Snap reported first-quarter earnings on Tuesday that should have been unremarkable: revenue up 12 per cent to 1.53 billion dollars, adjusted EBITDA more than doubled to 233 million dollars, free cash flow nearly tripled to 286 million dollars. The stock fell four per cent. The reason was not in the numbers Snap reported but in the numbers it projected and the partnerships it lost. Second-quarter revenue guidance of 1.52 to 1.55 billion dollars was in line with analysts’ expectations, which on Wall Street is another way of saying the company offered no upside surprise. Geopolitical headwinds from the war in Iran cost Snap between 20 and 25 million dollars in advertising revenue in March alone. And the company confirmed that it has officially ended its artificial intelligence partnership with Perplexity AI, a deal announced last November that was expected to bring in roughly 400 million dollars in revenue. Snap’s stock has fallen 24 per cent this year to 6.11 dollars. The company that once defined mobile social media for a generation is now fighting a war on three fronts: a geopolitical conflict it cannot control, an AI strategy it has failed to execute, and a hardware bet that will determine whether Snapchat survives as more than a messaging app.

The war

The Middle East advertising headwind is not unique to Snap, but Snap is more exposed to it than most. The company generates a disproportionate share of its revenue from brand advertising, which is more sensitive to geopolitical uncertainty than the direct-response advertising that dominates Meta’s and Google’s revenue mix. When advertisers pull 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 to 25 million dollars in a single month suggests that the annualised impact, if the conflict continues, could exceed 200 million dollars, a figure that represents roughly three per cent of the company’s projected 2026 revenue but a much larger share of its operating profit.

The big technology platforms reported Q1 2026 earnings that demonstrated the widening gap between companies whose advertising businesses are insulated by scale and diversification and those that are not. Meta’s advertising revenue grew 33 per cent to more than 56 billion dollars in the quarter despite internet disruptions in Iran reducing its user base there. Alphabet’s cloud and search businesses beat estimates across every division. Snap’s advertising revenue grew three per cent. The comparison is not just a matter of scale. It is a matter of product: Meta and Google have invested billions in AI-powered advertising tools that allow advertisers to optimise campaigns in real time, reducing the impact of macro headwinds by improving the return on every dollar spent. Snap’s AI advertising tools are newer and less proven, and the Perplexity deal that was supposed to accelerate its AI capabilities has collapsed.

The deal

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The Perplexity partnership was announced in November 2025 to considerable fanfare. The deal would have embedded Perplexity’s AI search engine directly inside Snapchat’s chat interface, allowing the app’s 483 million daily active users to ask questions and receive real-time answers without leaving the platform. Perplexity was to pay Snap 400 million dollars in cash and equity, a substantial sum for a company with annual revenue of approximately six billion dollars. The integration was expected to generate 324 million dollars in revenue in 2026 alone and to position Snapchat as one of the first major social platforms with a native AI search engine.

The deal never launched. Snap’s management disclosed that disagreements over terms prevented the rollout, and the company confirmed in its shareholder letter that it “amicably ended the relationship in Q1” and that its guidance “assumes no contribution from Perplexity.” The collapse was not entirely surprising. Perplexity itself abandoned its advertising business in February 2026, concluding that sponsored placements risked undermining the trust on which its AI search engine depends. A company that decided ads were incompatible with its product was always going to be an awkward fit inside a platform that derives 90 per cent of its revenue from advertising. But the loss of the deal leaves Snap without a clear AI strategy at a moment when every competitor is embedding AI deeper into its core product.

The restructuring

Snap has not been passive. In April, the company laid off approximately 1,000 employees, roughly 16 per cent of its full-time workforce, and closed more than 300 open roles. CEO Evan Spiegel told employees that the cuts, which are expected to reduce the company’s annualised cost base by more than 500 million dollars by the second half of 2026, were enabled by advances in artificial intelligence that allow smaller teams to do the work previously done by larger ones. The pattern of converting payroll into AI capital expenditure has defined the technology sector’s 2026 restructuring wave, with Meta cutting 8,000 employees and Microsoft offering its first-ever buyouts as the industry shifts investment from human workers to AI infrastructure.

The layoffs at Snap were explicitly designed to protect one part of the business: Specs Inc., the wholly owned subsidiary created in January 2026 to house Snap’s augmented reality glasses programme. Specs Inc. was not affected by the cuts and is currently hiring for nearly 100 roles. The AR glasses, which are expected to launch later this year with a Qualcomm Snapdragon XR chipset and integrations with OpenAI and Google Gemini, represent Spiegel’s bet that Snapchat’s future lies not in competing with Meta and TikTok for advertising dollars on phone screens but in building the first consumer-grade AR platform. Meta has launched prescription Ray-Ban smart glasses targeting the 223 billion dollar eyewear market, but those are camera-equipped sunglasses with audio capabilities, not the full AR display that Snap’s Specs promise. Whether the distinction matters to consumers will determine whether Snap’s hardware bet pays off or joins the long list of ambitious consumer electronics that failed to find a market.

The arithmetic

The financial picture that emerges from the quarter is a company that is becoming more efficient and less relevant simultaneously. Adjusted EBITDA of 233 million dollars, more than double the 108 million dollars a year ago, reflects genuine operational improvement. Free cash flow of 286 million dollars provides the financial runway to fund the Specs launch. But revenue growth of 12 per cent and advertising revenue growth of three per cent in a quarter when Meta grew advertising 33 per cent suggest that Snap is losing share of a digital advertising market that is growing rapidly for companies with scale and AI-powered targeting, and barely growing for those without.

Daily active users reached 483 million, up five per cent year on year. Monthly active users hit 956 million. Meta’s simultaneous layoffs and $145 billion AI spending programme illustrate the challenge Snap faces: the same AI tools that Meta is using to improve ad targeting and content recommendations are the tools Snap needs but lacks the scale to develop independently. The Perplexity deal was supposed to be a shortcut, a way to embed AI capability without building it from scratch. Its collapse means Snap must either build its own AI stack, find another partner, or accept that its advertising product will fall further behind the platforms that are investing tens of billions of dollars in the technology.

The ethical questions surrounding smart glasses and AI surveillance have not slowed the industry’s momentum, but they add complexity to the market Snap is entering with Specs. Snap’s stock, at 6.11 dollars, is down more than 80 per cent from its all-time high. The market capitalisation is roughly ten billion dollars. The company has 4.8 billion dollars in cash. The AR glasses are coming. The AI strategy is not. And the war in Iran is costing it 20 million dollars a month in advertising revenue that, for a company Snap’s size, is not a rounding error. It is the margin between a company that can fund its future and one that cannot.