Snap Charts a New Course: Subscription Surge and First Net Profit in Years Signal Shift to "Profitable Growth"

Snap's Strategic Pivot Pays Off with First Quarterly Net Profit in Years

In a significant milestone for the social media company, Snap Inc. (NYSE: SNAP) reported its first quarterly net income profit in years for Q4 2025, signaling early success in its strategic shift away from pure user growth and toward what CEO Evan Spiegel termed "more profitable growth." The results, detailed in Tuesday's earnings call, were driven by an accelerating subscription business, improved gross margins, and disciplined cost management, even as daily active users declined slightly.

Snap's finance chief, Derek Andersen, reported total revenue of $1.72 billion, a 10% year-over-year increase. While advertising revenue grew a modest 5% to $1.48 billion, the standout was "Other Revenue"—primarily its Snapchat+ subscription service—which skyrocketed 62% to $232 million. The subscriber base for these services now stands at 24 million, a 71% jump from the prior year.

"The 'direct pay' segment of our business has become an outsized source of growth," Spiegel emphasized, noting that features like expanded memory storage plans were a key driver. This diversification is central to Snap's attempt to build a more stable revenue model less susceptible to the volatility of the digital ad market.

Profitability and Advertising: A Mixed Picture

The company's adjusted gross margin expanded to 59%, up from 57% a year ago, putting it within striking distance of its near-term 60% target. Andersen credited the improvement to revenue growth outpacing infrastructure costs and a favorable shift in the advertising mix toward higher-margin formats like Sponsored Snaps.

However, the advertising landscape presents challenges. While ad impression volume grew 14% year-over-year, the average price per impression (eCPM) fell 8%. Management pointed to strong performance from Sponsored Snaps and a new beta product, Promoted Places, which showed promising early results in driving store visits at a lower cost.

Small and medium-sized businesses (SMBs) remained the engine of ad growth for the sixth straight quarter. Snap highlighted a new integration with website builder Wix, designed to simplify ad creation for e-commerce merchants, as a key initiative to deepen this relationship.

User Growth and Regulatory Headwinds

The quarter revealed a divergence in user metrics. While monthly active users (MAUs) grew to 946 million, daily active users (DAUs) dipped by 3 million to 474 million. Spiegel attributed this partly to a conscious decision to "substantially reduce" marketing spending aimed at community growth, a trade-off for profitability. He also cited regulatory impacts, specifically the removal of approximately 400,000 accounts in Australia after implementing stricter age-verification laws.

"These steps are necessary to maintain trust with our community and partners, even if they create near-term engagement headwinds," Spiegel stated, adding that the company is testing age-verification solutions from Apple and Google.

The Road Ahead: Specs and AI

Looking forward, Snap is preparing for the consumer launch of its next-generation AR glasses, "Specs," in 2026. Spiegel said the company is moving out of the "R&D phase" and is focused on ensuring a robust library of AR experiences, or Lenses, will be available at launch.

On capital allocation, Snap announced a new $500 million share repurchase authorization, citing its strong balance sheet and free cash flow generation. For Q1 2026, the company provided revenue guidance of $1.5 billion to $1.53 billion.

Analyst & Investor Reactions:

"Finally, a glimmer of fiscal responsibility. The net profit is symbolic, but the subscription momentum is real. This is the disciplined Snap investors have been waiting for." — Marcus Chen, Tech Equity Analyst at Horizon Capital.

"They're sacrificing the future for a penny of profit today. Cutting growth marketing while DAUs are already declining is a dangerous game. The 'Specs' hype feels like a distraction from core platform stagnation." — Rebecca Shaw, Managing Partner at Veritas Insights.

"The SMB focus and Wix integration are smart, practical moves. It shows they're building a real ecosystem for advertisers, not just chasing big-brand budgets." — David Park, Founder of an e-commerce consultancy.

"The AR glasses bet is massive. If Specs capture even a fraction of the cultural zeitgeist the original Spectacles did, it could redefine Snap's hardware and platform ambitions overnight." — Anika Rao, AR/VR Industry Blogger.