwind" to growth with no Q4 recovery expected. But with DR ads accelerating (+8% with 3pt improvement), international markets on fire (Europe +12%, RoW +13%), and operating leverage finally showing up (37% EBITDA flow-through), this looks like a company choosing sustainable profitability over vanity user metrics.

🤖

AI Distribution Platform

Perplexity Deal Structure: $400M over 1 year (combination cash + equity) as global rollout achieved, default chat inbox placement

No Ad Sales Conflict: Snap won't sell ads against Perplexity responses, helps drive Perplexity subscribers instead, maintaining trust

Platform Play: Advertisers "struggling to find distribution channels" for conversational commerce bots they're building, Snap opening chat interface to more AI agents

API Development: Perplexity API work will support "other partners over time" as Snap pursues "more partnerships" with AI companies seeking distribution

💎

Subscription Goldmine

Explosive Growth: Snapchat+ revenue $190M in Q3 (+54% YoY), $750M+ annualized run rate

High Margin: Subscription revenue has superior margins vs advertising, ~17M subscribers paying ~$4/month

New Products: Memories storage plans, Lens+ with AI features, Platinum bundles expanding ARPU

Runway: Only 4% of DAUs subscribe, significant penetration opportunity with Gen Z willing to pay for premium features

🎯

Ad Platform Inflection

DR Acceleration: Direct response ads +8% YoY with 3pt acceleration from Q2, driven by pixel purchase and app purchase optimizations

Purchase Ads Surge: Purchase-related ad revenue +30% YoY from "higher attribution accuracy and better campaign performance"

Sponsored Snaps Scale: 22% more conversions, 19% lower CPAs, Kantar study shows 85% of users find them relevant and fitting

Smart Tools Launch: Smart Targeting live (8.8% conversion lift), Smart Budget rolling out (5% CPA improvement, 17% spend increase), Smart Ad testing starting

🌍

Global Growth Engine

Europe Accelerating: Advertising revenue +12% YoY (6pt acceleration from Q2), strong across both LCS and SMB segments

Rest of World Momentum: Ad revenue +13% YoY (10pt acceleration from Q2), demonstrating emerging market monetization progress

Revenue Diversification: North America LCS now 43% of revenue (down 10pts over 2 years), reducing concentration risk as international scales

Impression Growth: Global impressions +22% YoY driven by Sponsored Snaps and Spotlight expansion, though eCPMs down 13% from mix shift

⚖️

Regulatory Tsunami

Explicit DAU Warning: Management stated "we expect overall DAU may decline in Q4" with "particularly negative impacts in certain jurisdictions"

Cannot Predict Impact: CFO said regulations combined with age verification "are likely to have negative impacts on user engagement metrics that we cannot currently predict"

Multi-Jurisdiction Risk: Australian ban takes effect December, management expects "similar regulations in other jurisdictions may take effect or be passed in the near future"

Age Verification Timeline: Apple signals rolling out Q4 2025, Google solution "perhaps at the beginning of next year" creating continuous headwind

🔥

Competitive Pressure

Meta Dominance: Facebook Q3 revenue +26% to $51B, Instagram/Threads capturing Gen Z with AI features

TikTok Threat: Short-form video leader with superior algorithm and creator economy competing for attention

Ad Market Share: Snap at $1.5B quarterly run rate vs Meta $51B and Amazon ads $18B - tiny player

Innovation Race: Competitors rapidly deploying AI chatbots and AR features, Snap's differentiation eroding

📉

Growth Deceleration

North America LCS Crisis: Large client solutions posted "modest decline" in Q3, represents 43% of total revenue, "primary headwind to our overall revenue growth"

No Q4 Recovery: CFO stated "we don't have recovery in that North America large client segment really baked in in Q4" with guidance

Revenue Growth Slowing: Q4 guidance +8-10% YoY vs Q3's +10%, decelerating from 15% last year, mature business dynamics emerging

eCPM Pressure: Platform-wide eCPMs down 13% YoY despite 22% impression growth, Sponsored Snaps/Spotlight mix creating pricing headwinds

💸

Profitability Concerns

Intentional Engagement Sacrifice: CEO admitted monetization efforts "do involve trade-offs with engagement, so we expect some adverse impact on engagement metrics"

Infrastructure Cuts: Testing changes to "prefetching and caching" and "ranking and retrieval systems" in low-monetization geos, "potentially coming at the cost of adverse trade-offs with engagement"

Friend Stories Problem: Engagement shifting from Friend Stories (conversation starter) to Spotlight requiring product "migration" of behavior that may not work

AR Burn Rate: Spectacles moving to 100% owned subsidiary for "optionality" on partnerships suggests financial strain, unclear path to monetization pre-2026 launch