S&P Global Ratings upgraded Snap Inc.'s (NYSE:SNAP) issuer credit rating to BB- from B+, announcing the move on Wednesday. The ratings firm simultaneously raised the issue-level ratings on the company's unsecured notes to BB- from B+, while maintaining a recovery rating of 3. The outlook attached to the ratings is positive.
S&P pointed to measurable improvements in Snap's operating and financial performance. For the 12 months ended March 31, 2026, S&P's adjusted calculation shows Snap's gross leverage fell to about 4.7x, compared with 6.7x in the prior year period. Free operating cash flow to debt rose to 16.2% from 8.5% a year earlier.
Those shifts underpin S&P's expectation that the company can accelerate deleveraging. The ratings firm projects adjusted gross leverage will be about 4.0x in 2026 and fall further to roughly 2.5x in 2027, driven by continued revenue growth and the savings from a recently announced cost reduction program.
On the revenue outlook, S&P expects roughly 10% year-over-year growth in 2026. That gain is expected to come primarily from expansion among small- and medium-sized business advertisers and from subscription offerings, including Snapchat+, Lens+ and Memories. S&P noted that Other revenue, which encompasses these subscription products, grew 87% in the first quarter.
The ratings firm described Snap's strategic emphasis as a shift toward profitable user growth rather than prioritizing pure user acquisition. S&P anticipates this approach will yield relatively flat daily active user counts while supporting further improvement in average revenue per user and EBITDA margins across 2026 and 2027.
Snap disclosed in April that it would cut its annualized cost base by more than $500 million in the second half of 2026. The company said this program includes reducing full-time employees by 16%, representing a reduction of over 1,000 personnel. Management has set targets of achieving GAAP net income profitability as well as adjusted gross margins of 60% or better.
Separately, Snap announced it will not proceed with an expected partnership with Perplexity. That agreement would have contributed about $400 million of revenue over one year via a mix of cash and equity, but the company has chosen not to move forward.
S&P's positive outlook reflects the possibility of another rating increase within the next year if Snap executes on its cost savings initiatives and sustains revenue growth near the 10% rate S&P projects. Such progress would give S&P stronger visibility that leverage can be pushed below 3.5x.
Snap expects to record approximately $95 million to $130 million of restructuring charges, with the bulk of those charges to be recognized in the second quarter of 2026.
Contextual note - The information above reflects S&P Global Ratings' published views and Snap's public disclosures referenced by the ratings agency.