Snap's $400 million AI search collaboration with Perplexity ends

Social media company Snap released its quarterly earnings report on Wednesday, with the company's revenue increasing by 12.1% year-over-year to $1.53 billion, meeting Wall Street expectations, and GAAP net loss per share at $0.05, which is better than the market's expected loss of $0.07, but the stock price fell nearly 10% after the report's release.

Snap expects second-quarter revenue to be between $1.52 billion and $1.55 billion, slightly below market expectations, and explicitly stated that this guidance does not include contributions from Perplexity, as the partnership with them was "amicably concluded" in the first quarter. This deal, announced last November, was originally planned to integrate Perplexity's AI search engine directly into Snapchat and had Perplexity pay Snap $400 million in cash and equity over the course of a year.

This means that the revenue from cooperation, which Snap originally planned to start receiving from 2026, will no longer be included in the current sales forecast. The company clearly stated that the sales guidance "assumes no contributions from Perplexity," and after the cooperation ends, Snap's short-term narrative shifts back to user growth and product features.

The earnings report still shows signs of improvement. Adjusted EBITDA was $233.3 million, higher than the analysts' expected $213.2 million; the operating profit margin improved to negative 4.9%, better than the same period last year's negative 14.2%; and the free cash flow ratio rose to 18.7%, higher than the previous quarter's 12%.

User growth is currently Snap's most direct support. Snapchat's global daily active users increased by 5% year-over-year to 483 million, and monthly active users increased by 5% year-over-year to 965 million, with the company attributing growth to features like Snap Map and Lenses AR filters.

Management tried to shift market attention to operational efficiency and long-term hardware opportunities. CEO Evan Spiegel said that the company has restored daily active growth, accelerated revenue growth, expanded profit margins, and generated strong free cash flow in the first quarter and will continue to invest in Specs and smart glasses opportunities.