Snap Q3 2026 Earnings Results & Report

Snap EPS Results

• Actual EPS: $0.03
• Consensus EPS: $0.0048
• Beat/Miss: Beat by +$0.0252
• One Year Ago EPS: -$0.06
• EPS Beat Rate: 2 of last 8 quarters

Snap Revenue Results

• Actual Revenue: $1.72 billion
• Expected Revenue: $1.73 billion
• Beat/Miss: Missed by -$8.19 million
• YoY Revenue Growth: +14.30%

Snap (NYSE:SNAP) is a technology and social media company best known for Snapchat, a visual messaging and social networking application. Snapchat enables users to communicate through photos, videos, messages and Stories, while offering creative tools such as augmented reality (AR) Lenses and filters. The platform also includes features such as Snap Map, Spotlight and content from publishers and creators.

Snap generates most of its revenue from digital advertising, including video, augmented reality and other advertising formats delivered across Snapchat. The company also offers subscription services and other products designed to provide additional features and functionality to users. Its AR technology supports interactive experiences for consumers, advertisers and business partners.

Founded in 2011, Snap was originally established as Snapchat and has its headquarters in Santa Monica, California. The company serves a global user base and has expanded its platform beyond private messaging into entertainment, creator content, mapping and commerce-related experiences. Snap is led by co-founder Evan Spiegel, who serves as chief executive officer, and co-founder Bobby Murphy, who serves as chief technology officer.

Snap Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q3 revenue rose 14% year over year to $1.72 billion, while net income reached $56 million and adjusted EBITDA increased to $383 million. Gross margin expanded about 7 percentage points, and free cash flow rose 76% to $164 million.
• Negative Sentiment: Advertising revenue grew just 4%, as declining upper-funnel brand spending—particularly from U.S. and Middle East consumer packaged goods advertisers—offset stronger direct-response growth. Management said direct response now represents about 77% of revenue and expects brand improvements to take hold over 2027.
• Positive Sentiment: Direct-response campaigns showed improved results: app-purchase campaign revenue grew more than 54% as purchase volume more than doubled, while web-purchase campaign revenue increased 11%. Snap is betting that AI-powered ad tools, better measurement, and new placements will help turn these gains into larger advertiser budgets.
• Positive Sentiment: For Q4, Snap guided to revenue of $1.950 billion–$1.985 billion and adjusted EBITDA of $490 million–$525 million. Other revenue, led by subscriptions, grew 84% in Q3, and Snap surpassed 30 million paid subscribers.
• Negative Sentiment: Snap warned that evolving youth-related regulation could bring product changes, higher compliance and legal costs, and harm to user growth or engagement. It will also make global monthly active users, rather than daily active users, its primary audience metric starting in Q1 2027.

Presentation

[Operator]

Good afternoon, everyone, and welcome to Snap Inc.'s Third Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. I would now like to turn the call over to David Ometer, head of Investor Relations.

[David Ometer, Head of Investor Relations at Snap]

Thank you and good afternoon, everyone. Welcome to Snap's third quarter 2026 earnings conference call. With us today are Evan Spiegel, chief executive officer and co-founder; Ronan Harris, chief commercial officer; and Doug Hott, chief financial officer. Please refer to our investor relations website at investor.snap.com to find today's press release, earnings slides, and investor letter. This conference call includes forward-looking statements, which are based on our assumptions as of today. Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures. For more information about factors that may cause actual results to differ materially from these forward-looking statements, please refer to the press release we issued today, as well as risks described in our most recent Form 10-K or Form 10-Q, particularly in the section titled Risk Factors. Today's call will include both GAAP and non-GAAP measures.

[David Ometer, Head of Investor Relations at Snap]

Reconciliations between the two can be found in today's press release and earnings slides available on our IR website. Please note that when we discuss all of our expense figures, they will exclude stock-based compensation and related payroll taxes, as well as depreciation and amortization and certain other items. Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed on today's call. With that, I'd like to turn the call over to Evan.

