Snap Inc. (NYSE: SNAP) posted its second straight quarter of positive GAAP net income in Q3, earning $56 million versus a $104 million loss a year earlier. Adjusted EBITDA more than doubled to $383 million, pushing margins up roughly 10 percentage points to 22%. Revenue of $1.72 billion grew 14% year-over-year, landing inside the $1.70–$1.74 billion guidance range but missing the $1.73 billion consensus by a hair.
The headline numbers suggest operational maturation. Look closer, and the business is still navigating an uneven advertising recovery.
Revenue growth came almost entirely from non-advertising sources. Other Revenue, which bundles Snapchat+, Memories Storage, and Lens+, surged 84% year-over-year and crossed 30 million paid subscribers. Advertising revenue grew just 4%. Within that, direct response carried the load: purchase volume for app-install campaigns more than doubled, and average cost per purchase fell 24%. Brand advertising declined year-over-year.
That split is the quarter's central tension. Snap wins where performance is measurable. It loses where discretionary brand budgets stay cautious.
Gross margin hit 62%, up roughly 700 basis points year-over-year, as total cost growth held to just 1%. The leverage was dramatic. CFO Doug Hott noted that roughly 93% of incremental revenue flowed through to Adjusted EBITDA. Operating cash flow rose 44% to $210 million; free cash flow reached $164 million, a 76% increase. Trailing-twelve-month free cash flow hit $777 million, up 88%. The cash generation is real, and it is accelerating.
Q4 guidance points to decelerating top-line growth. Snap expects revenue of $1.95–$1.985 billion, which at the midpoint implies roughly 14% year-over-year growth, matching Q3's rate. No sequential acceleration during the holiday quarter, when digital ad spend typically peaks. Adjusted EBITDA guidance of $490–$525 million suggests margins could compress slightly from Q3's 22% to roughly 25–26% at the midpoint, after factoring in planned investment in SPECS, Snap's augmented reality glasses. The company also narrowed full-year infrastructure cost guidance to $1.65–$1.66 billion from $1.65–$1.70 billion, signaling that AI and ML investments are being absorbed without incremental spend.
Management announced a significant strategic shift. Beginning in Q1 2027, Snap will replace daily active users (DAU) with monthly active users (MAU) as its primary audience metric. Global MAU stood at 977 million in Q3, against 495 million DAU.
The move is a candid acknowledgment that daily engagement has plateaued. DAU grew just 4% year-over-year and has been flat sequentially in North America and Europe for several quarters. By shifting to MAU, Snap reframes its addressable opportunity around a near-billion-user base rather than a stagnating daily figure. The new scorecard, MAU, MAU-based ARPU, and free cash flow per share, aligns reported metrics with a longer-term value creation thesis. It also conveniently obscures the daily engagement stagnation that has weighed on investor sentiment.
The buyback program is expected to wrap in Q4, and management signaled a multi-year approach to dilution management in 2027, aiming to offset future dilution and stabilize fully diluted share count. That is a welcome signal for a stock that has seen shares outstanding plus stock-based awards rise 3.8% year-over-year to 1.93 billion.
But the path to sustained per-share value creation depends on closing the gap between direct response and brand advertising. Until brand budgets return at scale, Snap's revenue growth will remain tethered to a narrow set of performance-driven advertisers and the high-margin but still-modest subscription business.