Snap NYSE: SNAP executives used the company’s fourth-quarter 2025 earnings call to outline early results from a strategy shift toward “more profitable growth,” highlighting accelerating subscription momentum, improving gross margin, and the company’s first quarterly net income profit in years. Management also reiterated plans for a consumer launch of Specs in 2026, while acknowledging near-term engagement and regulatory headwinds tied to reduced community growth marketing and age-verification requirements.
Q4 revenue mix shifts as subscriptions accelerate
CFO Derek Andersen said total revenue in Q4 rose 10% year-over-year to $1.72 billion. Advertising revenue increased 5% to $1.48 billion, driven primarily by direct response (DR) advertising and continued strength from small and medium-sized businesses (SMBs). “Other revenue” grew 62% year-over-year to $232 million, with subscribers rising 71% to 24 million.
CEO Evan Spiegel emphasized that the “other revenue” portion of the business has become “an outsized source of growth” and a key driver of revenue diversification. On the Q&A portion of the call, Spiegel said memory storage plans were “a big driver” of recent subscriber growth and also helped improve retention. He added the company has additional features planned in 2026 for what he described as the “direct pay” segment.
Margins expand; Snap posts net income profit and higher free cash flow
Snap reported adjusted gross margin of 59% in Q4, up from 55% in Q3 and 57% in the year-ago quarter. Spiegel said the company had set a near-term target of 60% gross margin and described Q4’s performance as “meaningful progress,” adding that management sees “a clear path to exceed this goal in 2026.”
Andersen attributed the improvement to revenue growth outpacing infrastructure cost growth and a favorable shift in ad delivery mix, including higher-margin placements such as Sponsored Snaps and Spotlight. Adjusted cost of revenue was $699 million, up 4% year-over-year, and Andersen noted infrastructure cost per DAU was $0.86, coming in below the top end of the company’s full-year cost structure guidance range.
Profitability metrics also improved. Adjusted EBITDA was $358 million, up $82 million from the prior year, and adjusted EBITDA margin expanded nine percentage points to 21%. Andersen said Snap delivered net income of $45 million in Q4, compared to $9 million in the prior year, with the year-over-year improvement largely driven by adjusted EBITDA flow-through, partially offset by higher interest expense tied to high-yield notes issued earlier in the year.
Cash generation increased as well. Free cash flow was $206 million in Q4 and $437 million over the trailing twelve months, while operating cash flow totaled $270 million in Q4 and $656 million over the trailing twelve months.
Advertising: Sponsored Snaps traction, DR improvements, and SMB growth
Management framed the advertising strategy around three initiatives: enabling more direct connections between brands and Snapchatters, using AI to make advertising easier and more performant, and expanding the advertiser base—particularly among SMBs.
On ad delivery and pricing, Andersen said global impression volume increased about 14% year-over-year in Q4, driven “in large part” by expanded delivery across Sponsored Snaps and Spotlight. Total eCPMs declined about 8% year-over-year, though Andersen said the rate of decline moderated quarter-over-quarter as demand for Sponsored Snaps helped improve yields for the newer placement.
Spiegel highlighted momentum in Sponsored Snaps, saying revenue grew “meaningfully” quarter-over-quarter. The company also disclosed performance metrics tied to the format, noting click-through rates increased 7% from Q3 to Q4 and click-through purchases rose 17% over the same period, following ranking and format changes. Snap also discussed early beta results for Promoted Places, citing a 65% average reduction in cost for incremental visits and “average double-digit visitation lift,” based on third-party measurement by InMarket.
On direct response improvements, Snap pointed to progress in dynamic product ads (DPA) and app advertising:
- DPA: Snap said it achieved a 55% reduction in cost per action for 7/0 conversions and a 45% reduction for 1/0 conversions among pixel purchase groups, based on cumulative internal testing over the past year. DPA revenue grew 19% year-over-year.
- App ads: Revenue from in-app optimizations grew 89% year-over-year, which Snap attributed to advances in app models, adoption of the App Power Pack, and immersive formats such as Playables.
