Snap Inc Earnings - Q4 2025 Analysis & Highlights
Snap Inc. reported strong Q4 2025 results driven by strategic pivot toward profitable growth, revenue diversification through subscription expansion, and meaningful gross margin expansion, while maintaining focus on augmented reality development and Specs consumer launch in 2026.
Key Financial Results
Total revenue reached $1.72 billion in Q4 2025, up 10% year-over-year.
Advertising revenue was $1.48 billion in Q4, up 5% year-over-year, driven primarily by growth in Direct Response advertising revenue.
Other revenue increased 62% year-over-year to reach $232 million in Q4, with subscribers growing 71% year-over-year to reach 24 million.
Adjusted gross margin reached 59% in Q4, up from 55% in Q3 and 57% in Q4 of the prior year.
Adjusted EBITDA was $358 million in Q4, an improvement of $82 million compared to the prior year, with adjusted EBITDA margins expanding 9 percentage points to reach 21%.
The company delivered positive net income of $45 million in Q4, up from $9 million in the prior year.
Free cash flow was $206 million in Q4 while operating cash flow was $270 million.
Full year 2025 revenue was $5.93 billion, reflecting 11% year-over-year growth.
Full year adjusted EBITDA was $689 million, representing adjusted EBITDA flow-through of 32% in 2025.
Business Segment Results
Direct Response advertising revenue showed strong growth, driven by demand for Pixel Purchase and App Purchase optimizations, as well as continued strength from the SMB client segment.
Sponsored Snaps revenue grew meaningfully quarter-over-quarter, supported by in-app optimizations and early testing of dynamic product ad integrations, with click-through rates growing 7% and click-through purchases growing 17% from Q3 to Q4.
DPA revenue grew 19% year-over-year, supported by expanded adoption among large advertisers and continued migration to higher-performing dynamic solutions.
Revenue from In-App Optimizations grew 89% year-over-year, supported by advances in foundational app models, broader adoption of the App Power Pack, and new immersive formats such as Playables.
Total active advertisers increased 28% year-over-year in Q4, driven in part by simplified onboarding, improved campaign workflows, and increased performance.
SMBs contributed the majority of advertising revenue growth for the sixth consecutive quarter.
Global impression volume increased approximately 14% year-over-year, driven in large part by expanded advertising delivery across Sponsored Snaps and Spotlight.
Total eCPMs declined approximately 8% year-over-year, with the rate of decline moderating by 5 percentage points quarter-over-quarter.
Capital Allocation
The company ended Q4 with approximately $2.9 billion in cash and marketable securities, and just $47 million in convertible notes set to mature in fiscal 2026.
Share repurchases were completed throughout 2025, helping limit share count growth to 3% in Q4.
A new share repurchase program in the amount of $500 million has been authorized.
Community and User Metrics
Global monthly active users increased by 3 million quarter-over-quarter to 946 million, bringing the company within striking distance of its goal to reach 1 billion global monthly active users.
Global daily active users declined by 3 million quarter-over-quarter to 474 million, reflecting the company's decision to substantially reduce community growth marketing investments in order to focus on more profitable growth.
Monthly active Snap Map users reached 435 million in Q4, up 6% year-over-year.
More than 200 million Snapchatters played games every month on average in Q4, representing an increase of 90% year-over-year.
Average daily messages sent increased 5% year-over-year, and the number of bidirectional communicators increased 5% year-over-year in Q4.
More than 700 million Snapchatters have engaged with generative AI lenses more than 17 billion times.
Growth Opportunities and Strategies
The company is pursuing three core advertising initiatives: fostering direct connections between brands and Snapchatters, making advertising easier and more performant through AI tooling, and growing the advertiser base by scaling go-to-market operations for small and medium-sized businesses.
The company is focusing on three significant catalysts for gross margin expansion: community growth focused on monetizable markets with calibrated cost to serve, higher margin ad placements such as Sponsored Snaps and Promoted Places, and the growing scale of the subscription business.
Subscription revenue growth is a critical focus, with plans to grow existing offers including Snapchat+ and Memories Storage Plans while innovating to bring compelling new offers to the platform.
The company is enhancing its camera with AI-powered capabilities that make creation more intuitive, dynamic, and social, with AI-driven lenses representing a meaningful evolution from traditional lenses.
More than 450,000 creators from nearly every country have built over 5 million lenses using the company's industry-leading AR and AI tools.
Snap Cloud, powered by Supabase, is being tested to make advanced backend capabilities more accessible within Lens Studio, enabling developers to build richer, more dynamic AR experiences.
All lenses built today for Spectacles will be compatible with Specs at launch, providing continuity and scale for developers from day one.
The company plans to launch Specs publicly in 2026, which represents a significant step forward in human-centered computing and the evolution of the AR platform.
The company is leveraging AI agents designed to accelerate SMB activation through automated recommendations and onboarding optimizations that reduce decision friction and improve performance.
Approximately 40% of new code at Snap is AI generated, with significant opportunities in trust and safety, customer service, and sales workflow automation.
Macroeconomic Environment
The macro operating environment has remained relatively stable compared to Q4, with guidance for Q1 built on the assumption that the macro environment continues to be stable.
The company faces near-term regulatory risk to engagement metrics, including pending legislations that would further restrict the use of Snapchat for the community.
In Q4, the company implemented platform-level age verification in Australia in accordance with a new law requiring users to be at least 16 years old, resulting in the removal of approximately 400,000 accounts.
The company has begun testing new signals from Apple's declared age range API and plans to test Google's solution once it becomes available.
Global ad revenue from impressions served to users under the age of 18 is not material to the business.
Financial Guidance and Outlook
Q1 2026 revenue guidance range is $1.50 billion to $1.53 billion, excluding any potential revenue from the Perplexity integration.
Adjusted EBITDA guidance for Q1 2026 is between $170 million and $190 million.
Full year 2026 infrastructure cost guidance range is $1.6 billion to $1.65 billion, which would represent flat year-over-year infrastructure costs at the low end.
The remaining components of adjusted cost of revenue are estimated at 16% to 17% of revenue in each quarter of 2026, representing a 1 to 2 percentage point improvement over 2025.
Full-year adjusted operating expenses are estimated at approximately $3 billion for 2026.
Stock-based compensation and related expenses are estimated at approximately $1.2 billion in 2026.
Head count growth in 2026 is expected to be roughly inline with the 7% head count growth experienced in Q4 of 2025, with hiring tightly focused on core strategic priorities.
The company expects to achieve 60% gross margins as a near-term goal, with a clear path to exceed this goal in 2026.
The company will grade performance on progress toward achieving meaningful net income profitability over the medium term.
Competitive Advantages and Product Differentiation
Snapchat has a differentiated content platform powered by authentic content that is native to Snapchat and reinforces human connection through content sharing as a conversation starter.
The company has built an end-to-end AR platform spanning software, tools, and hardware with Snap OS 2.0, Lens Studio, Snap Cloud, and a global developer ecosystem.
Research studies show that Snapchat specifically has a positive impact on people's well-being and people's friendships, in contrast to other services that do not necessarily have that positive impact.
Regulatory and Compliance Matters
The company continues to face elevated legal and regulatory related costs, with plans to make meaningful proactive investments in community safety.
Adjusted operating expense range for 2026 includes incremental investments in product development and go-to-market support for the consumer launch of Specs later in the year.
