Snap Inc. saw its stock price climb more than 13% on Thursday following the announcement of a major partnership with artificial intelligence company Perplexity AI. The deal, valued at $400 million, coincides with the release of Snap's third-quarter financial results, which surpassed market expectations for both revenue and user growth.
The social media company confirmed it will integrate Perplexity's AI-powered search engine directly into the Snapchat application, signaling a significant strategic move to diversify its revenue streams beyond traditional advertising.
Key Takeaways
- Snap's stock increased by 13% after the announcement of its new AI partnership.
- The company secured a $400 million deal with Perplexity AI to integrate its search technology into Snapchat.
- Third-quarter results exceeded expectations, with revenue reaching $1.51 billion and daily active users growing to 477 million.
- The partnership is viewed as a strategy to create alternative revenue sources, with income expected to begin in 2026.
A Strategic Partnership with Perplexity AI
The core of Thursday's announcement is a one-year agreement with Perplexity AI. According to a letter sent to investors, Perplexity will pay Snap $400 million through a combination of cash and equity to embed its advanced search capabilities within the Snapchat platform.
This integration aims to enhance the user experience on Snapchat by providing powerful, AI-driven answers and information directly within the app. While the integration is set to move forward, Snap anticipates that it will begin recognizing revenue from this partnership in 2026.
The move represents a significant push into the rapidly growing field of artificial intelligence, allowing Snap to leverage its massive user base to offer new, sophisticated features. It also provides a substantial new income source that is not directly tied to the fluctuating digital advertising market.
Third-Quarter Financials Exceed Expectations
Adding to the positive market sentiment, Snap also reported strong financial performance for its third quarter. The company posted revenue of $1.51 billion, narrowly beating LSEG estimates that had projected $1.49 billion.
User engagement also showed healthy growth. The number of daily active users (DAUs) on Snapchat increased by 8% year-over-year, reaching a total of 477 million. This figure surpassed StreetAccount's projection of 476 million users.
Snap's Q3 Performance by the Numbers
- Revenue: $1.51 billion (vs. $1.49 billion estimated)
- Daily Active Users (DAUs): 477 million (vs. 476 million estimated)
- Year-Over-Year DAU Growth: 8%
These solid results demonstrate underlying strength in Snap's core business, providing a stable foundation as the company explores new ventures like the Perplexity AI partnership.
Market Reaction and Analyst Insight
Investors responded enthusiastically to the dual announcements, driving Snap's stock up by 13% during Thursday's trading session. The significant jump reflects confidence in the company's new strategic direction and its better-than-expected quarterly performance.
Analysts see the Perplexity deal as a crucial step for Snap to diversify its business model. The digital advertising landscape has become increasingly competitive, with some large advertisers reportedly reducing their spending on certain platforms.
In a note released on Thursday, Deutsche's Benjamin Black stated, “Snap’s strategic partnership with Perplexity AI represents a meaningful step toward building out alternative revenue streams, as similar to Pinterest, large advertisers in the US seem to be pulling back from advertising on the platform.”
This perspective underscores the importance of the deal as a long-term strategy to ensure financial resilience and growth. By securing a major non-advertising revenue source, Snap is positioning itself to be less dependent on ad market volatility.
Why Companies Are Seeking Alternative Revenue
Many social media and technology companies historically relied heavily on digital advertising. However, factors like increased competition, privacy changes on platforms like iOS, and economic uncertainty have made the ad market more challenging. As a result, companies like Snap are actively exploring new revenue streams, including subscriptions, e-commerce integrations, and technology partnerships, to create a more stable and diversified business model.
The Road Ahead for Snap
The partnership with Perplexity AI marks a pivotal moment for Snap. It is not just a financial transaction but a clear indicator of the company's ambition to be a key player in the integration of artificial intelligence into everyday consumer applications.
Looking ahead, the successful implementation of Perplexity's search technology could transform how Snapchat's 477 million daily users interact with information and the world around them. While the financial benefits are not expected to materialize until 2026, the immediate market reaction suggests that investors are supportive of this forward-looking strategy.
By combining a growing user base with innovative AI features, Snap is working to secure its relevance and financial future in an ever-evolving technology landscape.