Snap tops revenue estimate and unveils US$400 million deal with Perplexity AI, shares jump

SNAP beat third-quarter revenue estimate on Wednesday and said it has partnered with Perplexity AI to integrate its artificial intelligence-powered search engine into Snapchat, sending the social media firm’s shares up 16 per cent after the bell.

AI startup Perplexity will pay Snap US$400 million over one year in cash and equity, with revenue contributions expected from 2026. The integration will offer verifiable answers to users’ questions 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 deal positions Snap to better compete against larger rivals such as TikTok and Meta-owned Facebook and Instagram, the preferred destinations for advertisers thanks to their expansive user base.

“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.

Snapchat’s parent has also been leaning on direct-response ads, designed to prompt specific actions such as app downloads or website visits, to bolster digital advertising.

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Direct response ad revenue surged 8 per cent during the quarter, driven by strong demand for “Pixel Purchase” and “App Purchase” ad optimisations that enable businesses to target users most likely to complete a purchase on their website or within their app.

Snap‘s third-quarter revenue rose 10 per cent to US$1.51 billion, beating analysts’ average estimate of US$1.49 billion, according to data compiled by LSEG.

Its net loss narrowed to US$104 million from US$153 million a year ago.

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Daily active users (DAUs) of Snapchat increased 8 per cent to 477 million globally.

But Snap warned that overall DAUs may decline in the fourth quarter due to changing investment priorities and anticipated impact from age verification and evolving regulatory landscapes.

Australia’s Social Media Minimum Age bill, set to take effect in December, is among the regulations that Snap expects would impact user engagement.

The company forecast fourth-quarter revenue between US$1.68 billion and US$1.71 billion, while analysts expect US$1.69 billion. REUTERS