Key Points
- Snap beat third-quarter revenue estimates and announced a partnership with Perplexity AI.
- The deal will integrate Perplexity’s AI search engine into Snapchat, with Perplexity paying Snap $400 million over one year.
- The news sent Snap’s stock up 16% in after-hours trading.
- Daily active users grew to 477 million, but Snap warned of a potential decline in the next quarter due to new regulations.
Snap beat its third-quarter revenue estimates on Wednesday and announced a new partnership with Perplexity AI. The deal will integrate Perplexity’s artificial intelligence-powered search engine into Snapchat, a move that sent Snap’s shares up 16% in after-hours trading.
As part of the partnership, AI startup Perplexity will pay Snap $400 million in cash and equity over one year, with revenue expected to start in 2026. This integration will allow Snapchat users to get verifiable answers to their questions right inside the app.
Snap CEO Evan Spiegel explained, “Perplexity will control the responses from their chatbot inside of Snapchat. So, we won’t be selling advertising against the Perplexity responses.”
This deal helps Snap compete more effectively against bigger rivals like TikTok and Meta’s Facebook and Instagram, which are top choices for advertisers because of their massive user bases. “Perplexity needs a way to build its profile among young consumers, and Snap needs an AI chat partner that will allow its users to stay engaged without leaving its app,” said Max Willens, an analyst at Emarketer.
Snapchat’s parent company has also been focusing on direct-response ads, which are designed to prompt users to take specific actions, such as downloading an app or visiting a website. Revenue from these ads jumped 8% during the quarter.
Overall, Snap’s third-quarter revenue grew 10% to $1.51 billion, beating the $1.49 billion analysts had expected. The company’s net loss also shrank to $104 million from $153 million a year ago. Daily active users on Snapchat increased by 8% to 477 million globally.
However, Snap did warn that the number of daily active users might decline in the fourth quarter. This is due to changing investment priorities and the expected impact of new age verification rules and other regulations, such as Australia’s upcoming Social Media Minimum Age bill.
For the fourth quarter, Snap is forecasting revenue of $1.68 billion to $1.71 billion, in line with analysts’ expectations.
