Snap Soars 23% After AI Deal with Perplexity Boosts Revenue

Snap Inc. delivered a strong third-quarter performance, surpassing Wall Street expectations, as the social media giant announced a groundbreaking partnership with AI startup Perplexity. The collaboration is set to integrate Perplexity’s advanced AI-powered search engine directly into Snapchat, promising users verifiable answers within the app and sparking a 23% jump in Snap shares after trading hours.

Under the deal, Perplexity AI will pay Snap $400 million over the next year in a mix of cash and equity. While revenue contributions are projected to start in 2026, the integration positions Snap as a stronger competitor against social media heavyweights like TikTok and Meta’s Facebook and Instagram. This move aims to enhance engagement and attract advertisers seeking targeted audiences.

Snap’s focus on direct-response ads is paying off, with third-quarter revenue rising 10% to $1.51 billion, beating the analyst estimate of $1.49 billion. Net losses narrowed to $104 million from $153 million last year, signaling improved operational efficiency. Daily active users climbed 8% to 477 million globally, slightly above estimates, showing resilient user growth despite market pressures.

The company’s AI-powered features also extend to on-device tools that allow creators to leverage prompts for augmented reality lenses, expanding the platform’s creative potential. Revenue from direct-response ads, particularly "Pixel Purchase" and "App Purchase" optimizations, saw an 8% boost, reflecting strong advertiser demand for precision-targeted campaigns.

Looking ahead, Snap cautioned that daily active users may dip in the fourth quarter due to shifting investment priorities and evolving regulations, including Australia’s Social Media Minimum Age bill coming into effect in December. Nevertheless, the company projects fourth-quarter revenue between $1.68 billion and $1.71 billion, closely aligned with analyst expectations of $1.69 billion.