Snap partners with Perplexity AI; beats third-quarter revenue
It will now aggressively compete with rivals TikTok, Facebook and Instagram
Snap Inc. has partnered with artificial intelligence (AI) startup Perplexity to integrate its AI-powered search engine into Snapchat. It beat the third-quarter revenue estimate on 5 November, sending the social media firm’s shares surging 23 percent.
Perplexity will pay Snap $400 million over one year in cash and equity, with revenue contributions expected from 2026. Perplexity AI will respond to users’ queries within the Snapchat app.
It has positioned Snap to compete aggressively with larger rivals, including TikTok and Meta-owned Facebook and Instagram, the preferred destinations for advertisers due to their larger user base.
Meanwhile, Snap has been leaning on direct-response ads, designed to prompt specific actions such as app downloads or website visits, to bolster digital advertising, even as brand-awareness campaigns show signs of weakness.
During the third quarter, the direct response ad revenue surged 8 percent because of the strong demand for ‘Pixel Purchase’ and ‘App Purchase’ ad optimizations. (These enable businesses to target users to complete a purchase on their website or within their app).
According to the London Stock Exchange Group data, the company’s revenue rose 10 percent to $1.51 billion, beating analysts’ average estimate of $1.49 billion. Its net loss narrowed to $104 million from $153 million in 2024.
As the daily active users (DAUs) of Snapchat increased 8 percent to 477 million globally, compared with the estimate of 476.3 million, Max Willens, principal analyst at Emarketer, expressed, “They rebounded from an ad platform hiccup in the second quarter and grew their consumer revenue business, all the while continuing to grow their user base.”
However, Snap warned that DAUs may decline in the fourth quarter. It cited the changing investment priorities and anticipated impacts from age verification and evolving regulatory landscapes.
Besides, Australia’s Online Safety Amendment (Social Media Minimum Age) Bill, 2024, effective from December, is among the regulations that Snap expects would impact user engagement.
While analysts expect $1.69 billion, the company has forecast its fourth-quarter revenue to be between $1.68 billion and $1.71 billion.