Snap Focuses on AI as Advertising Revenue Slows

Snap says changing consumer behavior and tariff-related pressures are hindering advertising demand.

The social media company released earnings Tuesday (Aug. 5) revenues of $1.34 billion, up 9% year over year, while advertising growth slowed to just 4%.

CEO Evan Spiegel acknowledged that multiple headwinds, including global economic factors, hurt the company’s performance.

“There are a number of factors that impacted the quarter,” Spiegel said on the company’s earnings call, pointing to “macro challenges” and platform changes that drove down auction prices for some ad campaigns.

Snap’s core ad business, which still accounts for most of its revenue, was affected by reduced demand from advertisers sensitive to rising costs, including tariffs.

CFO Derek Andersen said auction prices were negatively impacted by a recent change to the ad platform, which the company has since rolled back.

“We’ve seen ad revenue growth return to 3% to 4% as advertisers adjust their strategies,” Anderson told analysts.

The earnings come as Snap faces stiff competition from rivals like TikTok and Meta’s Facebook and Instagram. A Reuters report on the earnings notes that advertisers are turning to these larger platforms as they scale back ad spending in the midst of economic uncertainty. Meta and Reddit both recently posted more upbeat earnings.

“The digital ad tailwinds that propelled Meta and Reddit to blowout quarters turned into a light breeze for Snap,” said eMarketer principal analyst Jasmine Enberg, per Reuters.

In different circumstances, investors might have overlooked the hiccups in Snap’s ad platform, but now “there is little room for mistakes,” she added.

In response to these pressures, Snap is investing heavily in automation and artificial intelligence (AI) to improve ad performance and reduce acquisition costs. Spiegel spotlighted the company’s AI-driven Smart Campaign tools, which optimize bids and targeting.

“We’re especially excited about how AI can help small and midsize businesses,” he said, which were the largest contributor to ad revenue growth in the quarter.

In addition, Snap is adapting to how users engage with content. Time spent on its Spotlight short-form video feature rose 23% year over year, now making up close to half of all content viewed on the platform.

“We’re seeing users share Spotlight content with friends as a new way to start conversations,” Spiegel noted, reflecting a shift in consumer behavior from direct posting to content-based interaction. Users are also spending 30% more time video chatting.