The agreement, announced in November 2025, was designed to bring Perplexity’s conversational answer engine into Snapchat’s Chat interface, allowing users to ask questions and receive AI-generated responses inside one of the app’s most used communication surfaces. Perplexity was expected to pay Snap through a mix of cash and equity over one year, with the contribution beginning in 2026. That expectation has now been withdrawn, with Snap saying its second-quarter guidance assumes no contribution from Perplexity after the relationship “amicably ended” in the first quarter.
The termination changes the near-term narrative around Snap’s AI ambitions. The company had presented the Perplexity tie-up as a way to make Snapchat more useful beyond messaging, lenses and short-form video, while giving an AI search company access to a large youth-skewing audience. Testing had reached select users, but Snap had already signalled in February that both sides had not agreed on a route to a broader rollout.
Financially, the collapse of the deal comes at an awkward moment. Snap reported first-quarter revenue of $1.53 billion, up 12 per cent year on year, while its net loss narrowed to $89 million from $140 million a year earlier. Advertising revenue reached $1.24 billion, up only 3 per cent, while other revenue climbed 87 per cent to $285 million, helped by Snapchat+ subscriptions, Memories Storage and early traction for Lens+.
The figures point to a company that is growing, but not evenly. Snap’s global daily and monthly active users both rose 5 per cent year on year, with daily active users at 483 million and monthly active users at 956 million. Snap Map reached more than 450 million monthly active users, while Spotlight sharing and reposting continued to expand. Yet advertising remains the core revenue engine, and large advertisers in North America continued to weigh on growth.
Snap’s investor letter said geopolitical headwinds in the Middle East reduced March advertising revenue by about $20 million to $25 million. The company’s second-quarter revenue guidance of $1.52 billion to $1.55 billion assumes that conditions in the region remain broadly consistent with the pressures seen in March and April, while acknowledging that the trajectory remains uncertain.
The Perplexity exit also raises questions about how Snap will balance AI-driven product development with financial discipline. AI remains central to its advertising systems, where nearly 70 per cent of ad spend now uses at least one automated tool such as Smart Audience, Smart Budget or Smart Placement. Snap has also introduced AI Sponsored Snaps, a format that allows brands to hold interactive conversations with users inside Chat. These efforts suggest the company is not retreating from AI, but shifting emphasis towards tools it can control and monetise directly.
Cost control has become equally important. Snap said it expects to reduce its annualised cost structure by more than $500 million in the second half of 2026, following a restructuring announced in April. The company expects pre-tax restructuring charges of $95 million to $130 million, mostly in the second quarter. The move followed pressure to streamline operations and improve the path to sustained profitability.
Snap is also pressing ahead with Specs, its augmented reality glasses platform, despite investor scrutiny over whether the hardware effort can produce returns at scale. The company said it is working towards a commercial launch later this year and plans to share more details at Augmented World Expo on June 16. For Snap, Specs represents a long-term bet that computing will move beyond smartphones, but it also requires capital, developer support and a clear consumer use case.
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