Snap Q3 Earnings: Perplexity Integration Sets AI Course for 'Social Search' Boom

TradingKey - Snap (SNAP), the social media platform known for visual social interaction and ephemeral messaging, reported Q3 2025 earnings that surpassed analyst expectations. This, coupled with an optimistic financial outlook and a partnership with Perplexity AI, drove Snap's stock up 16% in pre-market trading. For Snap, integrating Perplexity's conversational service not only enhances its AI capabilities but also optimizes its revenue growth trajectory in social search and AI advertising.

Snap released its Q3 2025 earnings after the market close on Wednesday, November 5. The company reported a 10% year-over-year increase in revenue to $1.51 billion, exceeding the anticipated $1.49 billion. Net losses narrowed to $104 million from $153 million in the same period last year. Furthermore, adjusted EBITDA reached $182 million, outperforming the expected $125 million.

On Thursday, Snap's stock surged 16% in pre-market trading, beginning to recover from its over 30% decline year-to-date. According to TradingKey, Wall Street analysts have an average price target of $9.20 for Snap, representing a 26% upside from Wednesday's closing price.

【Snap Stock Performance in 2025, Source: TradingKey】

Despite robust user growth, factors such as sluggish advertising revenue growth this year, hesitant future guidance, and glitches in its ad buying platform have eroded investor confidence in Snap.

However, this social platform, which boasts 943 million global users and reaches 75% of 13-34 year olds across multiple regions, may be poised for a turnaround post-Q3. A key driver for this potential shift is its collaboration with Perplexity.

Perplexity Addresses Snap's Conversational AI Shortcomings

On the day of its Q3 earnings release, Snap announced its partnership with AI startup Perplexity. Beginning in early 2026, Snap will integrate Perplexity's AI answer engine directly into Snapchat, allowing users to ask questions within the app and receive clear, conversational answers derived from verifiable information.

This collaboration marks Snap's first deep integration with an external partner. While Snap previously launched its "My AI" chatbot by combining OpenAI's ChatGPT and Google's Gemini large language models, many users reported that this model was better suited for creative tasks involving images and videos, but less effective at answering questions.

Consequently, the addition of Perplexity, which specializes in conversational search engines, is set to fill this specific gap in Snap's AI capabilities.

Leveraging Snap's Social Advantage

Compared to hyperscale AI model developers like Google and Microsoft, Snap's massive social user base of nearly a billion provides a natural social advantage for enhancing its chatbot offerings.

Snap CEO Evan Spiegel stated that his goal is to make AI more personal, social, and fun – woven into the fabric of your friendships, Snaps, and conversations.

Max Willens, an analyst at Emarketer, noted that Perplexity needs a way to build its presence among younger consumers, while Snap requires an AI chat companion that allows users to interact continuously without leaving the app.

Social platforms such as Meta and X have also integrated AI chatbots into their applications. Given Snap's unique demographic of Gen Z users, the platform maintains a strong moat on the "AI + social" path.

AI for Revenue Generation and Increased Advertiser Appeal

Advertising revenue remains a central concern for investors, and this year's ad business has faced considerable hurdles.

However, Snap's management observed in Q3 the supportive role of large language models for advertising, noting that they leveraged these models to better understand products and advance dynamic product ads, leading to a conversion rate improvement of over 4x compared to certain baseline campaigns.

The partnership between Perplexity and Snap not only provides Snap with a new revenue stream comprising a $400 million cash and equity package but also paves the way for growth in Snap's advertising business.

CEO Spiegel believes that opening up the Snapchat ecosystem to more AI partners over time will unlock significant opportunities. With the advent of conversational AI, conversational interfaces are becoming increasingly valuable.

Snap anticipates immense potential in boosting advertiser and user interaction frequency through chatbots and AI assistants. Advertisers who already possess their own proprietary AI assistants have expressed keen interest in integrating them into Snapchat.

In the long term, connecting Sponsored Snaps with these intelligent assistants will create significant value for advertising partners, a direction Snap is actively pursuing.