[Evan Spiegel, CEO and Co-Founder at Snap]

Thank you for joining us. Q3 demonstrated the growing earnings power of Snap's business. Revenue increased 14% year-over-year to $1.72 billion, and we generated positive net income. Gross margin expanded by approximately 7 percentage points, while net income margin and adjusted EBITDA margin each expanded by approximately 10 percentage points. Daily active users grew to 495 million, and monthly active users grew to 977 million. As I shared in my 15-year letter in September, our priorities are clear: keep our community safe, grow our advertising business faster, and strengthen the relationships at the heart of Snapchat. Communication between friends and family remains the foundation of Snapchat. In Q3, average daily messages sent increased 8% year-over-year, and the number of people engaging in two-way communication increased 6% year-over-year. Our camera, Spotlight, Map, and games give people more to share and more reasons to connect.

[Evan Spiegel, CEO and Co-Founder at Snap]

Spotlight is becoming an increasingly important part of that experience, with content that sparks conversations and inspires creativity. Globally, the number of people posting to Spotlight grew 130% year-over-year, while daily active viewers increased 40% year-over-year. We continue to invest in creators and AI-powered recommendations to help Snapchatters discover content they enjoy and want to share with friends. AI is becoming a meaningful advantage for Snap, helping us improve our products faster, serve our community more effectively, and work more efficiently. For example, in Q3, our engineering teams more than doubled the number of merged pull requests year-over-year, while the defect rate per merge pull request declined over 71%. For advertisers, AI search now resolves over 92% of help center sessions, while support cases declined 35% year-over-year.

[Evan Spiegel, CEO and Co-Founder at Snap]

While advertising revenue growth remains below our ambitions, advertisers are seeing the benefits of our performance improvements. Our focus now is to turn these improvements into broader adoption, more meaningful share of advertiser budgets, and more durable growth. Other revenue grew 84% year-over-year, and we surpassed 30 million paid subscribers across Snapchat+, Memories Storage, and Lens+. Innovative AI-powered features have helped Lens+ exceed our expectations, demonstrating how new creative experiences can drive demand for our paid products. Paid subscribers still represent a small share of our monthly community, giving us room to grow through broader adoption and new premium experiences. We delivered substantial operating leverage, with approximately 93% of incremental revenue flowing through to adjusted EBITDA. As revenue grew faster than our cost base, we expanded margins and generated stronger cash flow.

[Evan Spiegel, CEO and Co-Founder at Snap]

This strengthens our ability to invest in our business, offset dilution, and create long-term value on a per-share basis. SPECS represent our ambition to bring computing into the world around us. By combining see-through augmented reality with artificial intelligence, we see an opportunity for computers to understand more of what we are experiencing and provide useful information and assistance in the moment. SPECS can help people learn, create, and get things done while staying present with those around them. Our years of investment in augmented reality and our developer ecosystem give us a strong foundation to lead this transition. SPECS bring those capabilities together across hardware, software, and AI to make computing a more natural part of everyday life. A golfer can receive personalized guidance on their swing through a Lens developed with input from PGA professionals, while someone working on the go can edit documents on a virtual display.

[Evan Spiegel, CEO and Co-Founder at Snap]

Through our enterprise partnerships, we are also exploring how technicians can receive visual guidance from remote experts directly in their field of view while keeping their hands free. We are excited by the positive feedback we have already received as people experience SPECS firsthand. Our SPECS First Look pop-up is now open at Westfield Century City in Los Angeles, where visitors are trying SPECS, meeting our team, and learning more about augmented reality. The pop-up gives us an opportunity to learn directly from our community as we refine the experience and bring a more natural human way of computing to life. I'll now turn the call over to Ronan Harris, our chief commercial officer.

[Ronan Harris, Chief Commercial Officer at Snap]

Thank you, Evan. Snapchat is woven through how our community lives throughout their day. People use the camera to share what's happening, use Chat to talk with close friends, they explore the Map, and discover content about where to go, what to do, and what to buy. They come to Snapchat as themselves, with the people who matter to them. That is what makes Snapchat different. It's the real you in the real world. Real relationships, real-world context, and authentic self-expression give us a distinctive foundation for advertising. AI can help us build on that understanding while protecting privacy, making recommendations more useful, and advertising more effective. Our ambition is to help businesses to create demand before people start searching and turn discovery into purchases. Our priorities are improving advertiser performance, making results easier to measure, and expanding the ways businesses can reach our community.

