Perplexity Deal Collapse Deepens Snap's Challenges

What happened

Snap's stock plunged after its earnings report revealed the cancellation of the flagship AI search partnership with Perplexity, which had been contracted to contribute roughly $400 million in 2026 revenue. This deal was a central pillar of the bull case and the diversification narrative, providing a visible, contracted revenue stream outside core advertising. Its termination not only removes that expected income but also undermines management's credibility and signals deeper strategic friction. The news is likely to energize activist investors, who now have a clear catalyst to push for operational or structural changes. Without the Perplexity revenue, Snap's already fragile margin of safety narrows further, making the stock more reliant on a core ad business that remains under pressure from eCPM declines and stagnant North American large-brand spending.

Implication

The Perplexity deal cancellation dismantles a key part of the investment thesis for revenue diversification and 2026 growth. Investors should reassess the base-case valuation, which previously assumed ~$324M from Perplexity; without it, revenue growth may fall to the low-to-mid single digits. The activist angle introduces event risk but also potential for operational improvement or asset sales. However, until a credible replacement revenue stream emerges or core ad trends improve meaningfully, the stock remains a high-risk hold. The entry point of $6.50 from the Master Report now seems more realistic given the increased bear-case probability.

Thesis delta

The bull case, which relied on Perplexity as a multi-year contracted revenue source and a proof point for AI monetization, is no longer viable. The base case must now assume no Perplexity revenue, reducing 2026 revenue growth estimates by 3-5 percentage points and increasing dependence on a fragile ad recovery. This development shifts the risk-reward decisively toward the bear case, where North America ad stagnation and lack of diversification lead to sub-$6 valuations.