Snap Stock Falls 10% as Perplexity Deal Ends and Q2 Outlook Misses Expectations

TLDR

• Snap stock declined nearly 10% in premarket trading following its Q1 earnings release
• Revenue increased 12% year-over-year to $1.53 billion, slightly surpassing estimates
• The $400 million agreement with AI startup Perplexity was terminated during Q1
• The Middle East conflict reduced March revenue by an estimated $20–$25 million
• Q2 revenue guidance midpoint of $1.535 billion fell just short of analyst expectations

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(SeaPRwire) –   Snap (SNAP) shares dropped nearly 10% in premarket trading Thursday after the company reported Q1 results that exceeded estimates but issued cautious forward guidance and confirmed the termination of its $400 million partnership with AI startup Perplexity.

Snap Inc., SNAP

The stock decline occurred despite generally strong quarterly performance. Revenue grew 12% compared to the previous year, reaching $1.53 billion—just above the $1.52 billion forecast by Wall Street. The net loss shrank 36% to $89 million, while adjusted EBITDA rose to $233.3 million, significantly higher than the $212 million analysts had anticipated.

Earnings per share registered a loss of $0.05, an improvement over the projected loss of $0.08.

SNAP $SNAP JUST POSTED A Q1 EPS MISS AND ENDED ITS PERPLEXITY DEAL

Q1 results:
• Revenue: $1.53B vs $1.53B est (in-line)
• EPS: -$0.05 vs $0.09 est
• DAU: 483M

Q2 guide:
• Revenue: $1.52-1.55B vs $1.54B est
• Adj EBITDA: $175-200M vs $226.1M est

Plus: Snap “amicably… pic.twitter.com/lPradtLEjc

— WOLF (@WOLF_Financial) May 6, 2026

Global daily active users climbed 5% year-over-year to 483 million, exceeding the expected 475.6 million. Monthly active users totaled 956 million.

Free cash flow surged 150% year-over-year to $286 million, up from $114 million in the same quarter last year.

Middle East Conflict Weighs on Ad Revenue

Advertising revenue rose 3% to $1.24 billion, supported by direct response advertising. However, Snap indicated that the conflict in the Middle East resulted in an estimated $20 million to $25 million reduction in March revenue alone.

The company stated that its Q2 outlook assumes regional operating conditions will remain consistent with the challenges experienced in March and April, while also cautioning that “the trajectory of the geopolitical situation in the region is uncertain.”

Major advertisers in North America continued to hinder growth. Snap admitted it is “not satisfied with that outcome” but noted it is beginning to observe “encouraging signs” of recovery in that segment.

Perplexity Deal Collapses

Snap confirmed it ended its $400 million partnership with Perplexity AI during the first quarter. The deal, announced in November 2025, had previously boosted Snap’s stock by 15%, with revenue contributions originally anticipated to begin in 2026.

The investor letter stated that Q2 guidance “assumes no contribution from Perplexity as we amicably ended the relationship in Q1.”

Analysts at Wolfe Research observed that although the Perplexity partnership has concluded, Snap has not ruled out future collaborations with other AI models or agents for platform distribution.

For Q2, Snap projected revenue between $1.52 billion and $1.55 billion. The midpoint of $1.535 billion landed slightly below the analyst consensus of $1.54 billion.

The company also forecast adjusted EBITDA of $175 million to $200 million for Q2, along with pre-tax restructuring charges of $95 million to $130 million related to its recent organizational changes—most of which are expected to be recognized in Q2.

Barclays analyst Ross Sandler remarked that “green shoots are appearing” in Snap’s advertising business, although it still trails the broader industry’s growth rate. He added that some of the Q2 improvement stems from favorable comparisons to ad auction disruptions a year earlier.

In April, Snap announced it would reduce its workforce by approximately 16% and eliminate 300 open positions as part of a broader “AI-driven transformation.”

CEO Evan Spiegel emphasized investment in Specs, the company’s smart glasses platform, as a key long-term strategic priority.