SNAP Q4 Deep Dive: Subscription Growth and Margin Expansion Shape Outlook for 2026

Social network Snapchat (NYSE: SNAP) beat Wall Street’s revenue expectations in Q4 CY2025, with sales up 10.2% year on year to $1.72 billion. Its GAAP profit of $0.03 per share was significantly above analysts’ consensus estimates.

Is now the time to buy SNAP? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Snap’s fourth quarter was marked by strong operational execution, with the company surpassing Wall Street’s revenue and profit expectations. Management attributed these results to rapid growth in subscription products, margin improvement through a shift in advertising mix, and disciplined cost controls. CEO Evan Spiegel highlighted progress in user engagement and monetization, particularly citing the success of Snapchat+ and Memory Storage Plans. The quarter’s results also reflected a deliberate rebalancing toward more profitable geographies and products, as management reduced community growth marketing to better align investments with monetization potential.

Looking ahead, Snap’s strategic priorities center on accelerating revenue growth, scaling its subscription base, and launching Specs, its new augmented reality hardware. Management believes that gross margin gains will come from higher-margin ad placements and further efficiencies in infrastructure costs, with infrastructure investment now tied closely to monetization prospects. CFO Derek Andersen noted that headcount growth will be limited and focused on core priorities, while proactive investments in community safety and new product development are expected to support long-term profitability. Spiegel emphasized, “We believe there is a clear path to exceed our 60% gross margin goal in 2026.”

Key Insights from Management’s Remarks

Snap’s management pointed to subscription momentum, advertising platform upgrades, and disciplined spending as primary contributors to the quarter’s financial performance and positive market reaction.

• Subscription momentum: Snap’s subscription products, particularly Snapchat+ and Memory Storage Plans, saw subscriber growth of 71% year-over-year, reaching 24 million. Management credited new features and improved retention rates as key factors, and expects further growth to play a central role in revenue diversification going forward.

• Advertising mix shift: Higher-margin ad formats such as Sponsored Snaps and Promoted Places gained traction, contributing to margin expansion. CEO Evan Spiegel noted that these placements are “becoming increasingly important” for both engagement and monetization, with click-through rates and purchases rising due to format improvements.

• AI-powered advertising tools: Snap’s investment in AI tools for creative development and campaign optimization reduced friction for advertisers and improved return on ad spend, especially among small and medium-sized businesses. The Smart Campaign Solution suite and smart ads were highlighted as drivers of this momentum.

• Cost discipline and infrastructure efficiency: Management successfully calibrated infrastructure spending to focus on monetizable markets. CFO Derek Andersen described this as a pivot from infrastructure being a source of margin pressure to becoming a margin-accretive investment, aided by the conversion of infrastructure costs into revenue-generating services like Memory Storage Plans.

• Regulatory headwinds and user growth trade-offs: Snap implemented new age-verification measures in Australia, resulting in user removals, and reduced marketing spend for community growth. Management acknowledged these actions created short-term engagement headwinds but argued the shift frees resources to invest in core, profitable markets.

Drivers of Future Performance

Snap’s 2026 outlook will be shaped by its ability to scale subscription services, expand higher-margin ad formats, and deliver the Specs hardware launch amid ongoing regulatory and cost pressures.

• Specs launch and AR platform expansion: Management is focused on the upcoming launch of Specs, Snap’s augmented reality smart glasses, consolidating years of R&D and developer engagement. CEO Evan Spiegel views Specs as a new product that appeals to a different audience segment, with early developer adoption expected to accelerate ecosystem growth and unlock new monetization channels.

• Margin gains from ad product mix: Snap expects continued gross margin improvement through further adoption of higher-margin ad placements and ongoing AI-driven enhancements in campaign performance. Management believes this shift, alongside the growing contribution from subscriptions, will help the company reach and potentially exceed its 60% gross margin target in 2026.

• Regulatory and engagement risks: Ongoing regulatory changes, especially around age verification and youth safety, present risks to user engagement and potential revenue impact. Management is proactively investing in community safety and compliance, acknowledging possible short-term headwinds but arguing these actions are necessary for long-term growth and trust.

Catalysts in Upcoming Quarters

In coming quarters, our analysts will track (1) adoption and monetization of Specs following its launch, (2) continued growth and retention in subscription services, and (3) the pace of gross margin expansion from higher-margin ad products and infrastructure efficiency. We will also monitor regulatory developments and the company’s ability to sustain engagement in core monetizable markets.

Snap currently trades at $6.08, up from $5.94 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

Our Favorite Stocks Right Now

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.