Snap Inc. Posts Strong Q3 Revenue, Launches AI Partnership to Power the Next Phase

In a pivotal moment for the company, Snap Inc. delivered a better-than-expected third-quarter performance, signalling that it may be emerging stronger from a challenging digital-advertising environment. According to the reports, Snap’s revenue rose to about US $1.51 billion, topping the consensus estimate of roughly US $1.49 billion. The company also announced a significant new partnership with the AI search-startup Perplexity AI, worth around US $400 million, which will power an advanced in-app search experience within Snapchat starting in 2026.

The Numbers: Revenue, User Growth and Losses

Snap’s revenue growth of roughly 10% year-on-year is noteworthy given the broader headwinds in the advertising market. The company narrowed its net loss to US $104 million from US $153 million a year earlier. Daily active users (DAUs) rose 8% to approximately 477 million globally, slightly above expectations.

The growth in users is encouraging, though the challenge remains to turn those users into higher-value revenue streams. Snap appears to be leaning heavily into “direct-response” advertising — ads designed to prompt a specific action like app installs or purchases — which posted strong gains this quarter. Reuters

What’s Behind the Upside?

There are a few key drivers that appear to be powering this out-performance:

Direct-response ad demand: Snap’s push into ad formats that are more measurable (e.g., “Pixel Purchase” and “App Purchase” optimisations) helped drive growth.
User growth: Steady user growth gives Snap more audience to monetise, and in a digital ad world the scale matters.
Strategic AI partnership: The newly announced deal with Perplexity AI is a signal that Snap sees growth beyond advertising alone — leveraging search and AI to engage users in new ways. This is likely being viewed favourably by investors given the potential for new revenue streams.
Broader diversification: With user growth, ad innovation and non-ad revenue streams (e.g., subscriptions, premium features) all gaining more attention, Snap is strengthening rather than relying purely on classic advertising models.

The AI Deal: A Big Bet on Search

The US $400 million deal with Perplexity AI marks a bold strategic move. Under this partnership, Perplexity will pay Snap in both cash and equity over one year. Starting in 2026, Snap plans to integrate Perplexity’s AI-powered search engine within the Snapchat app, offering users in-app, verifiable question-answering capabilities.

This move is important for several reasons: it positions Snap to better compete with larger social media and search players such as Meta Platforms (owner of Facebook and Instagram) and TikTok, which dominate advertising today; it diversifies Snap’s business model beyond just ad impressions; and it taps into the growing interest in AI-driven user experiences.

Forward Outlook and Risks

While this quarter’s results are positive, Snap did flag headwinds ahead. The company indicated that its daily active users might decline in Q4 due to regulatory changes, including age-verification requirements in markets like Australia. Additionally, economic pressure on advertisers remains a potential vulnerability: ad budgets are sensitive to macroeconomic shifts, and smaller players sometimes feel the impact earlier than the big platforms.

For the fourth quarter, Snap forecasted revenue in the range of US $1.68 billion to US $1.71 billion, aligning with consensus estimates of about US $1.69 billion. The near-term guidance suggests Snap expects modest growth but remains cautious amid uncertain conditions.

Why This Matters

From a strategic viewpoint, this quarter serves several purposes:

It demonstrates Snap’s ability to grow in a tough ad environment, which builds credibility with investors and partners.
It underscores the shift in Snap’s business model — from purely a social media app with ad monetisation to a broader platform with AI, search, subscriptions and more.
It shows that Snap is serious about competing in the bigger league and not just niche social content.
Finally, for advertisers and brands, Snap’s improving ad tech (direct-response tools etc) may make it a more attractive option alongside the big incumbents.

What to Watch Going Forward

Here are some key items to monitor:

User growth and engagement: Sustaining DAU growth and keeping users engaged remains vital. If engagement weakens, monetisation becomes harder.
Average-Revenue-Per-User (ARPU): Getting more revenue per user (either via ads, subscriptions or new features) is essential for long-term profitability.
Monetisation of the AI-search feature: The Perplexity deal has promise, but execution will matter. How Snap commercialises this search capability will be key.
Ad market health: Macro-economic conditions and advertising budgets remain out of Snap’s direct control but strongly influence performance.
Regulatory/regime risk: Age-verification laws, privacy changes (e.g., Apple’s app tracking changes) and regulatory pressure on social platforms can affect growth and monetisation.

Final Thoughts

For Snap Inc., this quarter is a step in the right direction. The combination of revenue beat, user growth and a strategic AI partnership sends the message that the company isn’t content to sit still. While challenges remain — notably monetisation intensification and external risks — the progress shown this quarter gives investors and market watchers something to latch onto.

If Snap can execute its AI and search ambitions, keep its ad products competitive, and manage cost/efficiency well, it could be poised for a broader transformation. For now though, the Q3 result is a solid “win” in a tough environment.

FAQs

Q1: How much revenue did Snap Inc. report in Q3?
A1: Snap reported approximately US $1.51 billion in revenue in the third quarter, surpassing analysts’ expectations of about US $1.49 billion. Reuters+1

Q2: How many daily active users (DAUs) did Snapchat reach?
A2: Snap announced around 477 million daily active users globally in Q3, representing about an 8% growth year-on-year.

Q3: What is the deal between Snap Inc. and Perplexity AI?
A3: The partnership is valued at roughly US $400 million, paid in both cash and equity over a year, and will integrate Perplexity’s AI-search engine into Snapchat starting in 2026.

Q4: What risks did Snap highlight for the coming quarter?
A4: Snap warned that daily active users may decline in Q4 due to regulatory changes (such as age-verification laws) and that advertising budget pressures remain a risk.

Q5: What is Snap doing to improve its advertising business?
A5: Snap is increasingly focusing on direct-response advertising formats (e.g., app installs, purchase-based ads), which allow better measurement and targeting, helping drive revenue growth.

If you’re an investor or digital-advertising professional, now is a key moment to review Snap Inc.’s evolving strategy:

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Snap Inc. Posts Strong Q3 Revenue, Launches AI Partnership to Power the Next Phase