Key Points:
- Snap and Perplexity announced a $400 million partnership to accelerate AI innovation across Snap’s platform.
- The deal aims to enhance user experiences by integrating advanced AI features into messaging and content discovery.
- This strategic move positions both companies to compete more aggressively in the evolving AI-driven social tech space.
Snap Inc. shares surged 15% on Wednesday following a better-than-expected third-quarter earnings report and the announcement of a major partnership with Perplexity AI, valued at $400 million. The social media company also introduced a $500 million stock repurchase program, signaling renewed confidence in its growth prospects.
The company reported revenue of $1.51 billion, slightly above Wall Street’s estimate of $1.49 billion, while daily active users (DAUs) reached 477 million, narrowly surpassing expectations. Average revenue per user (ARPU) rose to $3.16, reflecting a steady improvement in Snap’s monetization strategy.
Snap and Perplexity AI Join Forces
In a key development, Perplexity AI will integrate its conversational search technology directly into Snapchat. The feature is set to launch in early 2026, giving users access to real-time answers and topic exploration within the app.
Snap and Perplexity will deepen their integration as CEO Evan Spiegel confirmed that Perplexity will occupy a default position in the chat inbox, allowing users to interact seamlessly with the AI-powered assistant. “We have a unique opportunity to help distribute AI agents through our chat interface,” Spiegel said.
Under the agreement, Perplexity will pay Snap $400 million over one year in a mix of cash and equity. The partnership is expected to generate revenue beginning in 2026, and represents Snap’s first major step toward transforming Snapchat into a platform for AI-driven experiences.
Although Snap will not sell advertising against the Perplexity responses, the collaboration is expected to enhance user engagement and attract AI-focused businesses to the platform.
Strong Earnings and Future Outlook
For the third quarter, Snap reported a 10% year-over-year sales increase, achieving adjusted EBITDA of $182 million, above analysts’ expectations of $125 million. The company’s net loss narrowed to $104 million, compared to $153 million during the same period last year.
Looking ahead, Snap expects fourth-quarter sales between $1.68 billion and $1.71 billion, slightly above Wall Street’s midpoint projection of $1.69 billion. The company forecast adjusted EBITDA of $280 million to $310 million, again topping market estimates.
Snap also revealed plans to establish a separate subsidiary for its augmented reality (AR) glasses, known as Specs, to accelerate product development and partnerships in the AR sector.
Challenges Ahead
Despite its positive financial results, Snap acknowledged potential challenges in user growth. In its letter to investors, the company warned that new global regulations, such as Australia’s social media age restrictions and upcoming platform-level age verification policies from Apple and Google, could temporarily impact daily active user metrics.
However, Snap reaffirmed its goal of reaching 1 billion monthly active users globally and remains focused on strengthening its advertising base, particularly among small and medium-sized businesses.
While Snap shares have fallen 32% year-to-date, the recent rally highlights investor optimism surrounding its AI expansion, financial discipline, and product innovation. The Snap and Perplexity partnership positions the company to explore new revenue streams in the fast-growing artificial intelligence market while maintaining momentum in its core social media business.
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