The Results

Snap delivered a solid quarter and strong guidance. Q3 sales grew 10% year-over-year while the company narrowed its net loss to $104 million from $153 million last year.

Adjusted EBITDA hit $182 million, crushing the $125 million StreetAccount estimate. For Q4, Snap projects adjusted EBITDA between $280-$310 million, topping the $255.4 million forecast.

Q4 revenue guidance came in at $1.68-$1.71 billion. The midpoint of $1.695 billion slightly beats Wall Street's $1.69 billion expectation.

Shares rocketed as high as 25% in after-hours trading Wednesday before settling around 15% gains. The stock had been down 32% for the year through Wednesday's close.

The Perplexity Deal

Snap announced a major partnership with AI startup Perplexity. The deal brings Perplexity's conversational search directly into Snapchat starting early 2026.

Perplexity will pay Snap $400 million over one year through a combination of cash and equity as the feature rolls out globally. Revenue from the partnership starts contributing in 2026.

CEO Evan Spiegel said Perplexity gets "default placement in our chat inbox" and will "control the responses from their chatbot inside of Snapchat."

Snap won't sell advertising against Perplexity responses, but the integration will help Perplexity drive subscribers - valuable for the startup's business model.

Snapchat users can still engage with Snap's My AI chatbot, but Perplexity will provide "real-time answers from credible sources" within the app.

The AR Glasses Plan

Regarding Snap's expensive augmented reality glasses project, Spiegel said the company plans to create a separate subsidiary around the Specs AR glasses to speed up development with partners.

That structural move suggests Snap is serious about AR but wants to wall off the costs and risks from the core business.

The User Warning

Despite strong results, Snap issued a sobering warning about user growth. The company expects daily active users may decline in Q4 due to internal and external factors.

New regulations pose the biggest threat. Australia's social media minimum age bill, passed in November 2024, takes effect next month. Companies like Snap, Meta, and TikTok face penalties if they fail to prevent children under 16 from having accounts.

"Government regulations like Australia's social media minimum age bill and related policy developments are likely to have negative impacts on user engagement metrics that we cannot currently predict," Snap wrote in its investor letter.

Apple and Google rolling out platform-level age verification could also negatively impact user metrics.

"While we remain committed to our goal of serving 1 billion global monthly active users, we expect overall DAU may decline in Q4 given these internal and external factors," Snap said.

The Sales Challenge

Snap CFO Derek Andersen noted challenges in North America on the earnings call. His comments triggered the stock's retreat from 25% gains to 15%.

"The North America LCS segment remains the primary headwind to our overall revenue growth," Andersen said. The company is seeing more growth and demand from small-to-medium businesses in other regions.

The Bottom Line

Snap delivered strong results and guidance, plus a major AI partnership worth $400 million. The $500 million stock buyback shows confidence in the business.

But the user decline warning tempers enthusiasm. Losing daily active users in Q4 would reverse growth momentum just as Snap is showing financial improvement.

The Perplexity deal is smart strategy. Snap gets $400 million to integrate a popular AI search tool without the development costs. Perplexity gets access to Snapchat's young user base. Both benefit.

Calling it "a first step in Snap's effort to make Snapchat a platform where leading AI companies can connect with its global community" suggests more AI partnerships could follow. That could become a meaningful revenue stream.

The regulatory challenges are real. Australia's age verification law sets a precedent other countries may follow. If multiple major markets implement similar restrictions, Snap's user base could shrink significantly.

Apple and Google implementing platform-level age verification adds another layer of restriction. If it becomes harder for teens to access Snapchat, that hits Snap's core demographic.

Finance chief Andersen highlighting North America weakness explains why shares pulled back from peak gains. The company's most important market is struggling while international small businesses pick up slack.

The AR glasses subsidiary move is interesting. Separating Specs development from the core business could attract outside investment and partnerships while protecting Snap's main financials from expensive R&D costs.

Snap's stock being down 32% for the year before this report shows how beaten up shares were. The strong results and guidance, plus the Perplexity deal, give investors reason to reconsider.

But the user decline warning and North America weakness create uncertainty. Snap needs to prove it can grow users while navigating new age restrictions and maintain revenue momentum in its biggest market.

The Perplexity partnership starting to contribute revenue in 2026 means near-term financial impact is limited. The $400 million helps, but it's spread over a year and some comes as equity rather than cash.

Overall, this is a solid report with genuine positives offset by real concerns about regulatory headwinds and market-specific challenges. The 15% stock gain suggests investors are focusing on the strong guidance and AI partnership while acknowledging but not panicking over the user growth warning.