Snap's Subscription Revenue Hits $1B Run Rate Amid Persistent Ad Weakness

What happened

Snap announced that its direct-revenue business, primarily driven by Snapchat+ subscriptions, has reached a $1 billion annualized run rate, with subscribers exceeding 25 million. According to the DeepValue report, Snap's 'other revenue' grew 54% year-over-year to $190 million in Q3 2025, with Snapchat+ subscribers at approximately 17 million. This new data indicates a significant acceleration in subscription growth, both in user base and revenue, surpassing previous expectations. However, the report highlights ongoing challenges in Snap's core advertising business, including only 1% year-over-year growth in North America ad revenue and a 13% decline in eCPMs. Thus, while subscription diversification is advancing faster than anticipated, it remains a smaller component compared to the ad-driven model facing competitive and pricing pressures.

Implication

The $1 billion run rate for direct revenue suggests subscriptions could contribute more to overall growth, potentially supporting higher valuations if sustained. With 25 million subscribers, Snap is scaling a paid user base that offers more predictable and higher-margin revenue streams. However, this growth must offset sluggish North America large-brand advertising, which continues to drag on total revenue and profitability. Investors should monitor whether subscription momentum persists without deceleration and if it leads to improved free cash flow amidst ongoing net losses. Ultimately, while positive, this development alone is insufficient to alter the investment thesis without concurrent improvements in ad revenue growth and eCPM stabilization.

Thesis delta

The announcement of accelerated subscription growth aligns with Snap's strategy to diversify revenue and supports the bull case scenario outlined in the DeepValue report. However, it does not meet the condition for an upgrade to POTENTIAL BUY, which requires ≥10% YoY revenue growth for two consecutive quarters, as core advertising challenges remain unresolved. Therefore, the overall investment thesis of 'WAIT' remains unchanged, but it reinforces the need to closely track subscription metrics as a key driver of future performance.