There are two kinds of people reading this. The first kind has a teenager at home, which means they already know Snapchat is not dead. The second kind has never opened the app, wrote the company off when Instagram launched Stories, and wrote it off again during the Apple privacy change.
Snap should be the easiest credit you’ll ever underwrite. Over $2 billion in cash, FCF positive, growing. What’s not to like?
For starters, it’s founder-controlled and has a tendency of reinvesting in speculative projects with unknown payoffs. Add litigation and regulatory overhang (both hard to handicap), massive share buybacks, and the credit risk profile becomes murkier.
In this piece, I’ll walk through the credit, size the tail risks, and give my views on the relative value at current trading levels.
Housekeeping note: I’m testing new memo formats over the next couple weeks, please send me any feedback on what you like or don’t like.
Situation Overview
Snap runs Snapchat, where nearly a billion people a month message each other in pictures and video, skewed heavily toward users under 35. Advertising drives ~80% of revenue, with the balance from subscriptions and other direct products, now past $1bn LTM.
The last five years compressed a full cycle into one company. Apple’s 2021 privacy changes gutted ad measurement and forced a rebuild of the targeting stack. A 20% workforce cut in 2022, another 10% in early 2024, and margins finally recovered through FY’25 once direct response got rebuilt on first-party data. Then the activists showed up to take credit for the turn.
Irenic took a ~2.5% stake in March 2026 and published the standard letter. Cut 1,000 jobs, shut or spin Specs, the AR glasses subsidiary Irenic estimates burns ~$500mm a year, buy back $5.8bn of stock. You’ve read this letter before, every activist writes it. Except Irenic’s Class A shares carry zero votes. Spiegel and Murphy control 99% of the voting power through Class C stock, so the campaign amounted to a strongly worded suggestion, and management treated it like one.
They took the parts they liked. April 2026 brought a 16% workforce reduction, a 60%+ gross margin target, and $500mm of annualized savings exiting FY’26, at a one-time cash cost of $75-100mm concentrated in 2Q’26. Snap also ended the Perplexity partnership and walked from $400mm of contracted revenue over one year. Specs, though, got no concession at all. Snap bought Illumix, launched 6th-generation glasses at $2,195, and put a consumer launch event on the calendar for September 16. The activist said kill the science project, and the founders scheduled a bigger one.
The 2Q’26 print validated the cost story anyway. Revenue of $1.60bn (+19% y/y), advertising up 9% to $1.28bn, Other revenue up 85% to $316mm. DAUs of 493mm and MAUs of 971mm both beat. Adj. EBITDA of $250mm (16% margin, +1,300bp y/y) crushed consensus and FCF was $121mm against a Street estimate of $10mm. Management used the call to declare FCF per share the primary financial objective going forward.
Looking underneath the user numbers, the trends run in opposite directions. The 493mm DAU figure grows because of international markets, where penetration is low and monetization is lower. North America, the region that pays for everything, sits around 92mm DAUs and has been declining y/y, with 2Q’26 marking the first sequential stabilization in a while, and Europe shows similar usage pressure. Blended DAU makes growth look much better. The user base is expanding where ads are cheap and eroding where they’re expensive, and engagement compounds the problem, capping the ad inventory each user generates.
