Snap hits 900 million monthly users but ad revenue faces headwinds

Snapchat parent Snap reached a significant milestone of exceeding 900 million monthly active users in the first quarter of 2025, but saw its stock tumble in late trade on Tuesday after reporting first-quarter financials that revealed growing uncertainty about advertising revenue in the coming months. Despite the impressive user growth metrics, concerns about advertising market headwinds overshadowed these gains as the company made the unusual decision to withhold financial guidance for Q2 2025.

"Given the uncertainty with respect to how macro economic conditions may evolve in the months ahead, and how this may impact advertising demand more broadly, we do not intend to share formal financial guidance for Q2," the company stated in its letter to shareholders released on April 29th. "While our topline revenue has continued to grow, we have experienced headwinds to start the current quarter, and we believe it is prudent to continue to balance our level of investment with realized revenue growth."

The advertising-dependent platform's stock, which is known for volatility, closed up 3% but plunged approximately 13% in after-hours trading following the Q1 report. This marks the second tech company to see shares pummeled after earnings reports on Tuesday. Spotify shares fell 9% after early morning earnings but recovered much of that ground by the end of trading. Both companies cited concerns about economic conditions affecting advertising spend, raising questions about the broader digital advertising ecosystem.

Snap's achievement of surpassing 900 million monthly active users represents a critical milestone in the company's growth strategy and places it firmly among the largest social media platforms globally. According to the company's investor letter, this rapid user growth demonstrates Snap's strategic advantage in visual communication between friends and family, enabling it to build "engaging and retentive services."

Beyond the monthly figures, daily active users (DAUs) grew to 460 million in Q1, an increase of 38 million or 9% year-over-year. The Rest of World segment showed the strongest growth at 16% year-over-year, reaching 262 million DAUs, while North America DAUs stood at 99 million, down slightly from 100 million in both the prior quarter and prior year.

On the advertising front, Snap reported revenue growth of 14% year-over-year to $1.36 billion in the first quarter. This growth was driven primarily by direct-response advertising, which increased 14% year-over-year and now represents 75% of the company's total advertising revenue for the first time. However, brand-oriented advertising revenue decreased by 3% year-over-year, which the company attributed to "a combination of softness in upper funnel demand across all regions as well as the ongoing shift in the mix of our advertising business toward performance oriented advertising solutions."

Average Revenue Per User (ARPU) reached $2.96, up 5% from $2.83 in the prior year. North America ARPU showed the strongest growth at 13% year-over-year, reaching $8.41, while Europe grew 11% to $2.26. Global impression volume grew approximately 17% year-over-year, driven largely by expanded advertising delivery within Spotlight and Creator Stories, but total effective cost per thousand impressions (eCPMs) declined by approximately 7% as inventory growth outpaced advertising demand.

The company's Snapchat+ subscription service continued to show promising growth, with revenue increasing 75% year-over-year to reach $152 million in Q1, representing an annualized run rate of over $600 million. Snapchat+ subscribers reached nearly 15 million, an increase of 5 million or 59% year-over-year, highlighting Snap's efforts to diversify revenue beyond advertising.

Advertising headwinds cast shadow despite expanding user base

Snap's decision to withhold Q2 guidance comes as businesses across various sectors attempt to assess the impact of Donald Trump's tariffs. According to the company's Q1 report released on April 29, these economic factors are creating specific challenges for the advertising market. These import taxes, which are currently global but heaviest on goods from China, will likely raise prices and potentially depress advertising spending as companies adjust their marketing budgets in response to economic pressures.

This uncertainty comes despite Snap's continued progress in attracting advertisers to its platform. According to the investor letter, total active advertisers grew by 60% year-over-year in Q1, even as the company lapped the launch of Snap Promote in Q1 of the prior year. The company also made significant advancements in its advertising technology, including improvements to its machine learning capabilities and advertising formats.

"In Q1, we made significant progress across our three core advertising platform initiatives: advancing our ML capabilities, enhancing the use of privacy-safe signals, and optimizing ad formats to drive performance for our advertising partners," the company stated in its investor letter. Specific improvements included increasing the rate of model learning by 6x and growing the volume of historical interaction data used for training by over 5x.

Despite these technological advances, Snap decided to update cost structure guidance rather than provide revenue projections. The company now estimates infrastructure costs of 82 to 87 cents per quarter per daily active user, with DAUs estimated to be 468 million in the coming quarter.

"While there is uncertainty regarding the macro operating environment, we remain optimistic about the long-term prospects for our business," the company stated. "We remain optimistic because of the progress we have made with our ad platform to improve performance for our advertising partners, because of the progress we have made to diversify our advertiser base as well as our revenue sources with the growth of Snapchat+, because of our demonstrated ability to prioritize our cost structure to balance investment with topline growth over time, and because we have built a strong balance sheet with the financial flexibility necessary to maintain strategic focus through volatile macro conditions."

User engagement grows as platform evolves to support advertising capabilities

The milestone of 900 million monthly active users represents more than just a vanity metric for Snap. According to the company's investor letter, this growing user base drives deeper engagement, which in turn creates more opportunities for advertisers. Global time spent watching content increased year-over-year in Q1, reflecting continued investment in AI and machine learning models for content ranking and personalization.

This increased engagement is particularly important for Snap's advertising business, as it creates more inventory for ad placements. The company reported that global impression volume grew approximately 17% year-over-year, driven in large part by expanded advertising delivery within Spotlight and Creator Stories. However, total effective cost per thousand impressions (eCPMs) were down approximately 7% year-over-year as inventory growth exceeded advertising demand growth.

