Snap Leans Into AI as Advertising Revenue Growth Slows Amid Economic Headwinds
The popular social media platform, Snapchat, is turning to AI and automation tools to boost advertising performance as it contends with a slowdown in ad revenue growth and increased economic pressures.
The company reported $1.34 billion in revenue for the second quarter, a 9% increase year over year. However, core advertising revenue, which represents the bulk of its income, grew by only 4% — a significant deceleration compared to past performance.
“There are a number of factors that impacted the quarter,” CEO Evan Spiegel said during Tuesday’s earnings call. He pointed to “macro challenges” and ad platform changes that had reduced auction prices for some campaigns.
Snap cited changing consumer behavior, global economic instability, and tariff-related cost increases as contributors to weaker advertiser demand. The company’s Chief Financial Officer, Derek Andersen, acknowledged that a recent modification to its ad platform caused friction for advertisers, but said the issue has been addressed.
“We’ve seen ad revenue growth return to 3% to 4% as advertisers adjust their strategies,” Andersen told analysts.
Competition and Market Shifts Pressure Snap’s Ad Business
Snap faces mounting competition from major social platforms such as TikTok, Facebook, and Instagram. A Reuters analysis of the earnings noted that advertisers are shifting budget toward these larger platforms during a period of economic uncertainty. Meta and Reddit both reported strong earnings for the same period.
Jasmine Enberg, principal analyst at eMarketer, told Reuters, “The digital ad tailwinds that propelled Meta and Reddit to blowout quarters turned into a light breeze for Snap.” She added, “There is little room for mistakes” in the current environment.
AI and Smart Campaign Tools Take Center Stage
To offset these challenges, Snap is accelerating its investment in artificial intelligence and machine learning. The company highlighted its Smart Campaign tools — AI-driven systems that optimize bidding and targeting — as a strategic priority.
“We’re especially excited about how AI can help small and midsize businesses,” Spiegel said, noting that this segment was the largest contributor to the quarter’s ad revenue growth. These tools aim to reduce customer acquisition costs while increasing ad performance across the platform.
Spotlight Usage Surges as User Behavior Evolves
Snap is also adjusting to shifts in user engagement. Time spent on Spotlight, its short-form video feature, rose 23% year over year. The feature now accounts for nearly 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 said, highlighting a behavioral shift from direct sharing to content-led interaction. Additionally, users are spending 30% more time video chatting.
Outlook
Despite ongoing macroeconomic and competitive pressures, Snap’s renewed focus on AI and product innovation may offer a path forward. The company’s efforts to improve platform tools for advertisers and evolve with user behavior signal a strategic pivot that aims to restore momentum in a challenging digital advertising landscape.