[Ronan Harris, Chief Commercial Officer at Snap]

Across these priorities, our focus is on turning stronger outcomes into greater advertiser demand, larger budgets, and sustained revenue growth. In Q3, direct response advertising grew strongly, supported by improved purchase outcomes. However, upper funnel brand advertising declined year-over-year, weighing on our overall growth. In Q3, purchase volume for campaigns optimized for app purchases more than doubled year-over-year, while average cost per purchase declined approximately 24%, and revenue grew over 54%. For web purchase campaigns, purchases increased over 31% year-over-year. Average cost per purchase declined 15%, and revenue grew 11%. For example, skincare brand Dermalogica used WorkMagic to measure Snapchat's incremental impact on sales. The brand scaled its Snapchat investment 6.2 times while improving incremental return on ad spend by 45%, driving nine times incremental revenue. New customers accounted for 73% of incremental orders, up from 54%, highlighting Snapchat's role in efficient customer acquisition.

[Ronan Harris, Chief Commercial Officer at Snap]

AI is helping us extend that progress through Dynamic Product Ads, generative retrieval, and agentic recommendations. These capabilities help connect products in an advertiser's catalog with a Snapchatter's interests and activity to identify products they may value. Together with improvements that recognize people's multiple interests, these innovations have already contributed to an over 2.5% increase in Pixel Purchase conversions. Ahead of the holiday shopping season, we introduced Commerce Power Pack to help advertisers turn discovery into purchases and optimize for business value. Dynamic Product Ads for Sponsored Snaps bring personalized catalog ads into Chat and is available globally. Third-party web optimization, now in open beta, combines Snap signals with third-party measurement signals to optimize towards advertisers' preferred sources of measurement.

[Ronan Harris, Chief Commercial Officer at Snap]

For example, after switching to third-party web optimization for its Snapchat campaigns in France, Foot Locker recorded a 53% higher return on ad spend and a 38% lower cost per acquisition, measured through its third-party measurement platform. For app advertisers, unified attribution became generally available across AppsFlyer and Adjust in August, extending support to measurement partners representing over 75% of app advertising revenue. It helps align campaign optimization with purchase outcomes reported by advertisers' mobile measurement partners. Our third priority is expanding the ways businesses can reach our community. Advertising within Chat, Spotlight, and the Map connects businesses with the conversations, content, and places that matter to Snapchatters. These experiences give advertisers more ways to build awareness, create demand, and drive purchases. Sponsored Snaps revenue grew 56% sequentially, with Chat share of total revenue increasing approximately 8 percentage points year-over-year.

[Ronan Harris, Chief Commercial Officer at Snap]

Our launch of auction-based Sponsored Snaps in Europe is an exciting step in bringing this format to more advertisers. Adding personalized product ads through Commerce Power Pack further expands its potential to turn conversations and discovery into action. Spotlight's growing audience creates more opportunities for brands to reach our community through full-screen vertical video. Average Spotlight ECPM increased 22% year-over-year, and we continue to strengthen the creative, buying, and measurement capabilities that help advertisers achieve their goals. Promoted Places brings this opportunity into the real world, helping businesses connect with people exploring where to go and what to do on Snap Map. Revenue and advertiser adoption each more than doubled sequentially in Q3, and we expanded the product to 14 countries. This early momentum demonstrates advertiser interest in reaching our community at moments of discovery, with opportunities spanning restaurants, retailers, and other local businesses.

[Ronan Harris, Chief Commercial Officer at Snap]

Across these priorities, success means helping more advertisers achieve their goals, return to Snapchat, and grow their investment. By delivering results they can trust and build upon, we believe we can earn lasting relationships, a larger share of their budgets, and sustained advertising revenue growth. I'll now turn the call over to Doug to discuss our financial results.

[Doug Hott, CFO at Snap]

Thank you, Ronan. In Q3, revenue increased 14% year-over-year to $1.72 billion, within our prior guidance range of $1.70 billion-$1.74 billion, while our total cost structure grew just 1% year-over-year. Advertising revenue grew 4%, and other revenue grew 84%, led by Snapchat+, Memories Storage, and Lens+. We delivered substantial operating leverage with approximately 93% of incremental revenue flowing through to adjusted EBITDA. Gross margin reached 62%, net income reached $56 million, an improvement of $160 million year-over-year, and adjusted EBITDA increased by approximately $201 million-$383 million year-over-year, representing a margin of 22%. Margin expansion reflected revenue growth, a greater contribution from direct revenue, and efficiencies across our cost base. Our focus is on sustaining disciplined cost growth while investing in the products and capabilities that support revenue growth.

