Snap Inc. (SNAP) saw its stock decline approximately 5% in after-hours trading on Wednesday, despite reporting a solid first-quarter earnings beat. The social media company posted a 12% year-over-year increase in revenue to $1.529 billion, surpassing analyst expectations. However, a cautious second-quarter revenue forecast and the termination of a high-profile artificial intelligence partnership with Perplexity AI dampened investor sentiment.
For the quarter ended March 31, 2026, Snap reported a net loss of $89 million, improving from a loss of $140 million in the same period last year. Adjusted EBITDA more than doubled to $233 million, while free cash flow reached $286 million. Daily active users (DAUs) on Snapchat rose to 483 million, an increase of 9 million from the prior quarter, though growth in North America remained sluggish, with the region seeing a slight decline in users and revenue growth slowing to just 2%.
Looking ahead, Snap guided for second-quarter revenue in the range of $1.52 billion to $1.55 billion, roughly in line with analyst estimates. The company noted that its outlook does not include any contribution from the now-terminated Perplexity AI deal, which was expected to bring in $400 million in cash and equity over time. The partnership, launched about six months ago, was intended to integrate Perplexity's AI answer engine into Snapchat's chat feature.
The termination of the Perplexity agreement represents a significant loss for Snap as it seeks to diversify its revenue streams beyond its core advertising business. The company cited ongoing geopolitical uncertainty in the Middle East as a near-term headwind, estimating a $20 million to $25 million impact on March revenue alone. Snap's forecast for the second quarter assumes that operating conditions in the region will remain similar to those seen in March and April, though it acknowledged that uncertainty persists.
Revenue from advertising, Snap's primary income source, rose 3% to $1.24 billion. The company continues to face challenges with large North American advertisers, though gains from small and medium-sized businesses and direct-response campaigns helped offset some of the weakness. Other revenue, which includes subscriptions like Snapchat+ and services such as Memories Storage and Lens+, surged 87% to $285 million, highlighting the growing importance of non-advertising income.
Snap remains under pressure from activist investors to improve profitability. The company has been cutting costs, announcing plans in April to reduce its annual cost base by at least $500 million by the second half of 2026. Chief Executive Evan Spiegel stated that the company is focused on execution and remains committed to investing in long-term projects, including its smart-glasses initiative, Specs.
The competitive landscape remains intense, with Snap battling for advertising dollars against larger rivals like Meta Platforms (META) and TikTok. To stay competitive, Snap has introduced new AI-driven ad tools, expanded its subscription offerings, and launched new ad placements such as Sponsored Snaps in Chat. However, the company faces additional headwinds from potential regulatory and legal challenges related to age assurance, data privacy, and online safety, which could increase costs or dampen user engagement.
Snap shares closed the regular trading session at $6.15 before dropping to $5.83 in after-hours trading. The stock has struggled over the past year, reflecting investor concerns about the company's ability to generate consistent growth and profitability in a highly competitive market.
