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Snap Inc. delivered mixed first-quarter results on Wednesday, reporting solid user growth and improving financial performance while also issuing cautious guidance that raised fresh concerns about the company’s advertising business and long-term growth trajectory.

The social media company, which owns Snapchat, also revealed that its previously announced partnership with generative AI startup Perplexity has officially ended, removing what investors once viewed as a potentially important future revenue stream tied to artificial intelligence.

Shares of Snap fell roughly 4% in extended trading after the earnings release as investors reacted to weaker-than-expected revenue guidance, ongoing advertising challenges, and uncertainty linked to geopolitical tensions in the Middle East.

Snap Beats User Expectations but Revenue Growth Remains Uneven

For the first quarter, Snap reported revenue of approximately $1.53 billion, matching Wall Street expectations and representing a 12% increase compared to the same period last year.

The company posted a net loss of around $89 million, significantly improving from the $139.6 million loss recorded a year earlier. The narrower loss reflected cost-cutting measures, operational efficiencies, and stronger monetization across parts of the platform.

Snap also exceeded analyst expectations for global daily active users, reporting 483 million daily users worldwide compared to estimates of roughly 475.6 million.

The company credited product improvements such as enhanced Lenses filters, creator tools, and continued expansion of Snap Map for helping drive user engagement and platform activity.

However, average revenue per user, commonly referred to as ARPU, came in slightly below expectations at $3.17, suggesting that monetization growth still faces pressure despite rising engagement.

Advertising Market Continues to Create Challenges

Snap said large advertisers in North America remained a major headwind during the quarter, continuing a trend that has affected several digital advertising platforms over the past year.

Executives acknowledged that the company is not satisfied with the current pace of advertising growth but noted early signs of stabilization in some advertiser segments.

The broader digital advertising industry remains highly competitive as platforms battle for marketing budgets amid economic uncertainty, shifting consumer behavior, and increasing pressure from artificial intelligence-driven ad tools.

Major advertisers have become more cautious with spending due to inflation concerns, geopolitical instability, and changing global trade conditions. Retailers and consumer brands in particular have been reevaluating marketing budgets as tariffs and higher operating costs pressure profitability.

Several technology and social media companies have recently warned about softer ad demand from large enterprise customers.

Perplexity Partnership Quietly Comes to an End

One of the biggest surprises in Snap’s earnings report was the confirmation that its high-profile agreement with AI startup Perplexity AI has been terminated.

Snap said its second-quarter guidance assumes “no contribution” from Perplexity after both companies amicably ended the partnership during the first quarter.

The deal had originally been announced in November as part of Snap’s broader push into artificial intelligence and advanced consumer search experiences. At the time, the agreement was valued at approximately $400 million and was expected to contribute revenue beginning in 2026.

Investors had initially reacted positively to the partnership announcement, sending Snap shares sharply higher as markets became increasingly enthusiastic about AI-related growth opportunities across the technology sector.

The collapse of the deal removes a potentially important AI monetization opportunity for Snap at a time when competitors are aggressively investing in artificial intelligence products, infrastructure, and advertising technologies.

CEO Evan Spiegel Pushes AI Transformation Strategy

Despite the uncertainty surrounding the Perplexity partnership, Snap CEO Evan Spiegel emphasized that the company continues making progress in its broader AI-driven transformation strategy.

Spiegel highlighted improvements in revenue growth, user engagement, free cash flow generation, and operating margins during the quarter.

Earlier this year, Snap announced plans to cut approximately 16% of its workforce while also eliminating around 300 open positions as part of a restructuring effort designed to improve efficiency and accelerate AI-focused initiatives.

The company has increasingly prioritized machine learning, augmented reality, recommendation systems, and AI-powered advertising tools as it competes against larger rivals in the social media industry.

Snap has long differentiated itself through augmented reality features and camera-based experiences, and executives believe AI integration could further strengthen personalization, advertising targeting, and creator engagement.

Middle East Instability Adds New Risk to Outlook

Snap also warned investors that geopolitical instability in the Middle East remains a significant uncertainty for its business outlook.

The company said its second-quarter revenue forecast assumes conditions in the region remain consistent with the disruptions experienced during March and April. However, management cautioned that the broader geopolitical environment remains unpredictable.

Political instability and regional conflict can affect advertising demand, user engagement, and economic activity across key international markets.

Many technology companies with global advertising exposure are increasingly factoring geopolitical risks into their financial outlooks as ongoing tensions impact energy prices, consumer spending, and business confidence worldwide.

Snap Forecasts Modest Second-Quarter Growth

For the second quarter, Snap projected revenue between $1.52 billion and $1.55 billion, with the midpoint roughly aligning with Wall Street expectations.

While the guidance was not dramatically below forecasts, investors appeared concerned about the cautious tone surrounding advertising demand, AI partnership setbacks, and geopolitical uncertainty.

The company’s outlook also highlighted the increasingly difficult environment facing digital advertising platforms as competition intensifies across social media and online video ecosystems.

Competition in Digital Advertising Continues to Intensify

Snap’s results arrive during a busy earnings season for internet and advertising companies.

Pinterest recently reported stronger-than-expected quarterly results but also warned that large retailers remain under pressure from tariffs and weaker consumer spending trends.

Meanwhile, Reddit posted explosive revenue growth of nearly 70% year over year as the platform continued benefiting from strong advertising demand and AI-related data licensing agreements.

Tech giants Meta and Alphabet Inc. also exceeded sales expectations in their latest earnings reports while announcing massive increases in AI infrastructure spending.

The broader industry is rapidly shifting toward AI-powered advertising systems, personalized content recommendations, and advanced data-driven marketing tools, creating enormous pressure on smaller platforms to keep pace.

Snap Faces a Critical Period Ahead

Snap’s latest earnings report shows a company making operational progress while still confronting major strategic challenges.

User growth remains healthy, losses are narrowing, and engagement metrics are improving. But advertising headwinds, global uncertainty, and the collapse of a major AI partnership highlight how difficult the competitive landscape has become.

As artificial intelligence reshapes the future of social media and digital advertising, investors will be watching closely to see whether Snap can successfully transform its platform into a stronger long-term growth business while competing against much larger technology rivals.