[Doug Hott, CFO at Snap]

Operating cash flow increased 44% year-over-year to $210 million, and free cash flow increased 76% to $164 million. On a trailing 12-month basis, operating cash flow reached $983 million, up 59%, and free cash flow reached $777 million, up 88%. This growth in cash generation strengthens our ability to invest in the business, manage dilution, and maintain a strong balance sheet. We ended Q3 with approximately 1.93 billion shares outstanding, including shares underlying stock-based awards, an increase of 3.8% year-over-year. Managing dilution remains an important part of translating stronger earnings and cash generation into sustained growth in free cash flow per share. We ended the quarter with approximately $2.77 billion in cash equivalents, and marketable securities, an increase of approximately $111 million from the end of Q2. Now turning to our outlook.

[Doug Hott, CFO at Snap]

As we move into Q4, we remain focused on accelerating top-line growth, growing our community, deepening engagement, and improving financial efficiency. Our guidance range for Q4 revenue is $1.950 billion-$1.985 billion. We expect infrastructure costs to grow modestly year-over-year in Q4 and now anticipate full-year infrastructure costs of $1.65 billion-$1.66 billion, compared with our prior guidance of $1.65 billion-$1.70 billion, as we have been able to increase our investments in AI and ML without increasing our overall infrastructure costs. We continue to expect all other cost of revenue, excluding infrastructure costs, to represent 16%-17% of revenue for the full year. Our guidance range for adjusted EBITDA is $490 million-$525 million in Q4. Our outlook includes our planned investments in SPECS, which we continue to pace against product, ecosystem, and economic milestones.

[Doug Hott, CFO at Snap]

Following the expected completion of our current repurchase program in Q4, we intend to pursue a multi-year approach to dilution management, with the goal of offsetting future dilution and supporting a stable, fully diluted share count in 2027. Beginning with our Q1 2027 results, global monthly active users, MAU, will become our primary audience metric. Snapchat is approaching 1 billion people each month, and we believe MAU provides the most complete view of the community we serve and our revenue opportunity over time. MAU represents the scale of our community, while engagement and monetization metrics reflect the depth and value of our service. Daily engagement has historically been stable as a percentage of monthly engagement, but we do not intend to optimize Snapchat around daily use at the expense of long-term value for our community.

[Doug Hott, CFO at Snap]

A longer-term horizon better aligns our reported metrics with the product and safety decisions that strengthen relationships, create lasting utility, and support broader, more durable audience growth. Alongside global MAU, we are introducing global MAU-based average revenue per user, ARPU, as our primary monetization metric. Together, global MAU, ARPU, and free cash flow per share provide a clear scorecard for Snap, the scale of our community, our progress monetizing that community, and our ability to translate that progress into long-term shareholder value. As discussed last quarter, we continue to monitor the evolving legal and regulatory landscape in the U.S. and internationally that could materially impact our business and financial results, including increased regulatory scrutiny on youth-related issues.

[Doug Hott, CFO at Snap]

While outcomes remain uncertain, they may result in significant changes to our products and business practices, increased compliance requirements and legal costs, increased payments for legal judgments and settlements, and negative impacts to user growth and engagement. Thank you. We will now take your questions.

[Operator]

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star one again. In the interest of time, we ask that you please limit yourself to one question. After your initial question is asked, your line will be muted. At this time, we will pause momentarily to assemble our roster. Your first question comes from the line of Ross Sandler with Barclays. Ross, your line is open. Please go ahead.

[Ross Sandler, Analyst at Barclays]

Great. One for Ronan and one for Evan, please. Ronan, it looks like brand was once again the culprit in driving weakness in the third quarter. What are you guys doing to address that? The 4Q guidance assumes a nice re-acceleration in growth at the mid or the high end. Can you talk about what you are seeing quarter-to-date in 4Q? Evan, any early read on SPECS out of the gate? Thank you.

[Ronan Harris, Chief Commercial Officer at Snap]

Ross, thank you for the question. To talk about brands, it declined mainly because of lower CPG spending driven by macro pressures in the U.S. and also the Middle East. Q2 also benefited, I think, from easier comparisons and World Cup-related spending, so that is part of the sequential deceleration that you see. As we look ahead, we are seeing very positive signs of growth from diversified verticals like financial services in the U.S. So part of our strategy here is to look outside of the pressures in CPG and find traction in these other verticals, and I am pleased to say we are seeing progress there.

