It has been more than a year since Snap overcame two years of declining year-on-year revenue growth, and the company is now on track to achieve its highest level of annual revenue ever.
During this period, Snap established a sustainable cost structure, resulting in improved earnings and cash flow. The platform’s user base now exceeds 850 million, and global content engagement grew by 25% in Q2. This turnaround is attributed to the team’s persistence, focus, and strong collaboration.
Despite this progress, the company’s share price performance has lagged behind the overall market. The main reason is the slower growth of its advertising business compared to competitors. Digital advertising is crucial for the company’s long-term revenue potential, and investors are concerned about the slower pace of growth. Historically, the company’s advertising relied on large customers focused on brand-related goals. However, Snap is transitioning toward a more balanced approach, with a larger number of small- and medium-sized advertisers focused on performance-driven goals. This shift is already evident in the results—while upper-funnel brand revenue dropped by 1% in Q2, lower-funnel direct response revenue increased by 16%.
The recovery in the lower funnel was driven by small- and medium-sized advertisers, and such revenue is also more stable and predictable than that of the upper funnel. While current revenue may be lower, lower-funnel revenue represents a much greater long-term growth opportunity, as this type of revenue is tied to business objectives, and every bit of it yields a positive return on ad spend. In Q2, the number of active advertisers reportedly more than doubled year-over-year, indicating that the company has made good progress, but there is still work to do.
In preparation for 2025, Snap has stated in its blog that it has set a goal to increase the growth of both lower- and upper-funnel advertising. Accordingly, new ad placements will be launched by the social media platform with automation in place, and it will continue to expand investment in the machine learning platform, striving to further enhance the tools.
Given that vertical video ads are the company’s expertise, they are no longer unique, since competitors are also using this format. Snap understands this and must continue developing its ad products and strategy to maintain uniqueness. First, it should be pointed out that unlike many other platforms, Snapchat is not just a content platform; it includes a number of different features, including conversations with friends, use of the camera and Lenses, engagement with Memories, Snap Map, and much more. Historically, the company has focused most of its ad operations to using vertical video across the content. However, Snapchat has a major opportunity to use the variety of ways its users are engaged to offer advertisers deeper insights and actionable recommendations.
Over the next few months, Snap is planning to offer advertisers with actionable insights derived from the various ways Snapchat is used by many different users. For instance, currently, Lenses, Snap Map, Stories, and Spotlight are all separate, and the related tools are not integrated to deliver a more cohesive advertising system. However, soon the company plans to combine all these elements into a single, self-serve platform to offer advertisers the most actionable insights and better outcomes for their ads.
In addition to enhanced insights, Snap is experimenting with two new ad placements: Sponsored Snaps and Promoted Places. Sponsored Snaps allow advertisers to engage visually with the Snapchat community in a non-intrusive way, while Promoted Places help businesses reach potential customers exploring Snap Map, driving measurable increases in visitation.
Over the past year, Snap has made significant progress in improving its advertising platform, particularly through investments in machine learning and automation. These efforts are designed to better serve advertisers and strengthen the company’s position in the competitive digital advertising landscape.
(Photo by Alexander Shatov)
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