Snap's (SNAP) core business performance is ahead of expectations, backed by subscription revenue, but more clarity is needed on when the company will add revenue after its agreement with Perplexity, Morgan Stanley said in a note emailed Monday.

Snap's subscription revenue has been a highlight as the company has reached a $1 billion run rate, after it added 25 million Snapchat+ subscribers, the note said.

However, when Snap will add $400 million of "high-margin revenue through its agreement with Perplexity will matter next as the companies remain in negotiation," the investment firm said, adding it now forecasts the deal to start in Q3 and not Q1 as previously expected.

Meanwhile, there are indications of a "re-acceleration in ad revenue" in Q1 backed by "well-performing ad formats such as Sponsored Snaps and Promoted Places," the note said.

Morgan Stanley lowered Snap's price target to $6.50 from $9.50, citing a reduction in the target multiple from about 12 times 2027 adjusted EBITDA to about 5 times 2027 adjusted EBITDA following a "broader de-rating of peer multiples."

The investment firm kept Snap's equalweight rating.

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