Ad revenue or subscriptions: What’s more viable to Snap’s success as a business?

It’s a rare win for a platform navigating a precarious business model, heavily dependent on fiercely contested ad dollars.

What sets Snap apart is its approach to subscriptions. Unlike Meta or X, which lean on no-ads, edit features and platform support, Snap focuses on enhancing the user experience with exclusive, experimental and pre-release features. In that way, Snapchat+ feels closer to the subscription models of Spotify or Duolingo than its direct rivals, carving out a niche that’s actually working.

“The growth we’ve seen with Snapchat+ is a testament to the progress we can make by listening to our community and delivering exclusive features that help enhance their creativity and deepen their connections with friends,” a Snap spokesperson told Digiday.

As Jamie MacEwan, senior research analyst at Enders Analysis, explained: “The benefits like badges, icons, early access and customisation options are more akin to features we see on social apps in China or Japan than the paid tiers being rolled out by Western social platforms.”

Subscriptions by numbers

Snap shared during its October earnings call that Snapchat+ hit over 12 million subscribers in Q3, up from 11 million the previous quarter, and more than double the figure from a year ago. 

Impressive as these numbers are, it’s too early to call subscriptions a definitive game changer for Snap. That said, the potential is hard to ignore. With a U.S. monthly fee of $3.99, the average user pays $47.88 annually. Multiply that by 12 million subscribers, and Snapchat’s subscriptions business is already pulling in roughly $574.6 million annually — a figure that’s difficult to overlook. 

In fact, on its current trajectory, CEO Evan Spiegel appears on track to hit his goal of $500 million in non-advertising revenue by the end of the year, as outlined in a staff memo reported by The Information in January. Whether this upward momentum sustains remains to be seen.

Small but mighty

Despite the buzz, it’s important to keep Snapchat+ in perspective — it’s still just a small cog in Snap’s broader revenue machine. 

Take the third quarter, for instance: Snap reported total revenue of 1.37 billion. With 12 million subscribers paying $3.99 monthly, Snapchat+ contributed approximately $47.8 million — just 3.5% of that total. Looking ahead, Snap’s Q4 guidance projects revenue between $1.51 billion and $1.56 billion. Even if Snapchat+ adds another million subscribers, its contribution would still account for just 3.3% to 3.4% of that total.

“Even as a second tier platform, Snapchat still has 850 million monthly active users, and 443 million daily active users,” said Max Willens, senior analyst at eMarketer. “It would be very difficult for any company to de-prioritize or even make advertising a secondary concern with a user base that size.”

Which is exactly what Snap’s spokesperson indirectly confirmed to Digiday. “The vast majority of Snap’s revenue today continues to come from our advertising business, and we’re focused on driving success for our video advertisers through larger ML (machine learning) models, improving and scaling signals, improving our DR (direct response) platform and offering performant ad formats,” they said.

But advertising and subscriptions don’t have to be mutually exclusive. As publishers have shown they’re often complementary. If Snapchat+ sees more success, it could revolutionize Snap’s business. Revenue growth could accelerate as more people opt into subscriptions, providing a buffer against the volatility of the ad market. 

The result? A hybrid model that could shore up Snap’s future, blending stability with scalability in a way the platform hasn’t seen before.

“Given that subscriptions doubled in the last year, they could actually be responsible for about half of incremental revenue last quarter — that’s a great story, but one that will get harder to sustain over time,” added MacEwan.

Or to put it another way, propping up a subscriptions business isn’t easy, as hinted at in Snap’s latest financial update. Infrastructure costs per daily active user increased to $0.84 in the third quarter, up from $0.81 in the second. Much of that rise is tied to Snap’s investments in AI and augmented reality — key perks offered to Snapchat+ subscribers.

“With a subscription-based business, you don’t want the users to be upset or miserable or feeling lousy because it endangers the subscription,” said Willens.