Snap's AI Revolution: How Artificial Intelligence is Transforming Advertising Performance and Driving Profitable Growth

Snap has positioned artificial intelligence (AI) as the core lever for improving advertiser performance and driving more profitable growth, as revealed during their fourth-quarter earnings call. The company is embedding AI end-to-end across its advertising platform, from creative development to campaign delivery and optimization, with a focus on direct-response outcomes and return on ad spend (ROAS).

AI Becomes Central to Ad Execution

Snap now integrates AI across planning, launch, and optimization workflows to reduce friction for advertisers and improve performance consistency. The company highlighted its smart campaign solutions, including smart targeting and smart budget, which automatically allocate spend across objectives and reduce manual setup and ongoing optimization.

In the fourth-quarter report ending Dec. 31, targeted ranking, format, and delivery improvements for dynamic product ads resulted in a 55% reduction in cost per action for seven zero conversions and 45% reduction in cost per action for one zero conversions, based on cumulative internal testing over the past year. Dynamic product ad revenue grew 19% year over year in Q4.

These gains were supported by expanded adoption of dynamic solutions among large advertisers and continued migration away from static formats.

Sponsored Snaps were highlighted as one of Snap’s most differentiated advertising placements, enabling direct engagement between brands and Snapchatters through conversation-driven formats. In Q4, Sponsored Snaps click-through rates grew 7%, while click-through purchases increased 17% from Q3 to Q4.

Snap cited multiple advertiser case studies demonstrating lower-funnel performance:

• Kon-Tiki used Sponsored Snaps to drive bookings, achieving a 283% increase in return on ad spend and a 72% reduction in cost per purchase.
• Saudi QSR brand Kudu combined AR lenses with Sponsored Snaps, delivering up to 40% more app installs at 76% lower CPI and 38 times more purchases at an 84% lower cost.

App Advertising and SMB Adoption Accelerate

Snap’s app advertising business accelerated in Q4, with revenue from in-app optimizations growing 89% year over year. The company attributed the increase to advances in foundational app models, broader adoption of the App Power Pack, and immersive formats such as Playables.

Small and medium-sized businesses (SMBs) remained a key contributor to advertiser growth. Total active advertisers increased 28% year over year in Q4, driven by improvements to Ads Manager workflows, campaign launch from partner platforms, and new integrations such as a global partnership with Wix.

Snap is also investing in AI agents to automate onboarding and recommendations for SMB advertisers, reducing decision friction and improving performance.

Topline Growth

Revenue grew 10% year over year in Q4, driven by contributions from both advertising and non-advertising sources. Advertising revenue reached $1.48 billion, up 5% year over year, supported by continued strength in the SMB segment and improved performance across newer ad formats.

Other revenue increased 62% year over year, driven by subscription growth. Subscribers grew 71% year over year to reach 24 million in Q4, supported by Snapchat Plus and memory storage plans.

Gross margin reached 59% in Q4 as revenue mix shifted toward higher-margin streams and infrastructure costs were recalibrated toward monetizable markets.

Global monthly active users increased by 3 million quarter over quarter to 946 million, while global daily active users declined by 3 million in Q4, reflecting a deliberate pullback in community growth marketing as Snap pivoted toward more profitable growth.

What Else Stood Out on the Call

• More than 200 million Snapchatters played games every month on average in Q4, representing a 90% year-over-year increase, driven by new two-player, turn-based games designed to create low-friction social interaction.
• Communicators increased 5% year over year in Q4, reflecting continued strength in direct messaging between friends and family.
• Active Snap Map users reached 435 million in Q4, up 6% year over year, creating organic engagement alongside monetization opportunities such as promoted places.
• Spotlight reposts and shares increased 69% year over year in the U.S., highlighting stronger content discovery and sharing dynamics across the platform.
• The company reiterated plans to launch Specs publicly in 2026, positioning augmented reality hardware as a longer-term growth vector beyond smartphones.