Snap’s Q1 report beat estimates but shares fell 5% as North America users declined
Snap delivered a first-quarter earnings report Wednesday that checked multiple boxes — revenue growth, a sharp improvement in profitability and a return to global user expansion — yet investors pushed the stock down nearly 5% in after-hours trading. The reaction reflected a persistent concern about the health of the company’s most important market: North America, where daily active users declined and advertising revenue growth slowed to its weakest pace in recent memory.
Revenue growth meets analyst expectations
First-quarter revenue came in at $1.53 billion, a 12% year-over-year increase, landing in line with analyst expectations. Free cash flow reached $286 million, more than doubling the $114 million generated in the year-ago quarter, a sign that recent cost discipline is translating into meaningful financial improvement. The company guided second-quarter revenue of $1.52 billion to $1.55 billion, a range whose midpoint roughly matches the Wall Street consensus. Snap‘s guidance assumes no contribution from Perplexity following the amicable end of that relationship in the first quarter, which introduces some additional uncertainty into the outlook.
The profitability picture was arguably the strongest element of the quarter. Adjusted EBITDA came in at $233 million, more than double the $108 million recorded in the same quarter a year earlier, while operating cash flow rose to $327 million from $152 million in the year-ago period. The result cleared the $205.9 million analyst estimate by a wide margin and reflects the leaner operating structure the company has been building toward throughout the past year.
The North America problem
Snap reported 483 million daily active users in the first quarter, adding 9 million from the prior quarter. However, daily active users in major market North America declined, while revenue growth in the region slowed to 2%. The growth that did materialize was driven almost entirely by markets outside North America and Europe, a dynamic that carries significant implications for the company’s advertising revenue trajectory.
For a platform that generates the large majority of its income from brands rather than consumers, softness in its home market places real limits on the headline numbers. The North America gap helps explain why strong profitability results were not enough to reassure investors who watched shares slide in the hours following the report.
The Perplexity chapter closes
Snap and artificial intelligence start-up Perplexity amicably ended their $400 million deal in the first quarter, around six months after announcing it in November 2025. The integration had been designed to allow Snapchat users to receive AI-generated, verifiable answers to questions directly within the app. The end of the partnership removes a revenue stream that many investors had factored into their expectations for the year, and no replacement arrangement has been announced.
Layoffs and the push toward profitability
The efficiency gains in Wednesday’s report arrived partly because of structural changes made in April, when Snap said it would lay off about 1,000 employees, including 16% of full-time staff. The move, which also included closing more than 300 open roles, came after activist investor Irenic Capital Management acquired a stake in the company and pushed leadership to optimize the business and improve performance. The profitability beat suggests those changes are beginning to register.
Building beyond advertising
Snap has been working to reduce its dependence on ad revenue through its Snapchat+ subscription service, which surpassed 25 million subscribers as of February. Dynamic Product Ads revenue grew more than 30% year over year in the first quarter, while its newer AI Sponsored Snaps format delivered a 226% increase in per-impression click-through rates. Those advertising innovations, alongside the subscription growth, suggest Snap is making genuine progress in diversifying how it earns money — even as the North American user challenge remains the most pressing issue heading into the second half of 2026.
Sources: Reuters / CNBC / Snap Inc.