[Ronan Harris, Chief Commercial Officer at Snap]

I think that go-to-market shift, together with other work we are doing on inventory, expanding the inventory that we have got available, and also the formats, I think give us confidence that we are going to start to see the brand business regain ground over the course of 2027.

[Evan Spiegel, CEO and Co-Founder at Snap]

Hey, Ross. Thanks so much for the question. It has been so exciting to finally have SPECS out in the world, and we opened our First Look pop-up in October here in Los Angeles, and it has just been so gratifying to see people try SPECS for the first time. We have had more than 10,000 demos to date at the pop-up, and I think that is really a testament to the excitement around SPECS and what is possible. SPECS represent a totally new computing paradigm, so it is really, really important for people to try them to understand the value. So we are very focused now on all the new opportunities that SPECS create, including things like remote assistance or virtual workstations for on-the-go productivity, and of course, all the amazing location-based experiences at places like museums.

[Evan Spiegel, CEO and Co-Founder at Snap]

So, we think we have barely scratched the surface of what is possible with SPECS, and we are really looking forward to beginning to ship SPECS later this fall, and really to see what our community will build.

[Operator]

Your next question comes from the line of Eric Sheridan with Goldman Sachs. Eric, your line is open. Please go ahead.

[Eric Sheridan, Analyst at Goldman Sachs]

Thanks so much for taking the question. Maybe two, if I could. I want to come back to the audience metric shift towards MAU and understand a little bit better just the thought process around that and how that is the indication you want to leave folks with in terms of measuring the business going forward. The second, on Sponsored Snaps, you continue to show a lot of progress there and a lot of growth. How should we be thinking about the learnings and how they are scaling as to what the market opportunity is around Sponsored Snaps? Thank you.

[Doug Hott, CFO at Snap]

Hey, Eric. This is Doug. Hello there. This goes back to the shift we outlined in 2025 towards more profitable growth. We reduced our investment in community growth marketing globally, put less emphasis on growing daily active users, and focused on building our direct revenue business. The changes here to our reporting reflect that strategy. If you remember back in Q2 2025, we introduced monthly active users as a reported metric. As we approach 1 billion people using Snapchat each month, we think MAU gives investors the clearest view of the scale of our community and our long-term revenue opportunity. We are focused on three things: how many people we serve, how effectively we monetize that community, and how that translates into free cash flow per share. Global MAU-based ARPU, and free cash flow per share give investors a pretty straightforward way to follow that progress.

[Doug Hott, CFO at Snap]

We also want to give our teams the flexibility to make the right long-term decisions for our community. Daily engagement has historically been stable as a share of monthly engagement, but some decisions that improve the experience on Snap, keep people safe, or support long-term retention may actually affect daily active use in the near term. We want to make those decisions with the long-term health of our community in mind. We will continue to report revenue for North America, Europe, and rest of world separately. We think regional revenue is the most direct way to understand financial performance across those markets. Investors will continue to have visibility into where revenue is growing alongside a global view of our audience and monetization.

[Ronan Harris, Chief Commercial Officer at Snap]

[crosstalk] I will take the question on Sponsored Snaps. On the platform, clearly our community is coming and spending huge amounts of time within the Chat environment. When we introduced this, it was a tremendous opportunity to give advertisers more ways to go out and reach people in experiences that they are already using on the platform. When you look at the numbers, I think it is showing up in the growth. Sponsored Snaps revenue grew 56% sequentially in Q3, and we continue to innovate. We have introduced the auction-based Sponsored Snaps into Europe, so continue to expand geographically, and Dynamic Product Ads are now also available in Chat. These additions, I think, expand the use cases and the advertisers that the format can serve. We will continue to see that in coming quarters.

[Operator]

Your next question comes from the line of Doug Anmuth with JPMorgan. Doug, your line is open. Please go ahead.

