(Reuters) -Snap beat third-quarter revenue estimates on Wednesday and said it has partnered with Perplexity AI to integrate its artificial intelligence-powered search engine into Snapchat.

AI startup Perplexity will pay Snap $400 million over one year in cash and equity, with revenue contributions expected from 2026.

Snap shares jumped around 21% in extended trading.

The deal positions Snap to better compete with larger rivals such as TikTok and Meta-owned Facebook and Instagram, which currently are the preferred destinations for advertisers thanks to their larger user base.

The integration of Perplexity AI will offer verifiable answers to questions within the Snapchat app, aiming to draw more users on the social media platform and boost customer retention.

Snapchat's parent has been leaning on direct-response ads, designed to prompt specific actions such as app downloads or website visits, to bolster digital advertising, even as brand-awareness campaigns show some signs of weakness.

Direct response ad revenue surged 8% during the third quarter, driven by strong demand for "Pixel Purchase" and "App Purchase" ad optimizations that enable businesses to target users most likely to complete a purchase on their website or within their app.

The company's third-quarter revenue rose 10% to $1.51 billion, beating analysts' average estimate of $1.49 billion, according to data compiled by LSEG.

Its net loss narrowed to $104 million from $153 million a year ago.

Daily active users (DAU) of Snapchat increased 8% to 477 million globally, compared with the estimate of 476.3 million.

The company forecast fourth-quarter revenue of $1.68 billion to $1.71 billion, while analysts expect $1.69 billion.

Snap warned that overall DAUs may decline in the fourth quarter, citing changing investment priorities and anticipated impacts from age verification and evolving regulatory landscapes.

Australia's Social Media Minimum Age bill, set to take effect in December, is among the evolving regulations that Snap expects would impact user engagement.