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I’ve long been interested in Snapchat (SNAP) because of its popularity with young people and its large user base. But I threw in the towel on my small position this morning after yesterday’s 2Q25 earnings report.

My thesis was that SNAP might figure out a way to monetize their large user base and if they did the stock would skyrocket. But they’ve failed on this front as evidenced by their anemic 8.7% revenue growth in 2Q25. While Daily Active Users (DAUs) increased by 9% year over year to 469 million, Average Revenue Per User (ARPU) was essentially flat at $2.87 versus $2.86 a year ago. In other words, while they continue to grow their user base, they can’t figure out how to make more money out of them.

Behind this problem is a more fundamental problem: The quality of their user base growth is low. DAUs increased to 469 million from 432 million a year ago – but almost all of that came from their Rest of the World segment where they barely make any money from their users. DAUs in the Rest of the World increased to 271 million from 235 million – almost the entire increase in DAUs for the whole company over the last year. DAUs in North America actually declined slightly over the last year to 98 million from 100 million.

But ARPU in the Rest of the World segment was only 96 cents in the quarter – down 6% from $1.02 a year ago and compared with $8.33 in North America. In other words, all of SNAP’s user growth is coming from the Rest of the World where they don’t make much money from users and DAUs in North America (and Europe) seem stuck around 100 million.

If this continues to be the case – and I see no signs that it won’t – I see no path to growth and real profitability for SNAP which is why I took the loss this morning and sold the stock. There’s nothing wrong with being wrong – it’s staying wrong that’s the problem.

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