Snap (NYSE:SNAP) reported a profit in the third quarter of 2026 as revenue rose 14% and costs grew more slowly, though executives said advertising growth remained below their ambitions.
Revenue reached $1.72 billion, within the company’s prior guidance range, while net income was $56 million, an improvement of $160 million from a year earlier. Gross margin rose to 62%, and adjusted EBITDA margin reached 22%, Chief Financial Officer Doug Hott said on the earnings call.
Snap’s total cost structure increased 1% year over year, Hott said. Approximately 93% of incremental revenue flowed through to adjusted EBITDA, although he cautioned that the figure reflected one quarter’s operating leverage and could be affected by revenue mix, seasonality, expenses and investment timing.
For the fourth quarter, Snap forecast revenue of $1.950 billion to $1.985 billion and adjusted EBITDA of $490 million to $525 million. The outlook includes planned investment in SPECS, its augmented-reality product.
Ad Growth Trails Subscription Revenue
Third-quarter advertising revenue increased 4% year over year, while other revenue rose 84%, led by Snapchat+, Memories Storage and Lens+. Chief Executive Officer and Co-Founder Evan Spiegel said Snap had surpassed 30 million paid subscribers across the three products.
Spiegel said the company was seeing some acceleration in advertising in the fourth quarter, but described himself as “cautiously optimistic.” He said Snap needed to convert improved advertiser performance into broader adoption and a larger share of customer budgets.
Chief Commercial Officer Ronan Harris said direct-response advertising grew strongly in the third quarter, but upper-funnel brand advertising declined. He attributed much of the brand weakness to lower consumer packaged goods spending amid macroeconomic pressures in the U.S. and Middle East. He also said the second quarter benefited from easier comparisons and World Cup-related spending.
Harris said Snap was making progress in other advertising categories, including U.S. financial services, and expected changes to its sales approach, available inventory and ad formats to help the brand business regain ground during 2027.
Direct-response advertising accounted for about 77% of Snap’s revenue, Harris said. Purchase volume for campaigns optimized for app purchases more than doubled year over year, while average cost per purchase fell approximately 24% and revenue from those campaigns grew more than 54%. For web purchase campaigns, purchases increased more than 31%, average cost per purchase fell 15% and revenue rose 11%.
Snap is also expanding ad placements. Sponsored Snaps revenue grew 56% from the second quarter, Harris said, while revenue and advertiser adoption for Promoted Places on Snap Map each more than doubled sequentially.
Snap to Emphasize Monthly Users
Snap reported 495 million daily active users and 977 million monthly active users in the third quarter. Starting with its first-quarter 2027 results, the company plans to make global monthly active users its primary audience metric and introduce global monthly-user-based average revenue per user as its primary monetization measure.
Hott said the change reflects a strategy shift toward more profitable growth, including reduced spending on community growth marketing and less emphasis on growing daily users. Snap will continue to report revenue separately for North America, Europe and the rest of the world, he said.
Asked for examples of decisions that might affect daily usage, Spiegel cited choosing not to pursue costly user acquisition in markets Snap does not effectively monetize, or not sending certain notifications that might prompt another app open without creating long-term value. He said the shift did not mean Snap was trying to reduce time spent or accept lower ad revenue.
Engagement with Spotlight, Snap’s content platform, grew during the quarter: the number of people posting rose 130% year over year, and daily active viewers increased 40%. Spiegel said Snap had worked earlier in the year to remove AI-generated and reposted content from the service and focus on content created by its community.
Cash Flow and SPECS Investment
Operating cash flow increased 44% year over year to $210 million, while free cash flow rose 76% to $164 million. Snap ended the quarter with approximately $2.77 billion in cash, cash equivalents and marketable securities, Hott said.
Following the expected completion of its current repurchase program in the fourth quarter, Snap intends to pursue a multiyear approach to managing dilution, with a goal of offsetting future dilution and maintaining a stable fully diluted share count in 2027.
On SPECS, Spiegel said Snap had conducted more than 10,000 demonstrations at its Los Angeles pop-up and was looking forward to beginning shipments later in the fall. He pointed to potential uses including remote assistance, virtual workstations and location-based experiences.
Hott also warned that the evolving legal and regulatory landscape, including scrutiny of youth-related issues, could lead to changes in products and business practices, higher compliance and legal costs, and negative effects on user growth and engagement.
About Snap (NYSE:SNAP)
Snap Inc is a technology company best known for Snapchat, a mobile application for visual communication. The company’s products and services help people share photos and videos, message friends, and explore content from creators and publishers.
Snapchat features include Stories, Spotlight for short-form video, Snap Map, and augmented reality tools such as interactive Lenses. Snap also provides advertising solutions to businesses and develops camera-related products and services, including its Spectacles smart glasses and Snap AR platform.
Founded in 2011, Snap is headquartered in Santa Monica, California, and serves users and advertisers in markets around the world.
