Snap Inc. delivered something investors have waited years for, a quarterly profit, but it was overshadowed by disappointing growth. The Snapchat owner reported third-quarter results on Wednesday that missed Wall Street’s expectations for revenue and daily users, sending the shares down roughly 11% to 12% in after-hours trading.
The numbers
Revenue rose 14% from a year earlier to $1.72 billion, just short of the $1.73 billion analysts had expected. Daily active users reached 495 million, up from 493 million in the previous quarter but below the roughly 499 million forecast. Monthly active users climbed to 977 million.
The profit side was more encouraging. Snap reported net income of $56 million, an improvement of about $160 million from a year ago. Adjusted EBITDA came in at $383 million, well above analyst forecasts of about $338 million, equal to a margin of 22%. Gross margin reached 62%, an expansion of seven percentage points.
For the fourth quarter, which includes the holiday advertising season, Snap guided revenue to between $1.95 billion and $1.99 billion, broadly in line with expectations.
Growth is slowing
The headline revenue growth of 14% marks a clear slowdown. In the second quarter, the company reported growth of 19%. Chief Executive Evan Spiegel acknowledged that advertising revenue growth “remains below our ambitions”, which is notable for a business that still depends mainly on advertising.
The user picture adds to the concern. A gain of two million daily users in a quarter is modest for a platform of Snap’s size, and growth has been concentrated in regions where each user is worth much less. In North America, average revenue per user was $11.07 in the quarter, compared with just $1.13 in the rest of the world. Put simply, Snap is adding people in places where it earns far less from them.
A new way to measure success
One of the most important announcements was a change in how the company wants to be judged. Snap said it will make monthly active users its primary audience metric starting in the first quarter of 2027, rather than daily users. Executives said they have cut back spending on community-growth marketing around the world and are putting less emphasis on increasing daily users, concentrating instead on building revenue directly from the audience.
Investors may be sceptical. Companies sometimes change the metric they highlight when the old one stops flattering them. Snap’s defence is that monthly users capture a broader audience, and that its focus is on profit and cash generation rather than raw user counts. The company said the number of people posting to its Spotlight short-video feed grew 130% year on year, while daily viewers rose 40%.
Subscriptions offer a bright spot
Away from advertising, Snap’s subscription business has become a growing source of income. Paid subscribers across Snapchat+, Memories Storage and Lens+ passed 30 million. Direct revenue from subscribers is steadier than advertising, which can swing with the economy and with changes in how brands spend. For a company that has struggled to turn its large audience into consistent profit, building that second leg matters.
Why the stock fell
The share-price reaction illustrates how demanding the market has become for technology companies. Snap’s shares had risen almost 6% during Wednesday’s regular session, from a close of $5.60 to $5.92, before falling to about $5.24 after the report. In other words, the stock gave back its gain and more. Investors had been willing to pay for a turnaround, and the results suggested the turnaround is still unfinished.
What to watch next
The holiday quarter will be the next test. Advertisers typically spend heavily in November and December, and Snap’s guidance implies strong sequential growth. Analysts will watch whether Snap can improve the amount it earns from each user, especially in North America, and whether its newer features can lift engagement beyond its core group of young users.
The broader lesson applies across the social media industry: profit alone is no longer enough, and user growth that is slowing in the most valuable markets raises questions about the long-term story. This article is for information only and is not investment advice.
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