Snap stock climbed 10% on Thursday after announcing a $400 million deal with Perplexity AI and releasing its third-quarter financial results.
The company said that it will be integrating Perplexity's artificial intelligence-powered search engine directly into the Snapchat app.
As part of the agreement, Perplexity is set to pay the social media platform $400 million over one year "through a combination of cash and equity," according to Snap's letter to investors.
The social media company expects to start seeing revenue from the deal in 2026.
"Snap's strategic partnership with Perplexity AI represents a meaningful step toward building out alternative revenue streams, as similar to Pinterest, large advertisers in the US seem to be pulling back from advertising on the platform," Deutsche's Benjamin Black said in a note Thursday.
Although users will still be able to use Snap's existing My AI chatbot, the added Perplexity engine will help "find real-time answers from credible sources and explore new topics within the app," according to a release.
Snap CEO Evan Spiegel said in the company's earnings call that the integration "will help Perplexity drive additional subscribers, which I think is something that will be valuable to their business."
Snap posted solid third-quarter results, reporting revenue of $1.51 billion, which beat LSEG estimates of $1.49 billion. The company recorded a loss of 6 cents per share, which was not comparable to estimates.
The Snapchat parent also authorized a $500 million stock repurchase program, citing a strong balance sheet.
The platform's daily active users increased 8% year over year to 477 million, surpassing StreetAccount's projection of 476 million.