[Doug Anmuth, Analyst at JPMorgan]

Great. Thanks for taking the questions. Evan, I know in your annual letter you talked about the ambition to ultimately move ad growth toward the mid-teens. Was just hoping you could elaborate on what you think maybe the three most important things you need to do are to really accelerate advertising growth in a material way. And perhaps in conjunction with that, we're obviously seeing lots of benefits across the space in terms of AI tools and driving greater engagement and ad targeting, higher conversion rates. If you can give us an update there where you are with AI-driven ad improvements. Thanks.

[Evan Spiegel, CEO and Co-Founder at Snap]

Absolutely. Thanks, Doug. Certainly, 4% ad growth is below our ambitions, and I'm cautiously optimistic about the progress we're seeing here in Q4 as we're seeing a bit of acceleration on the ad side. We do continue to see strong growth in direct response, which I think is really the durable underpinning of the business, but the upper funnel brand advertising did decline year-over-year, and that weighed on the overall results. So, I think what gives me confidence looking forward is really the progress in advertiser performance. So if you look at Q3, purchase volume for app purchase campaigns more than doubled, cost per purchase declined approximately 24%, and revenue grew over 54%. When we look at web purchase campaigns, they delivered more purchases at a lower cost, with revenue growing 11%.

[Evan Spiegel, CEO and Co-Founder at Snap]

So, we're really seeing these better outcomes for advertisers translate into revenue growth, and so we just need to translate that progress in terms of performance into broader adoption and a larger share of advertiser budgets. I do think AI is a meaningful accelerant there, so as we look into 2027 and beyond, we're continuing to improve performance with better AI-powered recommendations, and we're making it easier for advertisers to measure those results using the tools they already rely on, which we know is really important to their confidence in putting more budget behind Snapchat. So, we'll also be expanding the ways that advertisers can reach our community across Chat, Spotlight, and the Map, and Ronan mentioned the progress with Sponsored Snaps, but we're also seeing meaningful progress with Promoted Places, where revenue and advertiser adoption both more than doubled sequentially.

[Evan Spiegel, CEO and Co-Founder at Snap]

So, I think bringing our performance and measurement capabilities into these new placements and experiences gives us more opportunities to help advertisers turn discovery into purchases. So, I think taking it all together, we have got better tools to deliver results, we have got more ways for advertisers to reach our community, and now Ronan and the team are working really hard to get these improved capabilities into advertisers' hands, demonstrate that they really work and drive results, and ultimately earn larger and sustained commitments from our advertising partners.

[Operator]

Your next question comes from the line of Rich Greenfield with LightShed Partners. Rich, your line is open. Please go ahead.

[Rich Greenfield, Analyst at LightShed Partners]

Hi. Thanks for taking the questions. I got two. Evan, the letter talks about how Snap is not going to optimize daily use at the expense of long-term value. I was just wondering, I think everyone would appreciate some examples of something that you are choosing not to do, and what does that mean for time spent and ad revenue going forward? Is there a tension between those two? Just how should we think about how you are trying to optimize the company for the long term? Then, I guess, you have been talking a lot about the improvements in DR and the pressures on brand advertising. Anything you could give us a sense of, like, where are we in the transition?

[Rich Greenfield, Analyst at LightShed Partners]

When do we get to the point where DR performance is a large enough piece of the pie that it actually can overwhelm the pressure, and you actually start to see a real meaningful acceleration in the growth back to what you used to see years ago? How small is I guess, what size is brand still in terms of the overall company would be really helpful. Thanks.

[Evan Spiegel, CEO and Co-Founder at Snap]

Hey, Rich. Thanks so much for the question. I can speak a little to user engagement, and then Ronan can share a little on his thoughts on brand advertising. I think, looking maybe at a couple examples, one might be the choice to engage in user acquisition or costly user engagement in a geography that we don't currently monetize or don't effectively monetize. Another example might be deciding not to send certain notifications or to add new features to Snapchat that might generate another app open, but don't ultimately lead to long-term value. So, those are the types of examples of actions that can be costly, either financially or in the terms of user satisfaction. While they might increase daily active use, they don't actually help us achieve our long-term goals of developing a more engaged community or expanding our monetization opportunity.

[Evan Spiegel, CEO and Co-Founder at Snap]

I think Doug spoke earlier about this shift from DAU to monthly active users. That's really because we want to focus on the lasting utility of Snapchat and durable audience growth, not just daily frequency for its own sake. It certainly doesn't mean we're trying to reduce time spent or accept lower ad revenue. On the contrary, I think what this means is that we're focusing on earning engagement through useful experiences and really demonstrating that this stronger, more durable engagement supports the monetization opportunity over time.

