Invest in the next Google

For nearly two decades, Google has reigned as the unrivaled giant of search, shaping how billions navigate the web. But even the most dominant empires encounter challengers, and a new contender has emerged, poised to disrupt the status quo. Perplexity is redefining the way we search, stepping into a landscape Google itself may have inadvertently compromised.

Why now? Because the internet, once celebrated as a bastion of knowledge, has grown cluttered and commercialized.

Search results, rather than prioritizing accuracy or depth, increasingly cater to those who game the system. Algorithms reward optimization over insight, and advertisers dominate prime digital real estate. For Google, with 77% of its $480 billion annual revenue tied to ads, there’s little incentive to fix a model that works so lucratively.

The result? Frustrated users and an experience that feels transactional rather than informative. The truth is often buried beneath sponsored links and SEO (search engine optimization) - driven content, leaving a void for something better.

Perplexity aims to fill that gap with a radically different approach. It doesn't rely on endless lists of links or optimized rankings. Instead, it uses advanced AI to deliver direct, precise answers. It’s more than just a search engine; it’s a tool that seeks to simplify, clarify, and elevate the act of finding information.

If you’ve grown disillusioned with the current state of search, Perplexity offers a glimpse into what the future could hold. Spend a moment with Perplexity.ai, and the difference becomes immediately apparent—answers, not distractions.

Traction

Perplexity’s growth trajectory has been anything but perplexing, showcasing its rapid ascent in the competitive landscape of AI-powered search.

• December 2022: The platform launched its flagship answer engine, introducing a new approach to AI-driven information retrieval.

• March 2023: Within four months, it reached 2 million monthly active users, signaling strong early adoption.

• December 2023: Cumulative queries hit an impressive half a billion.

• January 2024: Monthly active users soared to 10 million, with India contributing 1 million users to this milestone.

• April 2024: The platform processed 169 million monthly queries and reported $20 million in annual recurring revenue (ARR), marking a significant leap in monetization.

• October 2024: ARR surged to $50 million, driven by 15 million daily queries and increasing enterprise adoption from major clients like Stripe, Databricks, and Hewlett Packard.

While 15 million daily queries and $50 million in ARR highlight Perplexity’s impressive momentum, it’s essential to maintain perspective. Google, by comparison, processes 8.5 billion searches per day—a staggering 0.17% market share for Perplexity. This context underscores both the scale of the opportunity ahead and the challenges of competing in a market dominated by entrenched giants.

Business Model

Perplexity has crafted a diversified revenue strategy that blends a freemium model with premium subscriptions, enterprise offerings, and an emerging advertising business. Each component works synergistically to drive growth, capture value, and expand its market presence.

1. Free Tier: A Gateway to Adoption

The free tier serves as Perplexity's primary customer acquisition tool, providing casual users a compelling introduction to the platform's capabilities.

• Unlimited Quick Searches: Users can perform basic queries powered by Perplexity’s proprietary AI model, ideal for straightforward questions and concise answers.

• Personalized Results: Tailored responses based on individual preferences enhance the user experience and encourage engagement.

• Pro Previews: Five daily Pro searches offer a taste of the platform’s advanced capabilities, enticing users to upgrade.

By showcasing its core functionality at no cost, Perplexity builds trust, attracts a wide audience, and nurtures interest in its premium offerings.

2. Pro Tier: Advanced Capabilities for Power Users

For $20/month, Perplexity Pro unlocks a robust suite of features designed for individuals who need advanced AI capabilities:

• 600 Pro Searches Daily: Subscribers gain access to cutting-edge models like GPT-4 Turbo and Claude 3, delivering in-depth, nuanced responses.

• File Uploads: Users can upload documents for tailored queries, making Perplexity a powerful research and productivity tool.

• API Credits: Pro users receive $5 in monthly API credits, appealing to developers seeking to integrate Perplexity into their workflows.

