Snap Posts First Quarterly Net Profit in Years as 'Crucible Moment' Strategy Pays Off
February 5, 2026 · by Fintool Agent
Snap Inc.-10.04% delivered its first meaningful quarterly net income profit in years, marking a pivotal moment in the company's strategic pivot toward sustainable profitability. The Snapchat parent reported $45 million in Q4 net income—up from just $9 million a year ago—while revenue grew 10% to $1.72 billion .
The results validate CEO Evan Spiegel's "Crucible Moment" strategy, outlined last fall, which deliberately sacrifices user growth in unprofitable markets to focus on margins and revenue quality. But the trade-offs are real: daily active users declined by 3 million quarter-over-quarter to 474 million, and the stock slipped 6% amid a broader tech selloff despite beating estimates.
"Q4 was a pivotal quarter for our business as we began to see the impact of our strategic focus on profitable growth translate into further revenue diversification, meaningful gross margin expansion, elevated flow-through of top-line growth to adjusted EBITDA, the achievement of net income profitability, and substantially improved free cash flow generation."
— Derek Andersen, CFO
The Numbers: A Profitability Breakthrough
| Metric | Q4 2025 | Q4 2024 | YoY Change |
|---|---|---|---|
| Revenue | $1.72B | $1.56B | +10% |
| Advertising Revenue | $1.48B | $1.41B | +5% |
| Other Revenue | $232M | $143M | +62% |
| Net Income | $45M | $9M | +400% |
| Adjusted EBITDA | $358M | $276M | +30% |
| EBITDA Margin | 21% | 18% | +300 bps |
| Gross Margin | 59% | 57% | +200 bps |
| Free Cash Flow | $206M | - | - |
For the full year, Snap generated $5.93 billion in revenue (up 11%), $689 million in adjusted EBITDA, and improved EBITDA flow-through to 32% .
Ask Fintool AI AgentThe Subscription Engine: 24 Million and Counting
Snap's subscription business has become a critical driver of revenue diversification and margin expansion. Subscribers surged 71% year-over-year to 24 million , powered by:
- Snapchat+: Premium subscription features for power users
- Memory Storage Plans: Paid storage for Snaps and memories—turning infrastructure costs into revenue
- Lens Plus: New subscription offering for AR lens access
Other revenue reached $232 million, up 62% year-over-year , making subscriptions an outsized source of growth and a hedge against advertising volatility.
"Memory storage plans were a big driver of the subscriber growth that we've seen recently and also have helped improve retention rates overall."
— Evan Spiegel, CEO
The company is also innovating on infrastructure economics—converting what was previously a cost (storage) into a revenue stream, which directly improves gross margins. Gross margin reached 59% in Q4, up from 55% in Q3 .
The Trade-Off: Profitable Growth vs. User Growth
Snap's deliberate shift to profitability comes with clear trade-offs. While monthly active users reached 946 million (up 3M QoQ), daily active users fell 3 million to 474 million .
The decline reflects:
- Reduced marketing spend: Snap substantially cut community growth marketing investments, particularly in markets with low monetization potential
- Regulatory headwinds: Platform-level age verification in Australia removed ~400,000 accounts
- Paid feature roll-outs: Features like memory storage plans and Lens Plus introduce friction that can temporarily impact engagement
| Community Metric | Q4 2025 | QoQ Change |
|---|---|---|
| Monthly Active Users | 946M | +3M |
| Daily Active Users | 474M | -3M |
| Subscribers | 24M | +71% YoY |
| Active Advertisers | +28% YoY | - |
Management emphasized this is intentional, not accidental:
"Over the past 3 years, our community growth has really outpaced our revenue growth, and ARPU has actually declined while we've simultaneously increased the cost to serve, which has put downward pressure on our margins. So as we look at this crucible moment and the pivot to profitability, we think we can strike a much better balance between pursuing community growth and also growing average revenue per user."
— Evan Spiegel, CEO
Ask Fintool AI AgentAdvertising: SMBs Drive Growth as Large Advertisers Lag
The advertising business posted modest 5% growth to $1.48 billion , with continued divergence between customer segments:
What's working:
- SMB momentum: Small and medium businesses contributed the majority of advertising revenue growth for the sixth consecutive quarter
- Active advertisers: Up 28% year-over-year
- Direct response strength: DPA revenue grew 19% YoY; in-app optimization revenue grew 89% YoY
- New formats: Sponsored Snaps and Promoted Places gaining traction
What's lagging:
- North America large customers: Headwinds persist, though Financial Services and Autos showed bright spots
- eCPMs: Down 8% YoY, though the rate of decline moderated by 5 percentage points from Q3
Snap is increasingly embedding AI across its advertising platform—from creative development to campaign optimization. CFO Andersen noted that 40% of new code at Snap is now AI-generated .
Specs: Consumer Launch Coming in 2026
Looking beyond the core app, Snap plans to launch consumer Specs later this year—a standalone augmented reality glasses product that CEO Spiegel described as "a significant step forward in human-centered computing" .
Key developments:
- Fifth generation of development and refinement
- All existing Spectacles lenses will be compatible at launch
- Star Wars: Holocron Histories from ILM is already live on developer Spectacles
- Snap Cloud powered by Supabase enables richer back-end capabilities for AR developers
"Instead of something that you're constantly operating using a keyboard and a mouse, something that, now powered by AI, can actually get work done for you. And so in that way, it's really a continuation of this vision to try to work to make computing more human for folks."
— Evan Spiegel, CEO
Spiegel hinted that Snap may seek additional capital to accelerate Specs deployment, but emphasized the near-term focus is on "nailing the launch" .
2026 Outlook: Calibrating to Growth
Snap provided detailed guidance for Q1 2026 and the full year:
| Metric | Q1 2026 Guidance | Full Year 2026 |
|---|---|---|
| Revenue | $1.50-1.53B | - |
| Adjusted EBITDA | $170-190M | - |
| Infrastructure Costs | - | $1.6-1.65B (flat YoY at low end) |
| Other Cost of Revenue | - | 16-17% of revenue |
| Adjusted OpEx | - | $3B |
| SBC | - | $1.2B |
| Headcount Growth | - | 7% |
Notably, Q1 revenue guidance excludes potential revenue from a Perplexity AI integration that has not yet been finalized .
The company also authorized a new $500 million share repurchase program , reflecting confidence in sustained free cash flow generation.
Market Reaction
Despite the profitability milestone, shares fell approximately 6% on February 5 amid the broader tech selloff. The stock has declined roughly 30% from its 52-week high of $11.26.
B. Riley upgraded the stock to Buy with a $10 price target, though not all analysts are optimistic given the user growth deceleration.
What to Watch
Near-term:
- Q1 revenue acceleration at the high end of guidance
- Perplexity AI partnership finalization
- Subscriber retention and growth trajectory
- North America large customer trends
Medium-term:
- Consumer Specs launch and early adoption metrics
- Progress toward 60%+ gross margins
- Net income profitability sustainability
Risks:
- Regulatory restrictions on teen social media use
- Competition from TikTok, Instagram Reels, and YouTube Shorts
- DAU erosion in core markets