Snap Inc. has terminated its high-profile partnership with AI search engine Perplexity, the company disclosed Wednesday as part of its first-quarter earnings report, marking the quiet end of a deal that was once positioned as a significant step in bringing advanced AI directly into Snapchat.
The agreement, first announced last November, would have integrated Perplexity’s conversational AI capabilities into Snapchat’s Chat interface, allowing users to ask questions and receive intelligent responses within the app. In exchange, Perplexity had committed to paying Snap $400 million in a combination of cash and equity over one year.
Snap said the companies “amicably ended the relationship in Q1” and that its current sales guidance assumes no contribution from the partnership.
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When the deal was unveiled during Snap’s third-quarter earnings last year, the company had expected the partnership to begin contributing to revenue in 2026. However, despite testing the integration with select users, the companies “had yet to mutually agree on a path to a broader rollout,” Snap noted in February.
The decision to part ways comes as Snap continues to navigate the rapidly evolving AI landscape while trying to stabilize its core advertising business and invest in longer-term ambitions such as augmented reality and intelligent eyewear.
Stronger Q1 Results Despite Partnership Exit
Despite the loss of the partnership, Snap delivered a relatively solid first quarter. Global daily active users (DAU) grew 5% year-over-year to 483 million, while monthly active users (MAU) also increased 5% to 965 million. The company attributed the growth to improvements across Snap Map, AR Lenses, and other product features.
“In Q1, we returned to growth in daily active user accelerated revenue growth, expanded margins, and generated strong free cash flow,” CEO Evan Spiegel said in a press release. “We remain focused on disciplined execution as we invest in Specs and our long-term opportunity in intelligent eyewear.”
Spiegel originally described the Perplexity partnership as part of a broader vision to enhance discovery and utility on Snapchat through AI. At the time of the announcement, he said Snap was “looking forward to collaborating with more innovative partners in the future.”
The end of the Perplexity deal arrives just weeks after Snap announced it was cutting roughly 16% of its global workforce, approximately 1,000 full-time employees, in April. The company explicitly linked the layoffs to advancements in AI, signaling a broader restructuring as it seeks to become more efficient while investing in new technologies.
The Perplexity partnership was viewed by some analysts as a relatively low-risk way for Snap to quickly add generative AI features without bearing the full cost of development. Its termination raises questions about Snap’s AI strategy moving forward.
While the company has continued to roll out various AI-powered tools, including generative features for creating Lenses and personalized content, it appears more cautious about large external partnerships.
The split highlights the challenges facing social media platforms as they attempt to integrate fast-moving AI technology. While AI offers clear potential for improving user engagement and ad targeting, the economics, technical integration, and product fit are not always straightforward. Perplexity, which has positioned itself as a search engine powered by AI rather than traditional links, had seen the Snap deal as a major distribution win to reach younger users.
For Snap, the decision to walk away from the $400 million arrangement, while disappointing from a revenue perspective, may indicate a desire to maintain tighter control over its product roadmap and user experience. The company has emphasized “disciplined execution” under Spiegel as it tries to prove to investors that it can grow users and revenue while managing costs effectively.
Snap shares have been under pressure for years as the company struggles to compete with larger rivals like Meta and TikTok for advertising dollars. The modest user growth in Q1 and return to positive free cash flow may provide some relief, but investors will be closely watching how Snap positions its AI efforts going forward, especially with major competitors pouring resources into their own AI initiatives.
The amicable nature of the split suggests both sides may leave the door open for future collaboration, but for now, Snap appears focused on internal development and other potential partnerships as it charts its path.