Key Takeaways
Snap Inc.’s plan to buy its way into the artificial intelligence race has collapsed, after the company confirmed it terminated a $400 million deal with AI search startup Perplexity. The news, combined with guidance that geopolitical conflict was costing it up to $25 million a month in revenue, sent shares down 4% in after-hours trading and raised fresh questions about the company’s ability to compete with larger rivals.
Snap said in its first-quarter earnings report that the two companies “amicably ended the relationship in Q1” and its forward guidance “assumes no contribution from Perplexity.” The partnership, announced in November 2025, was intended to embed Perplexity’s search engine inside Snapchat, giving Snap a ready-made AI feature and Perplexity access to Snap’s 483 million daily active users. A Perplexity spokesperson said the planned feature was “not the right fit for each company's product goals.”
The deal’s failure overshadowed a quarter of operational improvements. Snap’s revenue grew 12 percent year-on-year to $1.53 billion and its net loss narrowed 36 percent to $89 million. However, advertising revenue grew just three percent in a quarter where Meta Platforms Inc.’s grew 33 percent to over $56 billion. Snap’s second-quarter revenue forecast of $1.52 billion to $1.55 billion was in line with analyst estimates, offering no upside surprise.
The end of the Perplexity partnership leaves a significant hole in Snap’s AI strategy as its primary competitors, Meta and Alphabet Inc.’s Google, invest tens of billions in AI to dominate the digital advertising market. Snap is now pivoting, cutting 16 percent of its workforce—over 1,000 employees—to generate more than $500 million in annualized cost savings. CEO Evan Spiegel has explicitly protected the company’s AR hardware subsidiary, Specs Inc., from the cuts. The company is betting its future not on competing with Meta’s ad machine, but on being the first to market with a consumer-grade pair of augmented reality glasses, expected to launch later this year with a Qualcomm chipset and integrations with OpenAI and Google Gemini.
Snap’s stock has fallen 24 percent this year, with a market capitalization of roughly $10 billion. While the company has a $4.8 billion cash buffer to fund its hardware ambitions, it is effectively ceding ground in the core advertising market. For investors, the story is now one of a company becoming more financially disciplined while its strategic relevance in the AI-powered advertising world diminishes, staking its survival on a high-risk bet on the next generation of computing.
This article is for informational purposes only and does not constitute investment advice.