At this price point, the Pro plan competes directly with similar AI services, offering superior value through its combination of scale, speed, and functionality. The subscription model generates reliable, recurring revenue while maintaining a healthy margin by leveraging the scalability of AI infrastructure.

3. Enterprise Tier: Tailored Solutions for Organizations

Launched in April 2024, Perplexity’s Enterprise Pro suite caters to corporate clients with advanced security, compliance, and collaboration features.

• Team Collaboration: Tools like shared workspaces and team management make it easier for organizations to integrate Perplexity into their workflows.

• Single Sign-On (SSO): Simplified access and enhanced account security through SSO integration.

• Data Privacy: Enterprise-grade features ensure sensitive data is handled with the utmost care.

Pricing starts at $40/month per seat for teams under 250 employees, with custom pricing available for larger enterprises. Early adopters include high-profile clients like Stripe, Databricks, and the Cleveland Cavaliers, signaling strong market validation.

4. Advertising: A Strategic Pivot

In November 2024, Perplexity introduced an advertising model, signaling a significant shift from its ad-free origins. This move aims to diversify revenue streams and capitalize on its growing user base.

• Generative AI for Precision: Ads are designed to be highly targeted, leveraging AI to align promotions with user intent while maintaining a seamless experience.

• Revenue Potential: Leadership projects that advertising will eventually become a dominant contributor to revenue, rivaling subscriptions and enterprise solutions.

By combining freemium accessibility, subscription scalability, enterprise customization, and advertising innovation, Perplexity has positioned itself as a multifaceted platform with multiple avenues for growth.

Efficiency and Margins

Perplexity’s financial strength lies in its ability to manage costs effectively. By building on open-source language models and its proprietary search infrastructure, the company minimizes reliance on costly third-party APIs. The inherent operating leverage of software businesses further enhances profitability: once the infrastructure is in place, each additional user contributes disproportionately to the bottom line.

The result is a business model designed not only to sustain growth but to thrive at scale. With ongoing experiments in browser extensions and other complementary tools, Perplexity is broadening its appeal and embedding itself into everyday workflows.

Opportunity

The potential for Perplexity lies in its ability to harness shifting trends in how people interact with the internet and its evolving customer base. At its current share price of $358, the company’s valuation places it at approximately $9 billion. To assess whether this is reasonable, consider a straightforward comparison:

• Google: 8.5 billion searches daily, valued at $2.16 trillion, or about $254 per daily search.

• Perplexity: 15 million searches daily, valued at $9 billion, or about $144 per daily search.

This analysis suggests Perplexity trades at a discount compared to Google, highlighting its potential for growth. However, Google’s dominance stems from a robust advertising ecosystem and an unparalleled user base, while Perplexity is still establishing itself.

The internet, with 120 zettabytes of data generated in 2023 and projections reaching 150 zettabytes by 2025, is overwhelming traditional search engines. Users frustrated by ad-heavy interfaces and low-quality content are turning to alternatives. Platforms like Perplexity, which combine real-time web searches with large language models, offer a faster, more accurate experience while avoiding many pitfalls of traditional engines.

Perplexity’s entry into the enterprise sector with Enterprise Pro in April 2024 marks a significant step. Offering enhanced privacy, team management, and seamless authentication, this move diversifies its revenue beyond individual subscriptions. Partnerships with SoftBank in Japan and Deutsche Telekom in Germany will expand its reach to over 365 million additional users, accelerating global growth.

Advances in AI, particularly transformer-based architectures, empower Perplexity to process vast datasets with efficiency. While challenges like high training costs and potential inaccuracies remain, Perplexity’s integration of real-time search enhances reliability and competitiveness, setting it apart in the evolving search market. By prioritizing user experience and direct relationships, Perplexity is positioned to redefine how people find and interact with information online.

Competition

The competitive landscape for Perplexity is dynamic, featuring challengers from AI-first startups like Anthropic and You.com to big tech giants such as Google and Microsoft. Each competitor brings unique strengths, but Perplexity’s strategic focus on AI-native search positions it to stand out.

