Snap Stock Jumps After Revenue Beat and $400 Million AI Search Agreement

Snap Inc. shares surged more than 25% in after-hours trading on Wednesday as the company posted third-quarter results that topped Wall Street forecasts, unveiled a $500 million share repurchase program and disclosed a wide-reaching partnership with Perplexity AI.

Financial Results Exceed Expectations

The social media company reported third-quarter revenue of $1.51 billion, outpacing the $1.49 billion consensus compiled by LSEG. Snap recorded a net loss of $104 million, narrowing from a loss of $153 million in the same period a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached $182 million, well ahead of the $125 million figure analysts had projected.

Earnings per share showed a loss of 6 cents; the company noted that the number is not comparable with analyst estimates because of accounting adjustments. Global daily active users (DAUs) rose to 477 million, slightly above the 476 million expected by StreetAccount. Average revenue per user stood at $3.16, also beating the $3.13 consensus.

New Share Repurchase Program

Alongside its earnings, Snap’s board authorized a $500 million stock buyback. The program is designed to offset the impact of share dilution from ongoing equity compensation and employee stock plans.

Perplexity AI Deal Adds Conversational Search to Snapchat

The company announced a strategic agreement with startup Perplexity AI to embed conversational search capabilities directly into Snapchat. Under the terms outlined in Snap’s investor letter, Perplexity will pay $400 million over one year through a mix of cash and equity as the feature rolls out globally. Integration is scheduled to start in early 2026, with revenue contributions expected that same year.

Guidance for the Holiday Quarter

Management projected fourth-quarter revenue between $1.68 billion and $1.71 billion, placing the midpoint of $1.695 billion slightly above Wall Street’s $1.69 billion estimate. The company forecast adjusted EBITDA of $280 million to $310 million for the period, surpassing the $255.4 million analysts anticipated.

Stock Performance Before the Release

Prior to Wednesday’s report, Snap’s shares had fallen 32% year to date, contrasting with a 22% advance in the Nasdaq Composite over the same span. The latest after-hours rally, if sustained, would trim a considerable portion of that deficit.

Regulatory Headwinds Could Affect User Growth

In a letter to shareholders, Snap cautioned that new regulations targeting underage social media use may weigh on engagement metrics. The company singled out Australia’s soon-to-be-implemented minimum age law, which penalizes platforms that fail to block users under 16. According to the Australian Parliament, the legislation takes effect next month.

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Snap also pointed to impending “platform-level age verification” measures from Apple and Google, as well as state-level rules in Utah and California that task app-store operators with confirming user ages. The company warned that such initiatives could lead to a decline in daily active users during the fourth quarter, with “particularly negative impacts in certain jurisdictions.”

Monetization Initiatives and Potential Trade-Offs

Beyond regulatory factors, Snap said the global expansion of Snapchat+, its subscription service, could dampen engagement as new paid features reach a broader audience. Executives maintained, however, that the company remains committed to its goal of serving one billion monthly active users worldwide.

Advertising Landscape Remains Competitive

Snap’s results arrive amid robust advertising figures from larger technology rivals. Meta Platforms reported a 26% year-over-year increase in third-quarter revenue to $51.24 billion, Amazon’s advertising sales jumped 24% to $17.7 billion, and Alphabet’s total ad revenue climbed 13% to $74.18 billion, with YouTube contributing $10.26 billion.

Snap’s management did not provide detailed commentary on broader macroeconomic conditions but noted that uncertainties and policy changes continue to influence both advertising demand and user behavior.

Crédito da imagem: David A. Grogan | CNBC