After releasing its fiscal 2025 third-quarter financial results on Wednesday, Snap's stock surged as much as 25% during trading. The social media giant is showing signs of recovery from a long period of decline, driven by revenue exceeding market expectations, improved profitability, and the announcement of a $500 million stock repurchase plan.

Key Highlights of the Earnings Report: Revenue and Profit Exceed Expectations

The earnings report showed that Snap's revenue for the third quarter reached $1.51 billion, higher than the $1.49 billion predicted by the London Stock Exchange Group (LSEG); global daily active users (DAU) reached 477 million, slightly above the StreetAccount forecast of 476 million. Average revenue per user (ARPU) was $3.16, also exceeding the market estimate of $3.13.

Snap's net loss in the third quarter narrowed to $104 million, a 32% decrease year-over-year, while adjusted EBITDA reached $182 million, significantly higher than the analyst forecast of $125 million. Snap expects fourth-quarter revenue to be between $1.68 billion and $1.71 billion, with the midpoint slightly above the Wall Street forecast of $1.69 billion.

At the same time, Snap expects adjusted EBITDA for the fourth quarter to be between $280 million and $310 million, exceeding the market forecast of $255.4 million.

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Strategic Partnership with Perplexity AI

In addition to strong financial performance, Snap announced a collaboration with AI startup Perplexity AI, planning to integrate the latter's conversational search feature directly into Snapchat. According to the announcement, Perplexity will pay Snap $400 million in a combination of cash and equity over a year. This feature is expected to launch in early 2026 and begin contributing revenue from that year onward.

Snap stated that this partnership aims to enhance the search and content discovery experience on Snapchat, allowing users to interactively explore information through natural language with AI. Analysts believe this move will further expand Snap's presence in the AI search and content ecosystem.

External Policy Pressures and User Growth Challenges

Despite the impressive performance in the third quarter, Snap warned in its letter to investors that changes in the global regulatory environment may pose challenges to user growth.

The company specifically mentioned the Australian Social Media Minimum Age Act, which will take effect next month, requiring platforms to prohibit registration for users under 16 without verification, or face penalties. Snap expects this to lead to a decline in daily active users in some regions.

Additionally, the age verification features soon to be launched by Apple and Google may negatively impact Snap's user metrics. Snap revealed that it will use these new tools to more accurately identify and remove accounts of users under 13 years old to comply with regulatory requirements.

Utah and California in the United States have also passed similar children's online safety laws, which will be fully implemented in 2026. The gradual implementation of these policies means that social platforms' user growth strategies will undergo another round of adjustments.

Industry Comparison: AI and Advertising Business as the Main Themes

Snap's improved performance and AI strategy have given it a lifeline in the competitive social and advertising markets. In contrast, Pinterest saw its stock drop due to weak performance guidance, while Meta, Alphabet, and Amazon continue to grow through advertising and AI infrastructure investments.

Meta reported a 26% year-over-year increase in revenue to $51.24 billion in the third quarter; Amazon's advertising revenue grew 24% to $17.7 billion; and Alphabet's total advertising revenue increased 13% to $74.18 billion. Meanwhile, Reddit's revenue surged 68%, with global daily active users reaching 116 million.

Overall, as AI technology accelerates integration into the social media ecosystem, Snap's collaboration with Perplexity marks the transformation of social platforms toward an "AI-driven content and search experience."