Snapchat has published its latest performance report, which, in the topline results at least, shows steady increases in users and revenue, as it continues to refine its business offerings, and capitalize on its market opportunities.

Though growth in key markets remains a challenge, with Snap continuing to lose users in the North American market, its key revenue source, while rising costs also continue to weigh on its overall results.

And its revenue results are also not great.

First off, on users. Snapchat reached 469 million daily active users in Q2, an increase of 9 million on its Q1 numbers.

Again, any growth is a positive, but the fact that Snap is losing users in the U.S. is a standout note from this chart. Almost all of Snap’s growth is still coming from the “Rest of World” category, with India in particular seeing more take-up. But the U.S. and EU is where Snap generates the majority of its revenue, and as such, the stagnant results here are potentially problematic.

As you can see in these charts, Snap generates almost 4x more revenue per user from its North American audience, and 800% more than those in the “Rest of World” segment.

Building in more markets obviously bodes well for future opportunities, as these regions continue to develop their digital economies. But the steady decline of Snap usage in the U.S. points to a plateau, and a potential cap on Snap’s growth.

But of course, Snap’s keen to focus on the positives, with the platform also inching closer to a billion monthly actives, with 932 million monthly active users (MAU), an increase of 32 million on Q1.

And overall, the fact that Snap is still adding millions more users is an indicator of its enduring relevance and resonance, particularly among younger users.

We’ll see how the market responds to such.

On the revenue front, Snap brought in $1.3 billion for the quarter, an increase of 9% year-over-year.

But again, you can see the impact of its U.S. audience decline here, with its North American revenue down on Q1, while it’s also posted its lowest revenue result in four quarters.

And while Snap is focused on its next-level bets, like AR glasses, it needs to keep generating revenue to maximize this element, and the chart trends here don’t look great.

Including this one:

In terms of specific business offerings, Snap says that it’s seeing good results with Sponsored Snaps, which are now driving an 18% lift in unique conversions across app installs and app purchases.

Snap says that it’s also seeing more engagement with its Spotlight short-form video offering, with time spent in the Spotlight feed rising 23% year-over-year, facilitating more exposure options. Indeed, Snap says that Spotlight now contributes more than 40% of total content time spent in the app, which could be worth noting for your video ads.

Snap’s also been working to integrate more creator content, via its Snap Stars program, with the number of Spotlight posts by Snap Stars growing more than 145% year-over-year in North America in Q2.

So there are, at least in theory, opportunities there, and if Snap can facilitate more brand partnerships, leading to creator monetization and increased exposure potential for brands, there will still be value on this front, even if overall usage dips.

Snap also notes that use of its Snap Map has grown to more than 400 million MAU, and with expanded promotional options being integrated here, that could be another area of opportunity.

But it’s Snapchat’s AR project, and the costs associated with it, that remain a point of contention.

Back in June, Snapchat announced that it’ll release its AR-enabled Spectacles next year, in an effort to beat Meta to market with a functional, fashionable AR device.

Which makes sense, as the indicators are that Meta’s glasses will be more functional, fashionable and cheaper, but the cost of that project is likely a significant contributor to Snap’s increasing infrastructure costs, along with its own AI projects.

But Snap’s not building its own AI tools, it’s mostly hosting AI experiences from OpenAI and Google, in order to power things like its “My AI” chatbot. As such, the majority of its costs would likely be going towards this AR glasses push, which makes sense in the broader scale of Snap’s long-term plan.

But in practice, it seems like this could be a disaster for the business.

Sure, Snap users are still interested in AR, with Snap reporting that more than 350 million Snapchatters now engage with its AR tools every day, and Snap continues to add more innovative AR uses, like its recent integration with a TV show in the U.K.

But will they also buy Snap’s AR glasses, and if they do, will Snap be able to maintain momentum for such as Meta continues to inch closer to a launch of its AR device.

I don’t think that this is a race Snap can win, and Snap might be better off developing AR experiences for other devices, as opposed to investing in its own, which is looking like a major cash drain, for what may well be only a short-term boost in interest.

