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Snap and Perplexity have ended their $400 million AI search partnership, the Snapchat parent disclosed in its first-quarter earnings report Wednesday. In its investor letter, Snap noted that the Perplexity arrangement had been terminated, writing that second-quarter projections carry no revenue from the partnership.
Under the terms of the agreement, which the two companies announced last November, Perplexity would pay Snap $400 million in a combination of cash and equity across twelve months, with Perplexity's AI search engine brought into Snapchat's Chat interface in return. Announcing the arrangement alongside its third-quarter earnings, Snap had told investors that meaningful financial contributions were expected to materialize sometime in 2026. A limited rollout reached only a subset of Snapchat users before the feature was quietly shelved without ever reaching the full user base.
Friction between the two companies had been visible for months; as far back as February, Snap had publicly acknowledged that both sides were still unable to settle on how a wider deployment would work. A spokesperson for Perplexity said the planned feature was "not the right fit" for either company. "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," the spokesperson said, according to Engadget. The spokesperson added that Perplexity plans to continue using Snap's advertising products.
Against the backdrop of the partnership's unraveling, Snap posted quarterly revenue of $1.53 billion, a 12% improvement versus the prior year, while losses shrank to $89 million compared with roughly $140 million twelve months earlier. The platform's daily active user count reached 483 million, marking a 5% increase from the same quarter a year ago.
Shares gave up roughly 4% in after-hours trading following the earnings release, CNBC reported. For its second quarter, Snap projected revenue of $1.52 billion to $1.55 billion.
The end of the Perplexity deal was not the only major development at Snap in recent months. The company announced in April that it would cut about 1,000 employees — roughly 16% of its full-time workforce — citing AI-driven efficiency gains, and said it would close more than 300 open roles. CEO Evan Spiegel said at the time that the reductions were expected to lower annualized expenses by more than $500 million by the second half of this year.
Even as Snap walks away from the Perplexity partnership, it is pursuing other AI-driven revenue streams in its chat product. Among the newer initiatives is AI Sponsored Snaps, a product through which advertisers can deploy AI-driven agents that appear directly inside users' Chat threads. On the analyst call, Spiegel held up the format as evidence of a larger opportunity, saying it showed "that chat can be monetized in a way that's really native to Snapchat," Engadget noted.