Snap's Q4 Revenue Growth Hits Upgrade Threshold, But Structural Weaknesses Linger

What happened

Snap Inc reported Q4 earnings that beat estimates, with revenue rising 10% year over year on higher ARPU, Snapchat+ growth, and stronger ad performance. This 10% growth matches the first condition in the DeepValue report for a potential upgrade from WAIT to BUY, which requires two consecutive quarters of such revenue growth. However, critical analysis reveals underlying issues: North America ad revenue grew only 1% YoY in Q3 2025, with eCPMs declining 13%, indicating continued pricing pressure and reliance on volume over pricing power. Subscription growth has decelerated from prior highs, and the Perplexity AI deal, while adding contracted revenue, lacks demonstrated long-term monetization beyond 2026. Thus, while this quarter marks progress, investors must assess whether this growth is sustainable and if North America stabilizes before revising their outlook.

Implication

This earnings beat signals that Snap is on track to meet the DeepValue criteria for a BUY rating, but underlying vulnerabilities—such as stagnant North America ad revenue and eCPM declines—pose significant risks to durability. If Snap delivers another quarter of ≥10% revenue growth, it could trigger a reassessment, yet the stock remains expensive at 50–55x 2024 FCF with negative earnings. Monitoring Perplexity rollout and subscription trends in the next 90 days is crucial, as any shortfall could undermine the diversification narrative. North America large-brand demand must show signs of recovery to support higher valuations, but current data suggests ongoing competitive pressures from Meta and TikTok. Ultimately, patience is warranted until clearer evidence of sustained double-digit growth and margin improvement emerges, aligning with the report's base case of 7–9% annual growth and FCF near $300M.

Thesis delta

The Q4 report shows Snap achieving the first of two consecutive quarters needed for a potential upgrade from WAIT to BUY, as per DeepValue's criteria based on ≥10% YoY revenue growth. However, this does not yet shift the thesis, as underlying issues—like North America ad weakness and eCPM compression—highlight that growth may be fragile and dependent on temporary factors. A full shift would require confirmation of sustained performance in Q1 2026 and tangible improvements in key segments, such as North America stabilization or subscription acceleration.