Snap's 2026 Rebound Doubted as User Decline and Ad Weakness Persist

What happened

Snap's stock has fallen 94% from its record high, with a recent article questioning a potential 2026 rebound despite reported solid revenue and adjusted earnings growth in 2025. However, the fourth quarter saw a slight shrinkage in daily active users, underscoring ongoing engagement volatility that threatens monetization. DeepValue analysis reveals Snap's core advertising business is fragile, with North America large-brand revenue growing only 1% year-over-year and effective cost per mille (eCPM) declining 13% in Q3 2025, indicating pricing pressure amid competitive headwinds. While subscriptions and the Perplexity AI partnership add diversified revenue streams, they lack proven long-term sustainability and are insufficient to transform profitability without structural improvements in ad demand. Consequently, the investment narrative remains cautious, with the DeepValue report maintaining a 'WAIT' rating until clearer evidence of durable double-digit revenue growth or North America stabilization emerges.

Implication

The slight DAU decline in Q4 highlights engagement risks that could erode revenue if not addressed, compounding existing challenges in user growth. North America ad stagnation, with large-brand spend barely increasing, caps upside potential and exposes Snap to intense competition from Meta and TikTok, limiting pricing power. Subscription growth, while currently strong at 54% year-over-year in Q3 2025, is decelerating and may not scale sufficiently to offset ad volatility or improve GAAP profitability meaningfully. The Perplexity AI deal provides short-term contracted revenue but lacks demonstrated engagement metrics or renewal prospects, adding uncertainty rather than reliable diversification. Overall, with the stock trading at 50-55x 2024 free cash flow and negative earnings, the risk-reward profile remains unfavorable, favoring a wait-and-see approach until more concrete positive catalysts materialize.

Thesis delta

The news of Q4 DAU shrinkage reinforces existing concerns about Snap's user engagement stability, but it does not fundamentally alter the investment thesis. No shift is warranted; the 'WAIT' rating remains appropriate, as the company must still prove it can achieve sustained double-digit revenue growth or stabilize North America ad demand before a more bullish stance can be justified.