Snap (SNAP 2.15%) is once again looking to differentiate itself from other social media platforms; this time, it's an announced partnership with Perplexity that could do the trick.
Snapchat, with its nearly 1 billion users, will embed Perplexity within its app and allow people to ask questions and converse with the artificial intelligence (AI). The integration is expected to launch in early 2026. The hope is that this feature will keep users engaged in the app for longer, enabling increased user retention, profitability, and perhaps even diversifying revenue streams.
NYSE: SNAP
Key Data Points
If Snapchat can roll this new feature out without hiccups and keep AI costs under control, the app has an excellent opportunity to bolster its business for the foreseeable future.
Image source: Getty Images.
Snap stock is still a bargain
Snap is still trading near all-time lows, so if the Perplexity integration happens smoothly, the ad revenue driven by an increase in time spent per user could be substantial. In addition to ad revenue, there's potential for brands to sponsor AI answers, offer AI-driven shopping suggestions, and cross-sell or upsell opportunities. Snap could also charge a premium subscription to use the Perplexity feature.
Snapchat is using Perplexity to further personalize user content and experience while reclaiming a top spot among the major innovators in social media. The main challenge for Snap is that the company has a long record of implementing big, innovative ideas, but failing to translate that into meaningful earnings. Snapchat's audience also runs on the younger side, mostly capturing a Gen Z and younger millennial audience. These demographics have far less purchasing power than older generations.
If this partnership works well, Snap will become more competitive with TikTok and Meta Platforms as far as lucrative AI integrations go. However, investors will be skeptical until the company can prove there is revenue growth due to this partnership. Implemented well, the Perplexity feature could become the most important update since Snapchat created Stories.
Snapchat has nearly half a billion daily active users, and it is one of the most popular apps among young people in India and the U.S. Snapchat will rule the landscape if it becomes the first place people go to ask their questions or seek information.
Because Snap has such a young audience, the odds of this are more likely than competitors such as Meta or Alphabet's Google. The goal is for Snap to become the default AI search tool for Generation Z, millennials, and, eventually, generation Alpha.
Perplexity and Snapchat seem to be a perfect match. The $400 million deal will propel Snap in its AI strategy that, thus far, has lagged behind competitors, whereas Perplexity will benefit from exposure to Snapchat's massive audience of roughly 950 million users.
Regulators will be watching
The social media app will need to tread carefully with its young audience and AI. Because so many underage people use Snapchat, integrating a conversational AI tool will draw additional security and safety scrutiny from regulators and child advocacy groups.
AI is also notoriously expensive, so Snap needs to monetize on this partnership quickly. Snapchat isn't the only social media platform integrating with AI, either. Meta, TikTok, Google, and OpenAI all have AI for social media roadmaps. The competition in this space is fierce and quickly evolving.
A boon for Snapchat investors
Because Snap is trading so low right now, there's a lot of upside potential for long-term investors. Snapchat is resilient, and it's innovative.
This time, though, Snap needs to profit from its great idea. If it can, the owners of Snap stock will see the benefits in the coming years. Even modest improvements from the company could mean outsized appreciation for the struggling stock.
The partnership with Perplexity is a mutually beneficial growth and revenue-producing engine. Investors can buy into Snapchat now at a supremely low price and see how this coupling of technology plays out in the coming decade.