Do you pay for Snapchat? For most of its users, the answer is still no.
But more than 30 million people now do, up from about 17 million a year ago. They pay for Snapchat+, extra storage for saved photos, or AI-powered Lens+ effects. And Snap’s investors are mostly ignoring it.
The stock fell about 12% after Snap’s third-quarter report last week, as ad sales and daily users missed forecasts, TechEconomy reported.
A Nov. 10 Deutsche Bank research report seen by TheStreet argues that the selloff is looking at the wrong number. It’s titled “Better Than the Tape Suggests; Subs Mix and Earnings Power Matter.”
One disclosure: Deutsche Bank has managed a public offering for Snap within the past year, the note’s disclosures show.
Snap’s paying users just topped 30 million
Paid subscribers reached about 30 million in the third quarter, up 77% from 17 million a year earlier.
“Subscriptions increasingly matter to both the quality of revenue and the margin story, yet we think this remains underappreciated by investors,” wrote analyst Benjamin Black.
Subscription revenue, which Snap reports as “other revenue,” jumped 84% to $350 million. It was the third straight quarter of growth above 80%, Black wrote.
Advertising, by contrast, grew just 4% to $1.37 billion.
Related: Wall Street sees more upside in Snap
By my math, subscriptions added about $160 million in revenue from a year earlier, while ads added about $56 million. That means subscriptions drove roughly three-quarters of Snap’s growth.
They now make up about 20% of Snap’s revenue, up from roughly 13% a year ago.
What the average Snapchat subscriber pays
Snap sells several paid tiers. Here’s what each costs:
- Memories Storage: $1.99 a month for 100GB
- Snapchat+: $4.99 a month, with 250GB of storage included
- Lens+: $8.99 a month for premium AI lenses
- Snapchat Platinum: $14.99 a month, with 5TB of storage
By my math, Snap collected about $3.89 per subscriber per month last quarter. That’s close to the price of a basic Snapchat+ plan.
The storage tier explains part of the jump. Snap capped free Memories at 5GB and gave existing users 12 months of extra free space to upgrade or export their snaps, SlashGear reported.
If you’re nearing that limit, you have a free option. You can set Snapchat to save snaps to your phone’s camera roll as well as Memories, under Settings, then Memories, then Save Button.
Why subscriptions are so profitable for Snap
Subscriptions are cheap to run, and it shows in Snap’s profits.
Adjusted EBITDA more than doubled to $383 million, a 22% margin. Roughly 93% of Snap’s added revenue flowed straight through to EBITDA, Black wrote.
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Black also sees room to grow. Paid subscribers are only about 3% of Snap’s 977 million monthly users, he noted, leaving “substantial runway” from new products and pricier bundles.
He expects subscription revenue to reach about $1.81 billion in 2027, up roughly 35% from this year.
The user number that still worries investors
The bear case hasn’t gone away.
Brand advertising fell from a year earlier, as consumer-goods companies pulled back amid economic pressure in the U.S. and the Middle East, the note said.
North America is the bigger worry. Daily users there fell about 6% from a year earlier to 92 million, though revenue per user in the region jumped 20%.
Snap also plans to stop leading with daily users. Starting in early 2027, it will report monthly users instead, alongside revenue per monthly user and free cash flow per share.
Black sees that as part of a shift toward “profitable audience growth rather than growth at any cost.”
I’d note the other side, too. The switch also retires the metric that just disappointed in favor of one that’s twice as big.
Black kept his Buy rating and $8 target, based on 10 times 2027 adjusted EBITDA. By my math, that implies about 61% upside from the Nov. 6 close of $4.96.
The stock is still down about 45% from its 52-week high of $9.09.
For users, the lesson is simple: Snapchat isn’t fully free anymore. For investors, the question is whether a $4 subscription can grow fast enough to matter more than a shrinking North American audience.
