Snap Inc. recently signed a $400 million deal with AI startup Perplexity, in which Perplexity will pay Snap to integrate its AI-powered answer engine directly into Snapchat’s chat interface. According to AI Business, this deal is a complementary fit that will benefit both parties.
Snap has long struggled with profitability. Its average revenue per user (ARPU) is just $3.16, significantly lower than competitors like Meta and TikTok, which benefit from higher ad rates and more advanced targeting, according to an article by Yahoo Finance. Yahoo Finance also reported that the company posted a 2024 operating loss of $782 million, reflecting both heavy spending on infrastructure and limited monetization of its user base.
The Perplexity deal has the potential to cut that loss in half. Since the integration costs are minim
al, most of the $400 million payment from Perplexity will flow directly to Snap’s bottom line.
This makes it a rare revenue stream that is nearly pure profit—something Snap has been lacking.
According to Yahoo Finance, the deal may also help Snap maintain relevance in the AI race against competitors like Meta and TikTok.
Indirect revenue may also be a byproduct of this deal, as Snapchat can increase user engagement.
Users interacting with AI-powered answers may spend more time in the app, which increases the number of ads they see and leads to better ad deals for Snap.
An unproven, but possible upside is better targeting of ads. Snapchat can leverage Perplexity’s technology to determine which ads resonate most with users.
More relevant ads mean advertisers are willing to pay more, raising Snap’s ARPU and moving the company closer to sustained profitability.
While this move does help boost profits, there are bigger questions lurking for SNAP.
For example, OpenAI came out with SORA, a video creating platform which may change how social media interaction works. Smaller platforms like Snap may be left behind with their less sophisticated technology, meaning Snap may have to reimagine their core product.
According to AI Business, for Perplexity, much of the deal’s value lies in the distribution boost. Currently, Perplexity has around 30 million monthly users, but through Snapchat, it gains exposure to 943 million monthly users. It’s also important to note that 75% of 13–34-year-olds in over 25 countries use Snapchat.
Given that younger generations are more AI-native users, Perplexity is getting access to a demographic that already fits their profile. In addition to distribution, the partnership boosts Perplexity’s brand visibility.
Every interaction with the AI engine reinforces Perplexity’s presence, which is crucial in making the most of nearly 1 billion users.
Overall, the deal may prove to be a win-win. Snap secures significant, nearly pure revenue while potentially increasing engagement and ARPU, and Perplexity gains access to a massive, relevant user base.