[Ronan Harris, Chief Commercial Officer at Snap]

Hi, Rich. Thanks for the question. It's very exciting to see the increased engagement across the platform, so across both Spotlight and Chat. We've already talked about what the Chat engagement does in terms of our Sponsored Snaps product. Our increase in Spotlight engagement is also super encouraging, and when you look at that and the advertiser interest, you can see the resulting ECPM increase on Spotlight, which is up 22% year-over-year. Today, we are definitely seeing stronger growth on the direct response side of the business, and it continues to grow as a percentage of our overall business.

[Ronan Harris, Chief Commercial Officer at Snap]

Direct response is up to about 77% of our revenues at this stage, so that's a substantial increase versus last year, and we think that'll continue in the short term as we continue to expand the focus on those direct response products. But we do see the improvements on our brand go-to-market and our brand product innovations, which I talked to earlier, kicking in as we move into 2027.

[Operator]

Your next question comes from the line of Justin Post with Bank of America. Justin, your line is open. Please go ahead.

[Justin Post, Analyst at Bank of America]

Great. Thank you. I'll start with Spotlight. Impressive growth there. What are people doing more of this year than they were, and just how do you feel about the pipeline of additions over the next 12 months? Then just a general question, the Spotlight and Chat metrics look really good, but it doesn't seem like it's translating to U.S. and Europe DAUs. Any reason why that increasing engagement would show up in monthly, but maybe not daily? Thank you.

[Evan Spiegel, CEO and Co-Founder at Snap]

Thanks so much for the question. We're really excited about the progress with Spotlight, and our strategy has been to focus on what makes Snapchat special, which is this real content made by real creators. Earlier this year, we really worked hard to remove AI-generated content or reposted content from the service, and really focused on our community and the things that they were creating. What that led to was, I think, a really meaningful growth in the number of Spotlight posters, which has really helped increase inventory overall for Spotlight, which then obviously helps us show the right videos to the right folks on the service. We continue to think Spotlight's a really meaningful opportunity.

[Evan Spiegel, CEO and Co-Founder at Snap]

One of the things we're particularly focused on right now is the way that it can strengthen connections and relationships between friends as people share content with each other to start conversations on the service. It'll certainly continue to be a priority. We're doing a lot of work right now on the ranking architecture overall and exploring some of the new generative techniques, which may help us leapfrog our current architecture. Overall, I think it's really that focus on what makes Snapchat unique and that authentic content that's helping us drive the growth of Spotlight.

[Ronan Harris, Chief Commercial Officer at Snap]

Just to take the question on which products and ad formats are resonating most with our advertisers at the moment. In Q3, I mean, we've talked to the strong results for both Web DR and App DR. That continues to capture a lot of attention. We are seeing really material increases in return on ad spend and also in reach as people experiment and expand into these new products. Really what we're trying to do is to bring more AI in behind making the purchase easier, making the measurement easier, and as a result, being able to demonstrate durable performance and then expand budgets over time. Things like DPA Generative Retrieval and Agentic Recommendations that help match products with those interests of our community beyond keyword matching are really having a big impact.

[Ronan Harris, Chief Commercial Officer at Snap]

Our new Commerce Power Pack is also getting a lot of traction as a way to optimize for purchase value and advertiser preferred measurement. Alongside all of that product work, we're also focusing our teams and partners on adoption and consistent advertiser outcomes. I think those focus areas will help us to increase that share of wallet over time.

[Operator]

Your next question comes from the line of Dan Salmon with New Street Research. Dan, your line is open. Please go ahead.

[Dan Salmon, Analyst at New Street Research]

Sorry. Great. Good afternoon, everyone. I want to follow up on direct response with Ronan as well. As you move to overseeing the global business, I guess I'd like to hear just a little bit more on your high-level views on the state of the DR business. Obviously, lots of updates on the ad stack that you talked about, much stronger growth there lately. But maybe just to come back and talk a little bit more about what Evan spoke to about the sustainability there. In particular, I think of things like growing the number of advertisers on the platform. That's always an important metric. I'd love to hear your ambitions on that. Then maybe a little bit, that's more about small advertisers, maybe a little bit about your largest DR advertisers.

