Snapchat has published its latest performance update, which shows that its ad business continues to steadily improve, even though its user growth indicates more solid signs of stagnation, and perhaps an eventual cap on its usage.

We'll start there. Snapchat added 11 million users in Q3, taking it up to 443 million daily actives.
Which is a steady increase, although as you can see within these charts, there are some cause for concern aspects within the growth of Snap.

This biggest issue investor will encounter is that of North America DAU which remained static at 100 million sitting here for a period well over two years. But still, 100 million is a rather large, major market-user base which Snap has not lost-which is at least, a positive result. But stagnation here speaks more to Snap's continued growth troubles, particularly as people begin to "age out" of Snap's market. So long as that's going on, the app seemingly is able to replace lost users, but the bottom line is it's not adding to its market share there.

Which doesn't bode well for expanded opportunities, and when you look at its regional revenue per user stats, it also points to an ongoing concern.
Snap still generates the majority of its revenue from its U.S. users, so it really wants to see more growth there. Which hasn't happened for some time, while its DAU growth in Europe has also been minimal over the past year.

This, from an investor's perspective, might be considered a plateau; that Snap, in the markets where it's been around the longest, has now hit a clear cap on its growth potential. Older users switch off, younger users come in, but Snap is seemingly at its limit, based on the last year of data at least.

Of course, that is not definitive, and Snap can still find ways to attract new users into its ecosystem, but it does now seem like we are seeing the scope of Snapchat's potential reach coming into view, with growth still coming in the "Rest of World" category, but that too might hit a similar limit.

That'll no doubt spook the market, as it also puts clear limitation on Snap's ad business growth.

Snap is trying to address this, reformatted the app with a simplified and streamlined UI in making it more welcoming to new users.
And thus far, Snap said the revised UI is doing well among those who have access:

"Broadly speaking, Simple Snapchat is driving the greatest content engagement gains among more casual users, an important input to community growth and ad inventory. Particularly on Android, we're seeing healthy impacts in terms of time spent with content, story views, and replies to friends' stories.". We are also seeing growth in content active days on iOS, though the other top engagement metrics impacts aren't yet as broad based on Android due to the differences in engagement across these platforms.

So the new format, apparently, has positive effects on further adoption by new and casual users. And yet, Snap does not want to risk a wide release of the update
While we believe growth in content engagement and demand for the new ad placements may build over time, many of the changes associated with Simple Snapchat occur immediately as Snapchatters transition to the new user experience, which presents the risk of near-term disruption. While we do not yet expect to see widespread use of Simple Snapchat in our most monetized markets before Q1 at the earliest, we have only just begun restricted testing in those markets and might extend that testing as we run through Q4.

That is to say, though the longer-term engagement results appear positive, the immediate user response could see more of its U.S. and EU users switch off as a result, and Snap's not yet ready to risk that on a broader scale.

Perhaps, though, that'll be another way for Snap to remove the cap on its usage growth.

In terms of revenue, Snap brought $1.37 billion to Q3, a year-over-year increase of 15%.
Snap says its direct response products are enjoying positive advertiser response, as well as attracting more SMB advertisers to the app.

The social platform is trying new formats in ads: "Sponsored Snaps". For the very first time, the application will insert an advertisement inside the user's inbox - in-app. And the users are not going to take it too nicely I think. But given its user growth seems to be stabilized, it needs some further ways to increase the boundaries of its revenue streams.

That's where the real squeeze comes in: Snap is forced to look for more and more ad opportunities, wherever it can, without alienating the audience that it has built up by pushing too many promotions.

Again, cap on growth in its key markets is a concerning factor.

Usage trends are Snap's bright spot, where in the report, the app has reported a 25% increase in total time spent watching content year over year, and "Spotlight", its TikTok-like short-form video feed, averaged more than 500 million monthly active users in Q3.

Snapchat+ is also on a growth spurt, with 12 million now paying a monthly fee for various add-ons within the app. The firm had reported in August it had reached 11 million paying users, so two months later, it added another million subscribers.

In comparison, Snapchat+ had been an unmitigated success against other subscription services introduced by social applications, especially considering X only managed 1.3 million X Premium sign-ups even though both had almost simultaneously launched. This time again, Snap came out proving that it fully understands its audience and what people want to get from using the app, which leaves room for offering more possibilities to entice Snapchat+ sign-ups.

It remains a small contributor to the revenue pie, as Snapchat generated more than 90% of its revenue from ads in the period, but it is another indicator of Snap's enduring popularity among its dedicated users and the stickiness of the app for teens, in particular.

However, Snap may have another area of concern, as if its growth is capped, will it be able to sustain the investment in such big-ticket projects as its AR glasses.

As far as its costs are concerned, its "Research and Development" charges are starting to rise again.
As noted above, Snap says the ramp in ML and AI investments is inching its way to that higher from some relatively benign periods Snap held things down on this front, while Snap will actually require much heavier investments before consumer come to view AR Spectacles in just two years or so.

Absent that investment occurring, this whole project should fall flat, which reasonSnap needs a shareholders'faith to step over the current chasm. Yet, with Meta also putting its AR glasses on an equivalent timeline, it appears that it is also very likely that Snap is going to find it hard to get any form of adoption for its AR device either way since, according to our review of Snap's AR device compared to Meta's Orion glasses, in their current state, Meta's AR glasses are a better product, by and large.

I see no future there with these numbers either: Snap just doesn't have the scale to compete and likely gets steamrolled by Meta's device when it comes out either way.

While that is interesting enough, the company also has initiated a $500 million share buyback program in the announcement of earnings. That will further shrink the pool of probable objectors to its AR plan.

Snap still has opportunities in international markets, and its improving and expanding ad options are delivering results. But as noted, I would be concerned about its stagnating growth, and what that may mean in terms of a potential saturation point for the app.

Because once you reach that wall, then your only remaining growth lever is, essentially, more ads.

And with that also comes an ever-changing core base of younger users churning through, which will drive Snap closer to losing its audience.