Snap, still wrestling with softer ad sales amid stiff competition in the digital advertising sector, saw its top line drop 4% in the second quarter of 2023 — and while it managed to beat Wall Street earnings estimates, the Snapchat owner’s stock fell on a weaker-than-expected Q3 outlook.

For Q2, the company reported revenue of $1.07 billion and a net loss of $377 million million, or an adjusted loss of 2 cents per share. It was the second quarter in a row of revenue decline, after Snap sales were off 7% in Q1. For the most recent quarter, Wall Street was expecting the social media and messaging app company to post revenue of $946.7 million and an adjusted net loss of 4 cents per share.

At the same time, Snapchat’s user base continues to grow: In Q2, the app added 14 million daily active users on average in the quarter to hit 397 million (up from 383 million DAUs in Q1 and an increase of 14% year over year).

In discussing its Q3 guidance, Snap said, “From a revenue perspective, our business remains in a period of rapid transition as we work to improve our advertising platform, while forward visibility of advertising demand remains limited.” The company estimated third-quarter revenue will be flat to down by 5%, and that adjusted earnings will be between negative $50 million and negative $100 million. That reflects “estimated infrastructure costs” per daily active user of $0.79 to $0.84 in Q3, as Snap said it is investing in machine learning, AI and other infrastructure “to improve the performance of our ad platform, drive deeper content engagement and bring innovative product experiences to our community.”

On the poor Q3 outlook, Snap shares were down more than 17% in after-hours trading.

In trying to put a positive spin on things, Snap announced a new metric — active advertiser count — claiming it “achieved a record number of active advertisers in Q2, up more than 20% year-over-year, and improved advertiser retention.”

Amid the ad-sales struggles, Snap has tried to diversify revenue through Snapchat+, the $3.99/month subscription service that provides exclusive early-access features. In late June, the company said it had topped 4 million paid subscribers one year after launch, equating to an annualized run rate of about $192 million.

“We are excited by the progress we have made delivering increased return on investment for our advertising partners, growing our community to 397 million daily active users, and reaching more than 4 million Snapchat+ subscribers,” CEO Evan Spiegel said in announcing the Q2 results.

Snap touted other data points, trying to convince investors that it’s sustaining momentum in certain areas of the business. Total time spent watching Spotlight user-generated content more than tripled year-over-year and Spotlight reached more than 400 million monthly active users on average in Q2, up 51% year-over-year.

The company also said that since launching its AI-powered My AI chatbot, more than 150 million Snapchat users have sent over 10 billion messages, “which we believe makes My AI among the largest consumer chatbots available today.”

During Q2, Snap said, it “onboarded” new media partners and renewed content agreements including with ITV in the U.K., ProSieben in Germany, Network 18 in India, and ESPN in the Netherlands.