[Dan Salmon, Analyst at New Street Research]

How do you help move them into really everyday performance budgets that they can continue to lean into and become a bit more sustainable for Snap over time? Thanks.

[Ronan Harris, Chief Commercial Officer at Snap]

Thanks for the question. My focus is on making the performance we deliver easier for advertisers to both see and measure, to be able to buy it, so making sure that we've integrated with the right buying platforms, and then to be able to scale. I think if it's easy to buy, they're getting great results that they can rely on, then they're happily going to scale, and we're going to be able to increase our share of wallet. That's where our teams are focused on both in terms of product innovation and also in terms of our go-to-market. I've already mentioned that the introduction of things like DPA Generative Retrieval, Agentic Recommendations, they're really capturing the minds of advertisers in terms of using the power of AI to help match products with the interests of our community. That's making the purchasing easier.

[Ronan Harris, Chief Commercial Officer at Snap]

We've also talked about Unified Attribution and how we're making third-party measurements of performance on Snap, again, much, much easier, much more reliable. Those two things alone are giving us tremendous traction with the advertiser base. You mentioned the distinction between large and small advertisers. For small advertisers, this is super important. They are typically resource and time constrained, so being able to make it super easy for them to come onto the platform, get that first conversion, measure it, and rely on it, and for that buying process to be easy is critical. We're continuing to put a lot of work into that to make sure that they can, again, they can do it directly on Snap, they can self-serve, or they can have a managed experience.

[Ronan Harris, Chief Commercial Officer at Snap]

We're also integrating in further with lots of partners to make sure that their clients can use those third-party platforms to buy into Snap as well. I think those two things are definitely making the buying process for SMBs an awful lot easier. For the larger advertisers, it's about that dependable performance time and time again, making sure that the third-party measurement systems are super reliable, and making sure that our performance stays consistent. Again, introducing all of these new signals and AI technologies to help drive that incremental performance is critical to giving them those results. As you'll have seen in the results we discussed, particularly across web and app DR, that growth is super strong, and we expect that to continue to be positive over the coming quarters.

[Operator]

Our final question comes from the line of Alice Duska with Loop Capital. Alice, your line is open. Please go ahead.

[Alice Duska, Analyst at Loop Capital]

Hi, Alice here on for Rob Sanderson. Thank you so much for taking the question. I was just wondering, you've made significant progress in improving margins and controlling costs throughout 2026, about 93% of incremental EBITDA margins and 7 points of gross margin expansion. Could you provide some color on how much more room there is for cost optimization and if we can expect similar margin improvements in 2027? Thank you.

[Doug Hott, CFO at Snap]

Hey, Alice. Thanks for the question. This is Doug. Q3 really demonstrates the earning power of Snap when our revenue grows faster than our cost base. Revenue increased 14%, while our total cost structure grew just 1%. Our gross margin, as you noted, reached 62%. That translated into positive net income of $56 million. Really positive results for the quarter. One thing to call out, the 93% flow-through is a measure of this quarter's year-over-year operating leverage. The revenue mix, seasonality, timing of expenses, and investment levels affect that outcome. That said, unequivocally, our objective is to translate that earnings progress into sustained free cash flow per share, rather than really optimize a single quarter's margin. We're going to then use that cash against our three priorities.

[Doug Hott, CFO at Snap]

We're really happy with the flow-through this quarter, but there's obviously timing impacts from our cost base that impact that. I think if you look over the last several quarters, we've been able to take all of the savings that we had mentioned in Q1 and roll that through the year. Really happy about the results there. Thank you.

[Operator]

This concludes our question-and-answer session, as well as Snap Inc.'s third quarter 2026 earnings conference call. Thank you for attending today's session. You may now disconnect.

Participants

Executives

• David Ometer, Head of Investor Relations
• Evan Spiegel, CEO and Co-Founder
• Ronan Harris, Chief Commercial Officer
• Doug Hott, CFO

Analysts

• Ross Sandler, Analyst at Barclays
• Eric Sheridan, Analyst at Goldman Sachs
• Doug Anmuth, Analyst at JPMorgan
• Rich Greenfield, Analyst at LightShed Partners
• Justin Post, Analyst at Bank of America
• Dan Salmon, Analyst at New Street Research
• Alice Duska, Analyst at Loop Capital