Snap Inc. (SNAP.US), the parent company of ephemeral messaging app Snapchat, saw its shares surge over 25% in after-hours trading following better-than-expected Q3 earnings and a $400 million partnership with AI search leader Perplexity AI Inc. The deal integrates Perplexity’s AI-powered search engine into Snapchat, marking a strategic pivot for Snap amid slowing growth and intensifying competition in AI-driven conversational interfaces.
Under the agreement, Perplexity’s “AI answer engine” will be embedded into Snapchat’s chat interface starting in 2026, while Snap’s existing My AI chatbot remains available. CEO Evan Spiegel emphasized the rising value of conversational AI ecosystems, stating, “We see significant opportunities to open Snapchat to more AI partners.” Perplexity will pay Snap via a mix of cash and equity, with revenue contributions expected to materially impact earnings from next year.
Snap’s Q3 revenue rose 10% YoY to $1.51 billion, slightly above Wall Street’s $1.49 billion estimate. The company guided Q4 revenue between $1.68 billion and $1.71 billion, aligning with analysts’ $1.69 billion projection. Daily active users (DAUs) grew 8% to 477 million, while monthly active users (MAUs) reached 943 million, inching toward Snap’s 1 billion target.
Advertising revenue, accounting for 90% of total sales, rebounded to $1.32 billion (+5% YoY), driven by small and medium-sized businesses (SMBs) and direct-response ads, which saw an unexpected 8% growth. Spiegel highlighted AI’s potential to deepen advertiser-user interactions, noting interest from brands with proprietary AI assistants.
Snapchat+ subscriptions, now nearing 17 million paid users, fueled a 54% jump in “other revenue” to $190 million, diversifying reliance on ad revenue. However, Snap warned of potential DAU declines in Q4 due to stricter age-verification laws, such as Australia’s upcoming Social Media Minimum Age Act restricting under-16 access.
Despite regulatory headwinds, Snap’s stock rally reflects optimism around its AI pivot and resilient ad business. Year-to-date, shares had fallen 32% before the post-earnings surge, leaving its market cap at approximately $12.3 billion.