Snap's Q4 Earnings: The 16% Pop vs. The 9% Risk

Snap's long-awaited fourth-quarter report arrives on a high wire. The company will unveil its financial results for the period ending December 31, 2025, in a conference call scheduled for Wednesday, February 4, 2026 at 2:00 p.m. Pacific Time. The market's eyes are fixed on the numbers, with a clear consensus in place. Analysts expect revenue of $1.7 billion, a solid 9.1% year-over-year increase, and earnings of $0.15 per share, which represents a 6.3% decline from the same quarter last year.

This is the setup for a binary event. The stock has already made a major move, surging by more than 16% in premarket trading last November on news of a landmark AI partnership. That pop created a high bar. The earnings report now must either validate that optimism with strong fundamentals or risk a sharp reversal as the market reassesses the valuation gap. The catalyst is clear: a single day of data that will determine if the AI-driven rally was a smart bet on the future or a premature celebration.

The Core Metrics: Ad Momentum vs. User Growth

The market's verdict on Snap hinges on two immediate metrics: whether its ad engine is firing on all cylinders and if user engagement is finally accelerating. The company's recent strategy has been a deliberate pivot toward the Small and Medium-sized Business (SMB) segment, a move aimed at building a more stable revenue base. The early results show promise. Since mid-2024, the active number of advertisers on the platform has doubled year-over-year, signaling a tangible "mood shift" from advertisers. This is the core near-term driver the stock needs to validate.

User growth remains the foundational pillar, but it's under scrutiny. Daily active users hit 477 million in the third quarter, a solid 8% year-over-year increase. That trajectory toward the billion-user milestone is clear, but the stock's recent decline suggests investors are looking for more than steady gains-they want to see this user base translate into faster engagement and, ultimately, higher ad spend per user. The platform's success with its premium subscription, Snapchat+, which reached 17 million subscribers in late 2025, provides a high-margin cushion and reduces reliance on volatile ad markets. Yet, ad revenue still drives about 90% of the business, making its performance the ultimate test.

A new potential revenue line is on the horizon. The company's $400 million partnership with Perplexity AI to integrate an AI-powered search engine into Snapchat is a strategic bet on the future. However, its financial impact is not reflected in the Q4 guidance. Revenue from this deal is expected to start contributing next year. For now, it's a catalyst for long-term narrative, not a near-term earnings driver. The immediate pressure is on the core business: can the SMB momentum and user growth translate into the $1.7 billion in revenue analysts expect for the quarter? If it does, the stock may hold its ground. If ad performance falters despite the user base, the valuation gap could quickly close.

The Risk/Reward Setup: Compliance Costs vs. Growth

The immediate financial pressure point is clear. Snap is incurring significant costs to comply with Australia's new Social Media Minimum Age law, having locked or disabled over 415,000 Snapchat accounts in Australia as of late January. While the company frames this as a commitment to safety, the operational burden is real. The law's technical limitations, like age verification accuracy within a few years, suggest these efforts may be costly and only partially effective. This is a direct hit to the user experience and platform engagement, creating a near-term headwind that could pressure the core ad business if not managed carefully.

On the flip side, the company has a powerful high-margin cushion. The Snapchat+ subscription service reached 17 million subscribers in late 2025, providing a stable, recurring revenue stream that reduces reliance on volatile advertising. This subscription base is the key financial buffer that allows Snap to absorb these compliance costs and invest in growth initiatives without immediate margin collapse. It's the primary reason the company posted its most stable results in years last quarter.

The primary risk for the stock is that Q4 results or guidance fail to show sustained ad growth acceleration. The market has already priced in a 9.1% revenue increase to $1.7 billion, but it needs to see evidence that the SMB advertiser momentum and user growth are translating into faster ad spend. If the report shows ad growth stalling despite the user base, the valuation gap created by the recent AI-driven pop could quickly close. The compliance costs add to that pressure, acting as a friction that could dampen engagement and ad performance.

The reward, however, is the potential for new revenue lines to start contributing next year. The $400 million partnership with Perplexity AI to integrate an AI-powered search engine is a strategic bet on the future. While its financial impact is not in the Q4 numbers, it opens a new business line and signals continued innovation. The bottom line is a classic risk/reward trade. The stock is vulnerable to any stumble in the core ad engine, but it has the subscription cushion to survive. The event-driven setup hinges on whether the Q4 print can validate the growth narrative enough to overcome the compliance headwinds and hold the ground after its recent pop.

Catalysts and What to Watch

The immediate direction of Snap's stock will be set by two forward-looking signals in the earnings call: management's commentary on the SMB ad strategy and any update on the AI search partnership's rollout. The market has already priced in a 9.1% revenue increase to $1.7 billion, so the focus will be on whether this growth is sustainable and accelerating.

First, watch for specifics on the SMB momentum. The company's active number of advertisers on Snapchat has doubled year-over-year since mid-2024, a key sign of a "mood shift." Management will need to quantify this success, perhaps by breaking down SMB ad revenue contribution or showing growth rates that outpace the overall ad business. Any hint that this segment is maturing or facing competitive pressure could quickly deflate the stock's recent pop.

Second, listen for any details on the $400 million Perplexity AI partnership. The deal is expected to start contributing revenue next year, but the company has said the AI-powered search engine will be incorporated into Snapchat's Chat interface beginning in 2026. Management may provide a more concrete timeline for the initial rollout or user adoption targets. This is a narrative catalyst for 2026, and any delay or vagueness could be seen as a sign of execution risk.

The most critical forward-looking metric, however, is the guidance for the first quarter of 2026. The company's next earnings date is Wednesday, February 4, 2026, with Q1 results expected in late April. The Q4 report will set the tone for the year, and management's outlook for Q1 will be the immediate catalyst for the next move. If guidance is raised or even held steady against a tough comp, it could solidify the stock's position. A cut, however, would likely trigger a sharp reversal as the market re-prices the valuation gap.

The stock's reaction to the call and the subsequent wave of analyst downgrades or upgrades will be the final, immediate catalyst. The market has already shown its appetite for news, with shares surging by more than 16% in premarket trading on the AI partnership news. The post-earnings move will depend entirely on whether the financial results and forward guidance meet or exceed the high bar set by that pop.