Perplexity and OpenAI are battling for dominance in AI chat and search. While ChatGPT initially surged to 200 million monthly users by mid-2024, retention has become a concern, with churn rates reaching 20%. In contrast, Perplexity’s weekly usage model fosters stronger retention. OpenAI’s development of its own search index and web crawler, backed by $11.3 billion in funding, adds competitive pressure. Similarly, Anthropic is developing its own search tools, leveraging its reputation for privacy and AI safety, which appeals to security-conscious users.

Google dominates traditional search with 91.6% market share and 8.5 billion daily searches, but its reliance on ads and organizational inertia may hinder its transition to AI-focused products. Recent generative AI features, such as AI Overviews, have faced public criticism for inaccuracies, raising questions about its ability to innovate effectively. Microsoft, through its integration of GPT technology into Bing, leverages enterprise relationships but struggles to gain consumer market share.

Emerging players like You.com also pose a challenge. With a focus on customization and privacy, You.com offers citation capabilities and targets users seeking a personalized experience. While its scale is modest compared to larger competitors, it reflects the growing demand for alternatives to legacy search engines.

Perplexity’s focus on owning search data, refining proprietary models, and delivering user-centric features like direct answers and transparency distinguishes it in this crowded market. Its agile approach and growing adoption make it a strong contender against both established giants and emerging competitors in the evolving AI search landscape.

Valuation and Investor Growth

In just two years, Perplexity’s valuation has skyrocketed from $91 million to $3 billion—a remarkable 32x increase. Such rapid growth is rare, even among high-growth tech companies, and speaks to the excitement surrounding Perplexity’s AI-driven vision.

The company has attracted investments from some of the most influential names in venture capital and the AI industry, including:

• Jeff Bezos: The Amazon founder participated in funding rounds, lending both capital and credibility to Perplexity’s growth.

• Nvidia: As a leader in AI hardware and software, Nvidia’s investment underscores its confidence in Perplexity’s role in advancing search technologies.

• Databricks: A prominent data and AI company, aligning with Perplexity’s focus on analytics and innovation.

• New Enterprise Associates (NEA): An early supporter, helping to fund Perplexity’s foundational growth phases.

• SoftBank: Backed by its Vision Fund 2, SoftBank’s investment highlights its belief in Perplexity’s global potential.

This roster of high-caliber investors has fueled Perplexity’s momentum, creating a flywheel effect where success attracts further success. High-profile backers not only provide financial resources but also lend strategic insights and market validation.

However, such rapid growth comes with its challenges. While user adoption has surged, Perplexity is still in the early stages of proving its business model. Investors are betting on its ability to replicate the success of transformative revenue generators like Google AdWords. Until then, the company’s reliance on venture capital to sustain growth remains a calculated risk, underscoring the importance of translating adoption into a sustainable financial strategy.

Pros and Cons

How to invest

Perplexity is extremely restrictive with their stock. It is not easy to just go and buy Perplexity at any moment you want to. However, there is an open, rare opportunity to purchase shares in a small block from a preferred seller via an SPV.

Two platforms are currently offering this, Augment and Hiive. Augment requires a $50K minimum and Hiive requires a $25K minimum. Note that these are both 0/0 funds meaning that you do not pay extra management fees or carry as a buyer. The funds are, however, selling at the share price I listed above at $358. These opportunities will likely close with the next few days, so if you’re interested it would be good to act fast.

If you choose to invest, there are a few parting words of advice I’d like to offer:

• Accredited investors only: Private market opportunities require accreditation.

• Trust the platforms: Augment and Hiive are reputable operators with a strong track record.

• Expect delays: Private market transactions can take time to close, and not every deal goes through. Don’t be discouraged—other opportunities will follow.

As always, if you want us to clarify anything in this material, shoot us an email at [email protected] and we’ll respond as soon as we can.

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