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

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

Snap stated that Perplexity will pay $400 million over one year through a combination of cash and equity, and will gain a prominent display position within the Snapchat app starting in 2026. This deal opens a new revenue stream for Snap, whose advertising business growth has been squeezed by deep-pocketed competitors like Meta.

Snap’s third-quarter revenue rose 10% year-over-year to $1.5 billion, slightly higher than analyst expectations. Thanks to restructuring and cost control measures, net loss narrowed to $104 million, much better than analysts' expectations of over $200 million in losses.

Despite the surge in stock price, Snap is still down about 20% year-to-date. The company pointed out that while advertising business outside the U.S. is growing, North American ad revenue grew only 1% year-over-year this quarter, with reduced spending from major brand advertisers remaining the main drag on overall revenue growth.

AI collaboration opens up new revenue streams

According to the agreement, Perplexity’s AI search engine will be deeply integrated into the Snapchat app starting in 2026. Snap says that with this integration, Perplexity’s AI-powered 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 highly popular among Gen Z users. The company’s monthly active users increased 7% year-over-year to 943 million. The partnership comes as Snap faces challenges in growing its ad business and struggles to compete with rivals like Meta, which is investing billions of dollars developing its own AI models.

In addition, Snap recently confirmed it is transferring development of its augmented reality glasses, Spectacles, to a subsidiary called "Specs," following a model similar to Alphabet’s autonomous vehicle project, Waymo. According to media reports citing sources, the company is negotiating with investors to inject additional funds into the unit. However, Snap says the planned public launch of Specs products in 2026 is not dependent on raising outside capital.

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