Snap exceeded Wall Street expectations for its third-quarter revenue on Wednesday, buoyed by strong advertising demand and new AI-driven features. The company also announced a partnership with Perplexity AI to bring the startup’s advanced search technology to Snapchat, a move that sent Snap shares soaring 16% in after-hours trading.
As part of the deal, AI startup Perplexity will pay Snap $400 million over the next year through a mix of cash and equity. The partnership is expected to start contributing to Snap’s revenue in 2026, with the integration designed to provide users with 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.
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The partnership with Perplexity marks a strategic move for Snap as it looks to strengthen its foothold in a social media landscape dominated by giants like TikTok and Meta’s Facebook and Instagram. By integrating advanced AI-powered search features, Snap aims to boost user engagement and attract more advertisers, an area where its competitors have long held an advantage due to their massive global audiences and sophisticated ad targeting systems. The collaboration could help Snap redefine its appeal to both users and brands, positioning it as a more innovative and interactive platform in the evolving digital ecosystem.
“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 also been doubling down on direct-response advertising, campaigns aimed at driving measurable user actions like app installations, online purchases, or website visits. This approach has become a key part of the company’s strategy to strengthen its digital ad business and deliver clearer returns on investment for advertisers, as competition for ad dollars intensifies across major social media platforms.
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Snap’s focus on performance-driven advertising is showing results. The company reported an 8% rise in direct-response ad revenue for the quarter, fueled by growing demand for its “Pixel Purchase” and “App Purchase” optimization tools. These features help advertisers reach users most likely to make a purchase either through a website or within an app, underscoring Snap’s push to deliver more efficient and data-driven ad solutions for businesses.
In the third quarter, Snap reported a 10% year-over-year increase in revenue, reaching $1.51 billion and surpassing the analyst consensus estimate of $1.49 billion, based on LSEG data. The company also made progress on the profitability front, narrowing its net loss to $104 million compared with $153 million during the same period last year.
Snapchat’s global daily active users climbed 8% in the third quarter, reaching 477 million. However, the company cautioned that user growth could slow in the upcoming quarter, citing shifts in investment priorities, the introduction of age-verification measures, and potential headwinds from changing regulatory requirements that may affect engagement in certain markets.
Looking ahead, Snap projected its fourth-quarter revenue to fall between $1.68 billion and $1.71 billion. That outlook aligns closely with analyst expectations, which average around $1.69 billion, according to Reuters.