Snap Inc. reported a stronger-than-expected gain in fourth-quarter revenue, reaching $1.56 billion, a 14% increase from the previous year. The company’s shares surged following the announcement, reflecting optimism about the effectiveness of its advertising overhaul. Snap anticipates first-quarter sales to reach up to $1.36 billion, surpassing the average analyst estimate of $1.33 billion. The company attributes its success to new advertising formats that have attracted more small- and medium-sized marketers to its platform.

Snapchat’s user growth also exceeded expectations, with 453 million daily active users in the fourth quarter, driven by a focus on video content. The company’s profit, excluding certain items, rose to 16 cents per share, surpassing the average projection of 14 cents. Snap has introduced several new ad options, including Sponsored Snaps and Promoted Places, and has shifted its focus to include smaller marketers, which contributed significantly to its ad revenue growth last year.

Snap has also appointed Ajit Mohan, a former Meta Platforms executive, as its chief business officer to oversee its growing ads business. The company is exploring new revenue streams, such as smart glasses and subscription products, to diversify its income sources. Snap has invested heavily in AI and machine learning technologies to enhance its products and services, with plans to spend about 85 cents per daily user on infrastructure services related to these technologies.

The company’s reliance on cloud computing services for its AI work, rather than building its own data centers, has led to a partnership with Alphabet Inc.’s Google. Snap is also exploring the use of open-source AI models, such as those from Chinese startup DeepSeek, to improve efficiency and reduce costs. The potential ban of TikTok in the US could further benefit Snap, as advertisers seek alternative platforms to diversify their marketing strategies.