Snap posts stronger quarter, inks $400 million deal with Perplexity AI

New Delhi:  Snap reported better-than-expected third-quarter revenue and announced a $400 million partnership with artificial intelligence start-up Perplexity AI, which will integrate its search engine into the Snapchat platform. The news sent Snap’s shares up by 16% in after-hours trading.

According to the report, Perplexity will pay Snap $400 million in a combination of cash and equity over one year, with revenue contributions expected to begin in 2026. The partnership will introduce verifiable AI-generated answers 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.

The collaboration is expected to strengthen Snap’s position against larger social media rivals such as TikTok and Meta-owned Facebook and Instagram, which continue to attract advertisers due to their broader user reach.

“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, principal analyst at Emarketer.

Snap has increasingly relied on direct-response advertising, which encourages actions such as app downloads or website visits, to enhance its digital ad performance. According to the report, direct-response ad revenue grew 8% in the third quarter, supported by demand for “Pixel Purchase” and “App Purchase” ad optimisation tools that help businesses reach users more likely to complete transactions.

The company’s quarterly revenue rose 10% year-on-year to $1.51 billion, surpassing analysts’ estimates of $1.49 billion compiled by LSEG. Net loss narrowed to $104 million from $153 million in the same period last year. Daily active users increased 8% to 477 million globally.

However, Snap cautioned that daily active users could decline in the fourth quarter due to changes in investment priorities and the potential effects of age verification rules and new regulations. Australia’s Social Media Minimum Age bill, which takes effect in December, is among the policies expected to affect user engagement.

Snap forecast fourth-quarter revenue between $1.68 billion and $1.71 billion, compared with analysts’ expectations of $1.69 billion.