Snap Inc. (NYSE: SNAP) delivered a stronger-than-expected Q2. Revenue hit $1.60 billion, beating the $1.54 billion consensus by about 4%. The net loss per share of $(0.10) was two cents better than the $(0.12) estimate. The headlines suggest a business finally translating user scale into financial leverage. The real engine of the beat, however, was cost discipline.
Revenue grew 19% year-over-year, accelerating from 12% in Q1 and 9% in the year-ago quarter. The composition matters. Advertising revenue rose 9% to $1.28 billion, a respectable improvement but hardly the main story. The standout was Other Revenue, which surged 85% to $316 million, driven by Snapchat+, Memories Storage, and the Lens+ subscription tier. Less than 3% of monthly active users are paying subscribers, which means this direct revenue stream has a long runway even if conversion improves modestly. Management expects direct revenue to keep growing materially faster than the overall business, and the numbers back that up.
Gross margin expanded seven percentage points year-over-year to 58%. That's a significant move, reflecting the restructuring Snap executed early in Q2. The company cut headcount by 9% to 4,723 employees, and the personnel-cost savings are only partially reflected in Q2. The full benefit will appear in Q3 and beyond. Total adjusted cost structure grew just 4% year-over-year, meaning revenue growth of 19% flowed disproportionately to the bottom line. Adjusted EBITDA jumped to $250 million from $41 million, a 505% increase. The margin hit 16%, up from 3% a year ago.
Free Cash Flow reached $121 million, marking eight consecutive quarters of positive FCF. Trailing twelve-month FCF hit $706 million. That cash generation is the foundation of management's newly stated primary financial objective: Free Cash Flow per share. CFO Doug Hott framed it as the metric connecting operating performance, capital allocation, and long-term shareholder value. It is a sensible north star for a company that has historically burned cash and diluted shareholders. Over the past five years, Snap has limited fully diluted share-count growth to approximately 2% through buybacks and plans to implement a new multi-year dilution management program in Q4 after the current repurchase program concludes.
Q3 guidance implies continued momentum. Revenue is expected between $1.70 billion and $1.74 billion, which at the midpoint represents roughly 14% year-over-year growth. Adjusted EBITDA guidance of $300 million to $350 million suggests margins will continue expanding. The full-year infrastructure cost outlook was raised slightly to $1.65 billion to $1.70 billion from $1.60 billion to $1.65 billion, reflecting additional investment in AI and machine learning infrastructure. That is a modest increase for a business generating over $700 million in trailing FCF.
Snap's margin compression over the past several years was structural but reversible through deliberate cost action. Q2 provides the first clear evidence that the reversal is real. The 58% gross margin and 16% Adjusted EBITDA margin are not one-time events driven by easy comps or timing. They reflect a smaller, more focused team, AI-driven automation that reduced support ticket volume by 62% and increased first-pass image-review automation from 40% to nearly 90%, and a revenue mix shift toward higher-margin direct revenue. The $128.5 million in Q2 restructuring charges were a cost to achieve this new baseline, and the payoff is visible in the numbers.
The forward story has two tracks. The core business is generating enough cash to fund itself, offset dilution, and invest in long-term growth. The second track is SPECS, the see-through glasses positioned as a computing platform for an AI-driven future. The launch event is set for September 16. Management has included planned SPECS investment within the existing operating expense outlook, meaning the core business is expected to absorb that cost without derailing margin expansion. That is a credible claim if Q2's trajectory holds. The risk is that SPECS becomes a capital sink before it becomes a revenue stream, but for now, the core business is doing what it needs to do.