Snap shares jump 15% on upbeat outlook, $400M Perplexity partnership

Snap shares surged 15% on Wednesday following the release of its third-quarter earnings report, which revealed revenue exceeding analyst expectations and the initiation of a $500 million stock repurchase program. The market’s positive reaction underscores renewed confidence in the company’s strategic direction and execution.

Here’s a detailed breakdown of Snap’s performance compared to Wall Street forecasts:

• Earnings per share: Loss of 6 cents (Not directly comparable to analyst estimates due to accounting nuances)
• Revenue: $1.51 billion vs. the LSEG consensus of $1.49 billion – A notable beat, indicating stronger-than-anticipated ad sales momentum.
• Global daily active users (DAU): 477 million vs. the StreetAccount estimate of 476 million – A slight beat, signaling continued user base growth, albeit incremental.
• Global average revenue per user (ARPU): $3.16 vs. the StreetAccount projection of $3.13 – Suggests improved monetization efficiency across its user base.

Beyond the headline figures, the key catalyst driving investor enthusiasm is Snap’s strategic partnership with Perplexity AI, an emerging player in the conversational AI search space.
This collaboration will see Perplexity AI’s search capabilities integrated directly into Snapchat, slated for launch in early 2026.

According to Snap’s investor letter, Perplexity will compensate the company $400 million over one year, through a combination of cash and equity, contingent on achieving global rollout milestones. Revenue generation from this partnership is expected to commence in 2026. This deal structure highlights Snap’s growing leverage in attracting AI partnerships, as the company seeks to enhance its user experience through innovative technologies.

This partnership, as emphasized in the joint announcement, marks Snap’s initial foray into transforming Snapchat into a platform where leading AI entities can engage strategically with its expansive global user community in a secure and creative environment.

During the earnings call, Snap CEO Evan Spiegel elaborated that Perplexity will receive “default placement in our chat inbox,” granting the startup significant control over chatbot responses within the Snapchat interface. This preferential treatment underscores Snap’s commitment to the partnership and Perplexity’s value proposition.

While Snap will refrain from serving advertisements alongside Perplexity’s responses, Spiegel believes the integration will facilitate increased subscriber acquisition for Perplexity, adding substantial value to their business model. This indirect monetization strategy signals a willingness to prioritize user experience over immediate ad revenue in certain contexts.

“We have a really unique opportunity ahead to help distribute AI agents through our chat interface,” Spiegel asserted, highlighting Snap’s ambition to become a central hub for AI-powered interactions. This vision positions Snap as a potential distribution powerhouse for emerging AI technologies.

While Snapchat users will retain access to the company’s native My AI chatbot, the integration of Perplexity AI seeks to provide users with “real-time answers from credible sources and explore new topics within the app,” thereby enhancing the platform’s utility and knowledge discovery capabilities. This represents a strategic move towards offering a more comprehensive information ecosystem within Snapchat.

Addressing Snap’s augmented reality (AR) ambitions, Spiegel informed investors of plans to establish a separate subsidiary dedicated to the development of Specs AR glasses, aimed at accelerating innovation through strategic partnerships. The creation of this separate subsidiary could allow for more streamlined operations and potentially attract independent investment in Snap’s AR division.

Looking ahead, Snap projects fourth-quarter sales in the range of $1.68 billion to $1.71 billion. The midpoint of this range, $1.695 billion, marginally surpasses Wall Street’s consensus estimate of $1.69 billion. This positive guidance reinforces the market’s favorable sentiment following the Q3 results.

Snap reported a 10% year-over-year increase in third-quarter sales, accompanied by a net loss of $104 million, an improvement from the previous year’s Q3 net loss of $153 million. The reduced loss suggests improved operational efficiency.

The company’s third-quarter adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) reached $182 million, exceeding the StreetAccount projection of $125 million. This significant outperformance indicates stronger core profitability than anticipated.

Snap also forecasts its adjusted EBITDA for the fourth quarter to fall between $280 million and $310 million, exceeding StreetAccount’s projections of $255.4 million. The forecast reinforces the bullish outlook.

Prior to Wednesday’s surge, Snap shares had declined 32% year-to-date, contrasting sharply with the Nasdaq’s 22% gain. This lag potentially made the stock ripe for a rebound following positive news.

Despite an initial after-hours trading spike as high as 25%, Snap’s stock price retraced some of its gains after CFO Derek Andersen highlighted specific sales headwinds during the earnings call. This underscores the market’s sensitivity to potential challenges.

Andersen specifically identified the “North America LCS segment” as a primary obstacle to overall revenue growth, while also noting increased demand for Snap’s ad products from small-to-medium sized businesses (SMBs) in other regions. The company is attempting to diversify the ad sales into the SMB sector.

Snap’s investor letter alluded to the potential impact of government regulations, such as Australia’s proposed social media minimum age legislation, which “are likely to have negative impacts on user engagement metrics that we cannot currently predict.” This underscores the growing regulatory risks faced by social media companies.

“While we remain committed to our goal of serving 1 billion global monthly active users, we expect overall DAU may decline in Q4 given these internal and external factors, and as noted above we expect particularly negative impacts in certain jurisdictions,” Snap cautioned. This is due to internal and external factors.

Snap further acknowledged the potential impact of “the upcoming rollout of platform-level age verification” initiatives by companies like Apple and Google, which could further constrain user growth.

Snap’s cautionary statements highlight the increasing impact of evolving regulations and platform policies on technology companies. This development will use new signals to verify user age.

Snap addressed some engagement issues, such as Snapchat+’s subscription service, which could have an “adverse impact on engagement metrics as these experiences are rolled out globally.”

By contrast, Pinterest shares plummeted on Tuesday following its third-quarter results, which underperformed on earnings per share and provided weaker-than-expected guidance. Pinterest projects “broader trends and market uncertainty continuing with the addition of a new tariff in Q4 impacting the home furnishing category.”

Recently, major tech firms, including Meta, Alphabet, and Amazon, disclosed their recent quarterly earnings, showcasing robust digital advertising sales and significant investments in AI-related computing infrastructure.

The Facebook parent reported a sales surge of 26% year-over-year, reaching $51.24 billion; simultaneously, Amazon’s online ad unit experienced a revenue growth of 24% year-over-year amassing $17.7 billion.

Furthermore, Alphabet recorded an increase, with overall advertising revenue for the third quarter climbing 13% year-over-year to $74.18 billion, whilst YouTube’s online ad sales increased 15% to $10.26 billion.

Reddit posted substantial sales, by reporting that third-quarter sales escalated 68% year-over-year with global daily active users increasing 19% to 116 million.