Snap revenue rises 19% as users near 1 billion mark

Snap reported second-quarter revenue of USD $1.60 billion, with Snapchat reaching 971 million monthly active users. Its SPECS smart glasses will launch in Los Angeles on September 16.

Revenue rose 19% from a year earlier, while daily active users increased to 493 million. Advertising revenue grew 9% to USD $1.28 billion, and direct revenue from products including Snapchat+, Memories Storage and Lens+ jumped 85% to USD $316 million.

The results show Snap edging closer to the one billion monthly user mark as it works to expand both its advertising business and subscription income. Fewer than 3% of monthly active users currently pay for subscription products, leaving room for further growth in direct revenue.

Dynamic Product Ads were among the stronger areas in the quarter, with revenue up 43% year on year. Snap attributed the increase to retailer adoption, highlighting a broader effort to deepen shopping activity on the platform.

Management also pointed to stronger momentum with large advertisers in North America and faster international revenue growth. World Cup-related spending contributed during the quarter, while small and medium-sized businesses remained a source of strength.

Native advertising formats were another focus, with increased spending coming through products such as Sponsored Snaps. Roughly one-third of the Snapchatters reached through Sponsored Snaps were incremental to other surfaces on the app.

Profit measures

Alongside top-line growth, Snap reported improved profitability. Free cash flow reached USD $121 million, marking the eighth consecutive quarter of positive free cash flow, while adjusted EBITDA rose USD $208 million year on year to USD $250 million.

Gross margin was 58%, up seven percentage points from a year earlier. Going forward, Snap said its financial objective is free cash flow per share, signalling a continued focus on turning revenue growth into stronger returns.

Management linked part of the margin improvement to smaller teams and greater use of artificial intelligence in internal operations. Code commits per engineer increased 75% year on year, while major reliability issues fell 57%.

Snap's internal AI code reviewer now checks 90% of pull requests and has saved an estimated 30,000 hours of code review time. Its AI-powered support agent answers about 3.9 million user questions each month and has cut support ticket volumes by about 62% since the start of the year.

In advertising operations, AI lifted first-pass image review automation from 40% in the second quarter of the prior year to nearly 90% in the latest quarter. Snap said this led to faster approvals for advertisers and lower operating costs.

User growth

User expansion remained central to the quarter. Snapchat's audience in the United States continued to broaden, led by people aged 35 and older, while engagement on Spotlight also increased.

In the US, the number of people posting to Spotlight grew by more than 115% year on year, and daily active viewers rose by more than 20%. Snap presented the short-form video feature as a growing part of engagement on the service.

With 971 million monthly active users and 493 million daily active users, the platform has significant scale for both advertisers and subscription products. Snap is trying to convert more of that audience into paying subscribers while maintaining momentum in brand and performance advertising.

Hardware launch

The update also included a firm launch date for SPECS, Snap's augmented reality glasses. The product follows more than a decade of hardware development and marks a renewed attempt to build a consumer device tied to the company's software platform.

Snap described SPECS as see-through glasses that can understand the world around the wearer and support tasks including work, learning, entertainment and shared experiences. The company is entering a market where technology groups are trying to establish demand for head-worn computing devices beyond smartphones.

The launch date gives investors a clearer timetable for a product area that has long sat outside Snap's main advertising business. While hardware revenue was not broken out for the quarter, the device adds another line of business as the company shows stronger financial discipline.

"Q2 reflects the progress we are making to strengthen our core business and build a more durable financial foundation for Snap. We grew revenue by 19%, expanded margins, and generated positive free cash flow while improving advertising performance and rapidly growing our direct revenue business. We remain focused on serving our 971 million monthly active users, delivering measurable value for advertisers, and investing with discipline to increase free cash flow per share over time," said Evan Spiegel, Co-Founder and Chief Executive Officer, Snap.