Snap's Perplexity Partnership Sparks Optimism but Fails to Resolve Core Weaknesses

What happened

Snap Inc. continues to trade at a significant premium to its conservative intrinsic value estimate, with the DeepValue report highlighting a 'POTENTIAL SELL' due to negative GAAP earnings and high valuation risks. A new Seeking Alpha article contends that Snap is undervalued at two times forward sales versus peers, emphasizing a partnership with Perplexity projected to generate $400 million in revenue in 2026. This deal could provide a near-term catalyst for margin expansion and top-line growth, potentially improving investor sentiment amid recent challenges. However, the article acknowledges persistent issues like flat user growth in North America and Europe and expected Q4 DAU declines, reflecting ongoing platform struggles. The DeepValue report underscores deeper concerns, including regulatory overhangs from FTC/DOJ actions, intense competition, and the lack of durable operating leverage, which temper any immediate bullish shift.

Implication

The Perplexity collaboration could boost Snap's revenue and margins in the short term, providing a welcome growth narrative for a company facing user stagnation. However, this partnership does not address the fundamental lack of GAAP profitability, high stock-based compensation, and dependence on a cyclical ad market that the DeepValue report flags as critical weaknesses. Regulatory threats, particularly around youth safety and AI, could impose fines or operational constraints, undermining any gains from new deals. With the stock priced over three times a conservative DCF estimate, downside protection is minimal, and any misstep in execution or adverse regulatory outcome could lead to significant losses. Long-term success still hinges on Snap achieving sustained operating leverage, improving user engagement in core markets, and navigating a highly competitive landscape dominated by larger peers.

Thesis delta

The Perplexity partnership introduces a positive catalyst that may enhance revenue growth and margin prospects, slightly mitigating near-term growth concerns. However, it does not materially change the bearish thesis centered on valuation overhang, structural unprofitability, and persistent regulatory and competitive risks. For a meaningful shift toward a more neutral or bullish stance, Snap must demonstrate clear evidence of durable operating leverage and user growth alongside favorable regulatory resolutions.