Snap shares rocket 20% on strong forecast, $400 million Perplexity deal

Shares of Snap Inc. surged over 20% on Wednesday after the company revealed its earnings for the third quarter, showcasing revenue that exceeded analysts' expectations alongside a robust $500 million stock buyback initiative. The company also announced a strategic partnership with Perplexity AI, which is set to integrate its conversational search capabilities into Snapchat by early 2026. As part of this collaboration, Perplexity will invest $400 million in Snap over the next year, utilizing a mix of cash and equity to support the global rollout of the feature. For the fourth quarter, Snap anticipates sales to fall between $1.68 billion and $1.71 billion, with the midpoint of $1.695 billion slightly above Wall Street's expectations of $1.69 billion. The third-quarter report indicated a year-over-year sales growth of 10%, despite a net loss of $104 million, an improvement from the $153 million loss experienced in the same quarter last year. The company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $182 million, surpassing the $125 million forecasted by StreetAccount. Looking ahead, Snap estimates its adjusted EBITDA for the fourth quarter will range from $280 million to $310 million, well above the projected $255.4 million. Despite the positive earnings report, Snap shares have fallen 32% this year, contrasting sharply with the Nasdaq’s gain of 22%. In a letter to investors, Snap cautioned that new government regulations, particularly Australia’s social media age verification law, could adversely affect user engagement metrics, which they cannot currently predict. The Australian Senate passed legislation last November that will penalize companies like Snap, Facebook, and TikTok for failing to prevent users under 16 from creating accounts. Snap also highlighted the potential impact of upcoming platform-level age verification efforts by tech giants like Apple and Google, which will require stricter user age assessments. As Snap prepares for these changes, it remains committed to its target of reaching one billion monthly active users. However, they anticipate a decline in daily active users (DAU) in the fourth quarter due to these regulatory challenges. In the broader tech landscape, other major players like Meta, Alphabet, and Amazon recently reported strong digital advertising growth, with Meta's sales increasing by 26% year-over-year. In contrast, Pinterest faced a significant downturn after revealing disappointing quarterly results and weak guidance for the future, reflecting the ongoing market uncertainty. In summary, while Snap's recent earnings and strategic partnerships have shown promise, the company faces considerable headwinds from regulatory changes that could influence user engagement going forward.