TL; DR
Snap’s first-quarter revenue rose 12 percent to $1.53 billion, but shares fell four percent after the company disclosed that the Iran war cost $20 million to $25 million in ad revenue in March alone and confirmed it was ending a $400 million artificial intelligence partnership with Perplexity. The company is cutting 16 percent of its workforce while keeping its AR glasses subsidiary.
Snap reported on this First quarter earnings on Tuesday It shouldn’t have been remarkable: revenue rose 12 percent to $1.53 billion, adjusted EBITDA more than doubled to $233 million, and free cash flow nearly tripled to $286 million. Shares fell four percent. The reason was not the numbers Snap reported, but the numbers it projected and the partnerships it lost. Second-quarter revenue guidance of $1.52 billion to $1.55 billion was in line with analysts’ expectations, which is another way of saying the company didn’t offer any positive surprises on Wall Street. Geopolitical headwinds from the war in Iran cost Snap between $20 million and $25 million in ad revenue in March alone. The company has confirmed that it has officially ended its AI partnership with Perplexity AI, a deal announced last November that was expected to bring in around $400 million in revenue. Snap shares have fallen 24 percent this year to $6.11. The company that once defined mobile social media for a generation is now fighting a war on three fronts: a geopolitical conflict it can’t control, an AI strategy it can’t execute, and a hardware bet that will determine whether Snapchat survives as a messaging app.
War
The advertising windfall in the Middle East is not unique to Snap, but Snap is exposed to it more than most. The company derives a disproportionate share of its revenue from brand advertising, which is more sensitive to geopolitical uncertainty than direct response advertising, which dominates Meta and Google’s revenue mix. When advertisers tighten budgets during periods of conflict, they tend to cut brand campaigns first and performance campaigns last. Snap’s disclosure that the Iran conflict cost it $20 million to $25 million in one month suggests that if the conflict continues, the annual impact could exceed $200 million, which is about three percent of the company’s projected revenue for 2026, but a larger share of operating profit.
Major tech platforms report Q1 2026 earnings showing growing cliff advertising business between companies that are insulated by scale and diversification and those that are not. Meta’s ad revenue rose 33 percent in the quarter to more than $56 billion. Alphabet’s cloud and search businesses beat estimates for each division. Snap’s ad revenue grew three percent. The comparison is not just a matter of scale. It’s about the product: Meta and Google have invested billions in AI-powered advertising tools that allow advertisers to optimize campaigns in real-time, mitigating macro headwinds by improving return on every dollar spent. Snap’s AI ad tools are newer and less proven, and the Perplexity deal that was supposed to accelerate its AI capabilities collapsed.
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The Perplexity partnership was announced with great fanfare in November 2025. The deal would embed Perplexity’s AI search engine directly into Snapchat’s chat interface, allowing the app’s 483 million daily active users to ask questions and get real-time answers without leaving the platform. Confusion was supposed to pay Snap $400 million in cash and equity, a significant amount for a company with annual revenue of about $6 billion. The integration was expected to generate $324 million in revenue in 2026 alone, positioning Snapchat as one of the first major social platforms with a native AI search engine.
The deal never started. Snap management announced that disagreements over terms prevented the sale, and the company confirmed in a shareholder letter that it “amicably ended the relationship in Q1” and that management had “no input from Perplexity.” The decline was not entirely surprising. Perplexity itself exited the advertising business in February 2026, concluding that sponsored placements risked undermining the trust on which its AI search engine depends. A company deciding that ads don’t fit with its product was always going to be an awkward fit on a platform that gets 90 percent of its revenue from advertising. But the loss of the deal leaves Snap without a clear AI strategy at a time when every competitor is embedding AI deeper into its core product.
Restructuring
Snap has not been passive. In April, the company laid off about 1,000 employees, about 16 percent of its full-time workforce, and closed more than 300 open positions. CEO Evan Spiegel told employees that the cuts, which are expected to reduce the company’s annual cost base by more than $500 million by the second half of 2026, are made possible by advances in artificial intelligence that allow smaller teams to do work previously done by larger ones. The transformation of wages into AI capital spending has set the technology sector’s restructuring wave in 2026.Meta is cutting 8,000 jobs and Microsoft is offering its first buyout as the industry invests in AI infrastructure from human workers.
The layoffs at Snap were clearly designed to protect one part of the business: Specs Inc., a wholly-owned subsidiary created in January 2026 to house Snap’s augmented reality glasses program. Specs Inc. was not affected by the layoffs and is currently hiring for about 100 roles. The AR glasses, which are expected to launch later this year with a Qualcomm Snapdragon XR chipset and integration with OpenAI and Google Gemini, reflect Spiegel’s contention that Snapchat’s future lies in building the first consumer-grade AR platform, not competing with Meta and TikTok for ad dollars on phone screens. Meta has launched prescription Ray-Ban smart glasses targeting the $223 billion eyewear market.but these are camera-equipped sunglasses with audio capabilities, not the full AR display promised by Snap’s specs. Whether the differentiation matters to consumers will determine whether Snap’s hardware bet pays off or whether it joins a long list of ambitious consumer electronics that failed to find a market.
Account
The financial picture that emerges from the quarter is one of a company that is simultaneously more efficient and less relevant. Adjusted EBITDA of $233 million, more than double the $108 million a year ago, reflects real operating improvement. Free cash flow of $286 million provides financial runway to fund Specs’ launch. But revenue growth of 12 percent and ad revenue growth of three percent in the quarter, when Meta grew its advertising by 33 percent, shows that Snap is losing share of the fast-growing digital ad market for companies with scale and AI targeting, and barely growing for those that aren’t.
The number of daily active users increased by five percent year-on-year to 483 million. Monthly active users exceeded 956 million. Simultaneous layoffs of Meta and a $145 billion AI spending program Describe the challenge Snap faces: The same AI tools Meta uses to improve ad targeting and content recommendations are tools Snap needs but lacks the scale to develop independently. The confusion deal had to be a shortcut, a way to deploy the AI ​​capability without having to build it from scratch. Its collapse means Snap will either have to build its own AI stack, find another partner, or accept that its ad product will fall further behind platforms that have invested tens of billions of dollars in the technology.
Ethical questions about smart glasses and AI control They haven’t slowed down the pace of the industry, but Snap is entering the market with Specs, adding complexity. Snap shares were at $6.11, down more than 80 percent from their all-time high. The market capitalization is about ten billion dollars. The company has $4.8 billion in cash. AR glasses are coming. AI strategy is not like that. And the war in Iran is costing it $20 million a month in ad revenue, which isn’t a rounding error for Snap’s size. It’s the margin between a company that can finance its future and one that can’t.
