A High-Profile Partnership Dissolves
Snap and Perplexity have officially terminated their ambitious $400 million deal, which aimed to embed Perplexity's AI search engine directly into the Snapchat app. The partnership, initially announced in November, was intended to introduce a conversational AI search feature within Snapchat's chat interface. However, the feature, despite undergoing testing with select users, was never fully rolled out to a broader audience.
Snap confirmed the amicable termination in its first-quarter earnings report, stating that future sales guidance would exclude any contributions from Perplexity. Perplexity was slated to pay Snap $400 million in a combination of cash and equity over one year, with Snap anticipating revenue generation from the partnership starting in early 2026.
Reasons Behind the Amicable Split
Both Snap and Perplexity have indicated that the decision to end the partnership was mutual, citing a lack of alignment with their respective product goals. A spokesperson for Perplexity stated that "After working together, Snap and Perplexity determined that the original implementation was not the right fit for each company's product goals and have resolved the matter amicably on confidential terms." Snap had previously mentioned that the deal was on "shaky ground" earlier this year, with the two sides yet to agree on a path to a broader rollout.1
Industry observers suggest that Perplexity's earlier decision to abandon its advertising business in February 2026 may have contributed to the unraveling of the deal. Perplexity concluded that sponsored placements risked undermining the trust essential for its AI search engine, making it an "awkward fit" for Snap, which generates approximately 90 percent of its revenue from advertising. The collapse of the deal also removes a significant potential user acquisition channel and a high-visibility consumer use case for Perplexity's technology.
Snap's Broader AI Strategy and Financial Landscape
The termination of the Perplexity deal comes amidst a period of strategic shifts for Snap. The company recently announced layoffs affecting approximately 16% of its global workforce, impacting about 1,000 full-time employees. These cuts are indicative of a shift in resource allocation towards artificial intelligence and long-term investments in intelligent eyewear. Snap CEO Evan Spiegel has emphasized the company's focus on AI innovation and upcoming plans to showcase its new AR glasses, which are expected to be the first consumer-ready version of Specs.
Despite the end of the Perplexity deal, Snap reported a 5% year-over-year increase in global daily active users (DAU) to 483 million in Q1, with monthly active users (MAU) also growing 5% to 965 million. This growth is attributed to new features across the app, including Snap Map enhancements and popular Lenses AR filters. Snap has also been exploring other revenue-generating AI features, such as "AI Sponsored Snaps," which allow brands to surface AI agents in user conversations.
Financial Impact and Future Outlook
The loss of the $400 million Perplexity deal means Snap's future sales guidance will not include this anticipated revenue stream. The deal was expected to generate $324 million in revenue in 2026 alone. Snap's Q1 revenue grew 12% to $1.53 billion, but the company's stock fell after disclosing that the conflict in the Middle East impacted advertising revenue by $20 million to $25 million in March.
Snap's management has indicated that nearly 70% of advertising spend now utilizes at least one of its AI-powered automation solutions. While the company continues to invest in AI and augmented reality, the abandoned partnership highlights the challenges of monetizing large-scale AI integrations within social media platforms.