Snapchat, the globally recognized social media platform, has announced a groundbreaking $400 million partnership with Perplexity AI, a trailblazing AI search startup. This strategic alliance, which includes a $150 million upfront investment from Snap and a $250 million commitment towards collaborative AI development, aims to integrate advanced AI capabilities into Snapchat’s platform, enhancing user experiences with features like the My AI chatbot. The announcement, made during Snap Inc.’s quarterly earnings call, has sparked investor excitement, with Snap’s stock witnessing a 12% surge in after-hours trading.
The Partnership’s Core Terms
The partnership between Snap Inc. and Perplexity AI is valued at $400 million, with Snap making an upfront cash investment of $150 million and committing to a $250 million collaborative AI development over the next three years. This was confirmed by Snap CEO Evan Spiegel during the earnings call on October 15, 2024. The agreement is set to last for several years, extending through at least 2027.
Under the terms of the agreement, Perplexity AI will provide exclusive access to its proprietary large language models for Snapchat’s My AI feature enhancements. However, the deal is non-exclusive for Perplexity AI, allowing the startup to pursue other partnerships while prioritizing Snapchat’s integration needs.
Strategic Integration into Snapchat’s Ecosystem
Perplexity AI’s search and answer engine will be integrated into Snapchat’s My AI chatbot, which was launched in 2023 and is already interacting with 300 million users monthly. This integration aims to deliver more accurate, real-time responses without users having to leave the app. Furthermore, the partnership will enable the rollout of AI-enhanced lenses and augmented reality experiences, allowing users to make contextual queries during video snaps.
Initial beta testing for these features is set to begin in Q1 2025 for U.S. users. Both companies are also committed to privacy-preserving AI, with Perplexity’s federated learning approach ensuring user data remains on-device, aligning with Snapchat’s ephemerality ethos.
Perplexity AI’s Background and Growth
Perplexity AI, a San Francisco-based startup, was founded in August 2022 by Aravind Srinivas, formerly of OpenAI, along with co-founders Andy Konwinski, Denis Yarats, and Johnny Ho. The startup, which has raised over $250 million in prior funding from investors like Jeff Bezos and NVIDIA, was valued at $1 billion as of its Series B round in January 2024. The Snapchat deal could potentially boost Perplexity towards unicorn status amid 10x user growth to 10 million monthly active users in the past year.
Aravind Srinivas, CEO of Perplexity AI, expressed his excitement about the partnership, stating, “Partnering with Snapchat allows us to bring our AI to a massive, young audience, redefining how Gen Z discovers information.”
Snapchat’s AI Ambitions and Competitive Edge
Snap Inc. has previously invested in AI, including a $100 million stake in Anthropic in 2023 and the integration of Gemini models from Google. The Perplexity pact is seen as a diversification strategy to reduce reliance on single providers. This move is also expected to address Snapchat’s lagging ad revenue growth, which stood at 15% year-over-year in Q3 2024, by enhancing user engagement and potentially increasing daily active users beyond 414 million.
Evan Spiegel, CEO of Snap, commented on the partnership, saying, “This partnership with Perplexity will supercharge My AI, making Snapchat the go-to platform for AI-powered social discovery.”
Investor Reactions and Market Impact
The announcement of the partnership led to a 12% spike in Snap Inc.’s stock price to $12.50 in after-hours trading on October 15, 2024. Analysts from JPMorgan have raised their price target to $15, citing AI as a key growth driver. Wedbush Securities also upgraded their rating to “Outperform,” noting that the deal could add $500 million in incremental revenue by 2026 through premium AI features.
The partnership has also had ripple effects in the broader market, with a 3% uptick in Perplexity AI’s implied valuation and increased interest in AI stocks, as tracked by the Nasdaq AI Index.
Potential Challenges and Regulatory Considerations
Despite the excitement surrounding the partnership, there are potential challenges and regulatory considerations. Given Snap’s dominant position in the 13-24 age demographic and Perplexity’s rapid market share gains in AI search, there could be antitrust scrutiny risks, with the FTC monitoring similar tech deals post-2024 guidelines.
Technical integration hurdles also exist, such as ensuring Perplexity’s models scale for Snapchat’s 414 million daily users without compromising 99.9% uptime, based on prior My AI rollout issues in 2023. Both companies have also pledged compliance to GDPR and CCPA, including opt-in features for AI interactions to mitigate user backlash seen in earlier chatbot launches.
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