SMBs remained a central theme. Snap said SMBs contributed the majority of advertising revenue growth for the sixth consecutive quarter. Total active advertisers increased 28% year-over-year in Q4, which the company linked to simplified onboarding, improved workflows, and stronger performance. Snap also highlighted a global integration with Wix aimed at making it easier for e-commerce businesses to create campaigns, manage catalogs, and improve measurement.
In response to a question about Q1 and 2026 advertising trends, Snap said the key focus is generating additional demand by demonstrating ad platform performance, while noting headwinds remain in North America’s large customer segment. Management said the macro environment had been “relatively stable” compared with Q4, though it cautioned that there is “a lot of quarter left to go.”
Engagement trade-offs, regulatory impacts, and user trends
Spiegel reiterated Snap’s longer-term goal of reaching 1 billion global monthly active users (MAUs), noting MAUs reached 946 million in Q4 after growing by more than 150 million over the past three years. However, the company reported a divergence in Q4: MAUs increased by 3 million quarter-over-quarter, while global daily active users (DAUs) declined by 3 million to 474 million.
Spiegel said the DAU decline reflected, in part, Snap’s decision to “substantially reduce” community growth marketing investments as it pivots toward profitability. He also said initiatives to improve ARPU—such as growing Snapchat+, expanding Sponsored Snaps and Promoted Places, launching Lens Plus, and offering memory storage plans—can involve engagement trade-offs but are intended to strengthen revenue stability and the company’s margin profile.
Regulation was another factor. Spiegel said Snap implemented platform-level age verification in Australia to comply with a law requiring users to be at least 16 years old, resulting in the removal of about 400,000 accounts. He said Snap has begun testing signals from Apple’s declared age range API and plans to test Google’s solution when available. While acknowledging potential adverse effects on engagement, he characterized the steps as important for maintaining trust with the community and partners.
Specs and AI: preparing for 2026 consumer launch and productivity gains
Spiegel said Snap is preparing to “graduate from the R&D phase” of Specs and focus on broader consumer adoption, with a public launch planned in 2026. He said developers have been building experiences on the developer version of Specs released in 2024, and those lenses will run on the forthcoming product. Snap also highlighted platform work such as testing Snap Cloud (powered by Supabase) and ensuring compatibility so that “all lenses built today for Spectacles will be compatible with Specs at launch.”
On capitalization questions, Spiegel said Snap is focused first on “nailing the launch” and delivering an “extraordinary product,” while noting there may be opportunities longer term to raise additional capital to accelerate deployment, balanced against ownership and dilution considerations.
Spiegel also addressed AI-driven productivity, saying roughly 40% of new code at Snap is AI-generated and that the company has made progress automating workflows in trust and safety and customer service, with additional opportunities in sales and rapid development of new services.
Looking ahead, Andersen guided Q1 revenue to a range of $1.5 billion to $1.53 billion and adjusted EBITDA to $170 million to $190 million. He noted the Q1 revenue range excludes any potential revenue from a Perplexity integration because the companies have “yet to mutually agree on a path to a broader rollout.”
Snap also announced a new $500 million share repurchase authorization, citing balance sheet strength, progress on free cash flow generation, and a desire to manage share count “for the benefit of our long-term shareholders.” The company ended Q4 with about $2.9 billion in cash and marketable securities and $47 million in convertible notes maturing in fiscal 2026.
About Snap NYSE: SNAP
Snap Inc is a camera and social media company best known for developing and operating Snapchat, a multimedia messaging application that allows users to send photos, videos and messages that disappear after being viewed. In addition to its core messaging service, Snap offers a suite of augmented reality (AR) tools, including custom Lenses and Filters, that enable users and third-party developers to create interactive and immersive experiences. The company also provides advertising solutions that allow brands to engage audiences through Snap Ads, Sponsored Lenses and Discover content on the platform.
Founded in 2011 by Evan Spiegel and Bobby Murphy, Snap has continually focused on innovation in camera technology and AR.
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