Snap shares jump after $400mn deal with AI start-up Perplexity

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Snap announced a $400mn deal to roll out Perplexity’s artificial intelligence search engine within the social media app on Wednesday, alongside bumper third-quarter earnings, sparking a rally in its shares. 

The Los Angeles-based social media group said the AI start-up would pay $400mn “over one year, through a combination of cash and equity”, to feature prominently in the Snapchat app starting in 2026.

“Through this integration, Perplexity’s AI-powered answer engine will let Snapchatters ask questions and get clear, conversational answers drawn from verifiable sources, all within Snapchat,” Snap said.

The deal opens up a new stream of revenues for Snap, which is popular among younger Generation Z users for its disappearing messaging feature. Its monthly active users have grown by 7 per cent year-over-year to 943mn.

Snap’s shares jumped as much as 24 per cent in after-hours trading following the announcement, before paring their gains to 14 per cent.

The stock is down roughly 20 per cent this year inclusive of Wednesday’s gains.

The tie-up comes as the social media platform has struggled to grow its advertising business in line with expectations and move to profitability given competition from deep-pocketed rivals such as Meta, which is pouring billions of dollars into developing its own AI models.

Snap on Wednesday also posted a 10 per cent year-on-year rise in third-quarter sales to $1.5bn, just above analysts’ expectations.

Its earnings benefited from restructuring and cost-efficiency efforts. Net losses stood at $104mn, compared to $153mn in the same quarter last year, beating analysts’ expectations that they would grow to more than $200mn.

However, the company added that while its non-US advertising business was growing, its North American ads revenue rose only 1 per cent year-on-year in the quarter.

That low growth reflected large North American brands spending less. The company said this group of advertisers “remains the primary headwind to our overall revenue growth”.

Snap has recently confirmed it is moving the development of Spectacles, its augmented reality glasses, into a subsidiary called ‘Specs’, following the model of Alphabet and its self-driving car project Waymo.

The company has held conversations with investors about putting more money into the division, according to people familiar with the matter which was first reported by Sources, an independent publication. However, Snap said it is not reliant on raising outside capital in order to publicly launch Specs as planned in 2026.