Snap Inc. (SNAP) saw its stock tumble 7% in after-hours trading Tuesday after the company disclosed the termination of its $400 million artificial intelligence partnership with Perplexity and warned that ongoing geopolitical tensions in the Middle East had negatively impacted first-quarter advertising revenue. The revelation overshadowed otherwise positive quarterly results that showed accelerating revenue growth and a narrower net loss.
Key Financial Results
For the first quarter ended March 31, Snap reported revenue of $1.529 billion, a 12% increase year-over-year. The company's net loss narrowed to $89 million, down from $140 million in the same period last year. Adjusted EBITDA surged to $233 million, more than doubling from $108 million a year ago. However, advertising revenue—Snap's primary income source—rose only 3% to $1.24 billion, with the company citing a $20 million to $25 million drag from Middle East-related issues in March.
User Metrics Paint Mixed Picture
Global daily active users (DAUs) climbed 5% to 483 million, but North American DAUs fell 7% to 92 million, highlighting a persistent challenge in Snap's most lucrative market. Average revenue per user came in at $3.17, missing analyst expectations of $3.21, as the company relies more on faster-growing but lower-monetizing international markets.
Perplexity Deal Collapse
The terminated agreement with Perplexity, which was supposed to integrate the AI startup's answer engine into Snapchat's Chat feature, was valued at approximately $400 million in cash and equity over one year. Snap confirmed that both parties "amicably ended" the arrangement in the first quarter, and the company's second-quarter revenue guidance no longer includes any contribution from the partnership. This removes a significant near-term revenue stream from Snap's outlook.
Non-Advertising Revenue Shines
On a more positive note, Snap's non-advertising revenue—driven by Snapchat+ subscriptions, Memories Storage, and the new Lens+ premium offering—jumped 87% to $285 million. CEO Evan Spiegel emphasized that subscription services strengthen direct user relationships and provide a more stable income stream less susceptible to advertising market fluctuations.
Cost-Cutting and Restructuring
In April, Snap announced plans to eliminate approximately 1,000 jobs, or about 16% of its full-time workforce, following pressure from activist investor Irenic Capital Management to tighten spending. The company aims to reduce annualized costs by over $500 million in the second half of 2026, though it expects to incur $95 million to $130 million in restructuring charges, primarily in the second quarter.
Strategic Investments and Outlook
Snap continues to invest in long-term initiatives, including its Specs eyewear project, which is on track for a commercial launch later this year. The company is deepening its collaboration with Qualcomm on next-generation hardware. For the second quarter, Snap forecasts revenue between $1.52 billion and $1.55 billion, with adjusted EBITDA in the range of $175 million to $200 million. The outlook assumes Middle East conditions remain similar to those seen in March and April, but the company cautioned that the geopolitical situation remains unpredictable and could further impact ad revenue. Additionally, regulatory risks related to age verification, data privacy, and online safety could increase compliance costs and affect user engagement.