Snap’s net loss for Q2 was $263 million, compared to $249 million in the prior year. And as the costs continue to rise, and user growth remains a question, this seems like a big point of concern for the app.

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Meta’s going all-in on AI, with CEO Mark Zuckerberg now driven to reach his new goal of automated “superintelligence,” which could see Meta eventually crack the code on enabling truly transcendent machine learning systems.

But it’s not only in large-scale applications that Meta’s seeing gains from AI, with the company also applying its AI models to more elements of its apps, and powering improved algorithmic matching to keep people using Facebook, Instagram and Threads for longer.

Indeed, within its Q2 performance report, Meta noted that AI recommendations have continued to boost video engagement across its apps.

As per Meta:

“In Q2, Instagram video time was up more than 20% year-over-year globally. We’re seeing strong traction on Facebook as well, particularly in the U.S. where video time spent similarly expanded more than 20% year-over-year.”

In broader terms, Meta also notes that its AI recommendations have led to a 5% increase in time spent on Facebook, and a 6% on Instagram this year.

But video remains the key focus for IG and Facebook engagement, with Meta also reporting back in April that Reels clips now make up 50% of all time spent on IG.

If you’re looking to maximize your Facebook and/or Instagram engagement, video content needs to be a consideration, with its AI recommendation systems now pushing more relevant video to more users.

This shift is also notable because earlier in the year, as part of Meta’s defense against an FTC antitrust case, the company admitted that both Facebook and Instagram’s share of time spent among social media apps had declined significantly, with most personal interaction shifting to messaging platforms instead.

The latter part here is nothing new, as we’ve covered the broader shift to messaging pretty extensively. But it is interesting to note that AI, and AI-recommended video content specifically, is now helping Meta to right the ship in this respect, and keep more people around in its apps for longer.

“These gains have been enabled by ongoing optimizations to our ranking systems to better identify the most relevant content to show. We expect to deliver additional improvements throughout the year as we further scale up our models and make recommendations more adaptive to a person’s interests within their session.”

Meta has also been able to promote more original content, which was another major focus of its algorithmic advancements.

Last month, Meta announced an algorithm update which is designed to demote “unoriginal” content, in order to boost material from original creators, while last year, Instagram removed aggregator accounts from recommendations, and has since sought to replace re-posts with original content in the same where possible.

And according to Meta, those efforts are seeing more traffic being driven to original creators:

“On Instagram, over two-thirds of recommended content in the U.S. now comes from original posts. In the second half, we’ll be focused on further increasing the freshness of original posts so the right audiences can discover original content from creators soon after it is posted.”

This is critical for Meta to maintain its connection with creators, and without them, it’s simply not going to be able to capitalize on its opportunities.

If original creators go elsewhere, they take their audiences with them, and as Meta moves into the next stage of its Metaverse/AR/VR plan, it’s going to need original content creators to maximize audience interest in these new experiences.

As such, ensuring that original creators get priority is an important shift, and Meta says that its systems are getting better on this front.  

Meta also says that it’s been using its evolving AI tools to improve content recommendations on Threads:

“The incorporation of LLMs are now driving a meaningful share of the ranking-related time spent gains on Threads.”

While it also continues to update its AI-powered ad tools, including automated targeting.

“This quarter, we expanded our new AI-powered recommendation model for ads to new surfaces and improved its performance by using more signals and a longer context. It’s driven roughly 5% more ad conversions on Instagram and 3% on Facebook.”

So it’s not just superintelligence, and Meta’s massive investment in the bigger picture AI projects that’s driving its approach, it’s also applying its AI models to all elements of its apps, and driving notable performance improvements in each.

Which is also notable for advertisers, and those looking to make best use of Facebook and Instagram for marketing. Now, Meta’s systems are getting better at showing your content to just the right audiences, based on an evolving array of algorithmic indicators, as assessed by AI.

That could present new opportunities within your approach.

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