Snap has announced a $400 million partnership with Perplexity AI, aiming to enhance user engagement through advanced search technology while exceeding third-quarter revenue expectations.
Snap Inc. has reported third-quarter revenue that surpassed Wall Street expectations, driven by robust advertising demand and the introduction of new AI-powered features. In a significant move, the company has partnered with Perplexity AI to integrate the startup’s advanced search technology into Snapchat, resulting in a 16% surge in Snap’s shares during after-hours trading.
As part of the agreement, Perplexity AI will invest $400 million in Snap over the next year, utilizing a combination of cash and equity. The partnership is anticipated to start contributing to Snap’s revenue in 2026, with plans to deliver verified, AI-generated answers directly within the Snapchat app.
“Perplexity will control the responses from their chatbot inside of Snapchat. So, we won’t be selling advertising against the Perplexity responses,” said Snap CEO Evan Spiegel.
This collaboration with Perplexity represents a strategic initiative for Snap as it seeks to solidify its position in a social media landscape increasingly dominated by major players like TikTok and Meta’s Facebook and Instagram. By incorporating advanced AI-driven search capabilities, Snap aims to enhance user engagement and attract more advertisers, an area where its competitors have traditionally excelled due to their extensive global reach and sophisticated advertising systems.
“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,” noted Max Willens, principal analyst at eMarketer.
In addition to its partnership with Perplexity, Snap has been intensifying its focus on direct-response advertising, which targets measurable user actions such as app installations, online purchases, or website visits. This strategy has become integral to Snap’s efforts to enhance its digital advertising business and provide clearer returns on investment for advertisers, especially as competition for ad dollars intensifies across major social media platforms.
Snap’s commitment to performance-driven advertising is yielding results. The company reported an 8% increase in direct-response ad revenue for the quarter, fueled by heightened demand for its “Pixel Purchase” and “App Purchase” optimization tools. These features are designed to help advertisers connect with users most likely to make a purchase, whether through a website or within an app, emphasizing Snap’s dedication to delivering more efficient and data-driven advertising solutions for businesses.
During the third quarter, Snap recorded a 10% year-over-year revenue increase, reaching $1.51 billion, which exceeded the analyst consensus estimate of $1.49 billion, according to LSEG data. The company also made strides in profitability, narrowing its net loss to $104 million compared to $153 million during the same period last year.
Snapchat’s global daily active users rose by 8% in the third quarter, reaching 477 million. However, the company has cautioned that user growth may decelerate in the upcoming quarter, attributing this to shifts in investment priorities, the implementation of age-verification measures, and potential challenges from evolving regulatory requirements that could impact engagement in certain markets.
Looking ahead, Snap has projected its fourth-quarter revenue to fall between $1.68 billion and $1.71 billion, a forecast that aligns closely with analyst expectations, which average around $1.69 billion, according to Reuters.
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