To better serve both users and advertisers, the company implemented fresher, more responsive machine learning models, doubling the pace at which they integrate new trends and user interaction signals. Views on Spotlight posts less than 24 hours old doubled year-over-year, which contributes to a more engaging viewer experience and creates prime opportunities for advertising.

"We have been testing a simplified version of Snapchat designed to help new and casual users of our service better understand and navigate the app," the company explained. "We found that elements like a more prominent Spotlight experience and Friend Stories within the chat experience contributed to increases in daily content viewers and total content views—particularly among more casual users."

The company's investments in improving its advertising technology are beginning to show results. In Q1, Snap made significant progress with its direct-response advertising solutions, which now comprise 75% of total advertising revenue. The company's automated Target Cost (tCPA) bidding strategy, which helps advertisers scale efficiently by dynamically adjusting bids to meet desired cost per action goals, delivered strong results. According to the investor letter, advertisers using tCPA on 7-day Pixel Purchase and 7-day Pixel Sign Up reported a 32% drop in cost per purchase and a 16% lift in return on ad spend (ROAS), respectively.

Snap also introduced new high-intent formats for Dynamic Product Ads, enabling advertisers to create richer and more engaging ad experiences. As one example mentioned in the investor letter, Headspace, a popular meditation and mindfulness app, saw a 2x increase in conversion volume with 47% more efficient cost per action after shifting their bid strategy to tCPA.

What the user growth and advertising trends mean for marketers

The contrast between Snap's impressive user growth and its cautious advertising outlook provides important signals for the marketing community. Reaching 900 million monthly active users puts Snap in the upper echelon of social media platforms, creating significant reach potential for advertisers. However, the company's warnings about advertising headwinds suggest larger economic forces may be impacting marketing budgets across the industry.

According to the company's investor letter from April 29, Snap has made substantial improvements to its advertising platform that should interest marketers, particularly those focused on performance metrics. The company has enhanced its direct-response capabilities, which now drive 75% of advertising revenue. Improvements to Snap's automated Target Cost bidding strategy have delivered measurable results, with advertisers reporting significant improvements in cost efficiency.

"Our investments in automation and lower funnel optimization tools are delivering value for our advertisers," the company stated in its investor letter. Early adopters of the Target Cost strategy saw drops in cost per purchase of 32% and improvements in return on ad spend of 16%. The company also introduced new ad formats designed to drive stronger performance.

For marketers focused on brand advertising, however, the outlook appears more challenging. Snap's brand-oriented advertising revenue decreased 3% year-over-year due to "softness in upper funnel demand across all regions." This suggests that brands may be pulling back on awareness-focused campaigns in favor of more measurable direct-response initiatives during uncertain economic times.

Notably, the divergence between user growth and advertising revenue growth indicates a potential opportunity for marketers who can maintain spending during this period. With impression volume growing 17% year-over-year while eCPMs declined 7%, advertisers may find improved value and less competition for attention on the platform.

Implications for the broader advertising ecosystem

Snap's cautious advertising outlook follows similar concerns raised by Spotify earlier on April 29, suggesting that economic uncertainties may be starting to affect a broader range of companies reliant on advertising revenue. The prospect of tariff-driven price increases could lead to marketing budget contractions across multiple industries.

"CEOs and investors are frantically trying to assess the impact of Donald Trump's tariffs on businesses across sectors," the company noted in its shareholder letter. "Import taxes, which for now are global but heaviest on goods from China, will likely raise prices and depress advertising. And there are potentially more aggressive tariffs coming against major trading partners if the administration does not manage to strike deals. The overhang has pummeled financial markets."

The wider implications for the digital advertising market could be significant if more companies join Snap in expressing caution about the months ahead. While Snap has maintained a strong financial position, ending Q1 with $3.2 billion in cash and marketable securities, it has revised its cost structure guidance in anticipation of continued uncertainty.

For advertisers and marketers, Snap's simultaneous achievement of 900 million monthly active users alongside advertising growth challenges creates a complex strategic landscape. The platform offers unprecedented scale and improved performance marketing capabilities, but operates within an increasingly uncertain economic environment that may compress marketing budgets industry-wide.

User and advertising metrics: Key figures and timeline

User growth metrics

• Q1 2025: Exceeded 900 million monthly active users for the first time
• Q1 2025: Daily active users reached 460 million, up 9% year-over-year
• Q1 2025: Rest of World DAUs grew 16% year-over-year to 262 million
• Q1 2025: The number of views on Spotlight posts less than 24 hours old doubled year-over-year
• Q1 2025: Total Snap Stars Spotlight posts grew by over 125% year-over-year in North America

Advertising and revenue performance

• Q1 2025: Revenue increased 14% year-over-year to $1.36 billion
• Q1 2025: Advertising revenue reached $1.211 billion, up 9% year-over-year
• Q1 2025: Direct-response advertising revenue increased 14% year-over-year
• Q1 2025: Direct-response advertising contributed 75% of total advertising revenue
• Q1 2025: Brand-oriented advertising revenue decreased 3% year-over-year
• Q1 2025: North America revenue growth accelerated to 12% year-over-year
• Q1 2025: Global impression volume grew approximately 17% year-over-year
• Q1 2025: Total eCPMs declined approximately 7% year-over-year
• Q1 2025: Total active advertisers grew by 60% year-over-year
• Q1 2025: SKAdNetwork reported app purchases grew more than 30% year-over-year
• April 29, 2025: Snap reports Q1 earnings, withholds Q2 guidance citing advertising market uncertainty
• April 29, 2025: Snap stock drops 13% in after-hours trading despite user growth achievements