Strong third-quarter report, secured a $400 million order for built-in "AI search" Perplexity, Snap's stock price surged over 20%

On Wednesday, Snap announced a $400 million partnership with AI startup Perplexity and released better-than-expected third-quarter financial results, causing its stock price to surge over 20% at one point.

Snap stated that Perplexity will pay $400 million through a combination of cash and equity within a year, starting in 2026, to gain significant display placement within the Snapchat app. This deal opens up new revenue streams for Snap, which has faced pressure on its advertising business growth from well-funded competitors like Meta.

Snap's third-quarter revenue grew 10% year-over-year to $1.5 billion, slightly above analyst expectations. Thanks to restructuring and cost control measures, the net loss narrowed to $104 million, much better than the over $200 million loss anticipated by analysts.

Despite the surge in stock price, Snap's shares are still down about 20% year-to-date. The company noted that while advertising revenue outside the U.S. is growing, North American ad revenue only increased 1% year-over-year this quarter, with reduced spending from major brand advertisers remaining a key obstacle to overall revenue growth.

AI Partnership Opens New Revenue Channels

According to the agreement, Perplexity's AI search engine will be deeply integrated into the Snapchat app starting in 2026. Snap stated that through this integration, Perplexity's AI-driven Q&A engine will allow Snapchat users to ask questions and receive clear conversational answers from verifiable sources, all within Snapchat.

This deal opens new revenue channels for Snap, which is popular among the younger Generation Z users. The company reported a 7% year-over-year increase in monthly active users to 943 million. This partnership comes at a time when Snap faces challenges in advertising business growth, struggling to compete with rivals like Meta, which is investing billions of dollars in developing its own AI models.

Additionally, Snap recently confirmed that it is transferring the development of its augmented reality glasses, Spectacles, to a subsidiary called "Specs," following the model of Alphabet and its self-driving car project Waymo. According to media reports citing informed sources, the company has been in talks with investors to inject more funds into this division. However, Snap stated that the planned public launch of Specs products in 2026 does not rely on raising external capital