Will Snap sustain gross margins at or above 60% for both Q1 and Q2 2026?

Q4 gross margin was 59%, just 1pp below the 60% threshold. Management explicitly targets 60%+ for 2026 and guided infrastructure costs flat to +3% ($1.6-1.65B). The infrastructure cost optimization is genuine and structural. However, the question requires BOTH Q1 AND Q2 at 60%+. Seasonality matters: Q1 typically has lower ad revenue than Q4, which could pressure margins. Specs go-to-market costs could also create temporary COGS headwinds. The conjunction requirement of two consecutive quarters is the binding constraint.

The trajectory is favorable: gross margin expanded from 55% (Q3) to 59% (Q4), a 4pp improvement in one quarter. Infrastructure cost guidance is flat to +3% while revenue is expected to grow, creating natural margin expansion. DAU decline means fewer users to serve, mechanically reducing infrastructure costs. Management's explicit 60%+ target suggests they have internal models showing this is achievable. Q1 revenue guidance of $1.50-1.53B is decent. The main risk is the adjusted COGS ex-infrastructure guidance of 16-17% of revenue, which at the high end could keep total gross margin below 60%.

The committee's Stress Scanner debate is relevant here: FCF improvement is partially structural and partially cyclical. Gross margin gains from cutting growth marketing are one-time — they provide a new baseline but not ongoing improvement. The 59% Q4 figure may also benefit from strong Q4 holiday advertising revenue supporting the numerator. Q1 is typically the weakest advertising quarter, meaning the revenue contribution to gross margin may dip. Getting to 60% in both quarters requires consistent cost discipline AND revenue momentum.

Management guided 60%+ margins as a 2026 goal. They have direct control over infrastructure costs and the guidance ($1.6-1.65B flat) suggests cost discipline is planned. The ARPU optimization pivot means focusing on higher-revenue users, which improves margin mix. Subscription revenue is likely higher-margin than advertising. The risk is whether Q1 weakness breaks the streak — if Q1 comes in at 59.5%, it technically fails the criterion.

I'm more bearish because the question requires BOTH quarters. If the probability of any single quarter hitting 60% is ~65%, the probability of both hitting is roughly 0.65 x 0.65 = 42%. But Q1 is the weaker seasonal quarter, so P(Q1 >= 60%) is lower than P(Q2 >= 60%). If I estimate Q1 at 55% and Q2 at 70%, the conjunction is 38.5%. Specs-related go-to-market costs add another headwind that is difficult to size from available data.

The trajectory from 55% to 59% is strong. Infrastructure cost per DAU of $0.86 is manageable, and with DAU declining, total infrastructure costs should decrease or hold flat even without cost optimization. Revenue growth at the guided $1.50-1.53B for Q1 against flat costs naturally pushes margins up. I think Q1 hitting 60% is about 60% likely and Q2 slightly higher. The conjunction is around 47%.

59% in Q4 is close to 60%. Management targets it. Infrastructure costs flat while revenue grows. But conjunction requirement (both quarters) and Q1 seasonal weakness create risk. Slightly below coin flip.

Gross margin expansion trajectory is positive but Q1 is the weakest quarter for advertising. Specs go-to-market costs add uncertainty. Two consecutive quarters at 60%+ is achievable but not the base case.

Management guidance and cost control suggest 60% is achievable. The trajectory supports it. But the conjunction of both quarters at 60%+ is the challenge. Near coin flip leaning slightly bearish given Q1 seasonality.