Why Snap Is Still Interested In Hardware Despite Lackluster Spectacles Sales

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Snap’s (NYSE:SNAP) Spectacles – the company’s first foray into the hardware space – appear to be off to a slow start, with CEO Evan Spiegel noting that the company had only sold over 150k units of the sunglasses with mounted cameras. The product, which allows wearers to capture circular video from a first-person perspective, saw a lot of hype when it launched in October 2016, driven partly by Snap’s innovative sales format of exclusive pop-up vending machines. However, Spectacles don’t seem to have gained much traction since then, as they remained undersupplied, with the hype dying down by the time the company had inventory to sell online in February 2017. Spectacles sales actually declined to about $5.4 million over Q2, compared to $8 million during Q1, indicating that momentum might be slowing. Moreover, cumulative sales likely stand at under $20 million since launch, making the product relatively inconsequential to Snap, which we expect to see revenues of over $900 million this year.

Trefis has a $15 price estimate for Snap, which is in line with the current market price.

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Snap Could See Opportunity In The Augmented Reality Space 

While investors might be concerned that Snap’s hardware initiatives are a distraction for the company at a time when its core Snapchat platform is seeing mounting threats from Facebook’s Instagram (which now has over 250 million daily users on its stories platform versus Snap’s total of 173 million users), Snap still appears intent on furthering its hardware bets. Spiegel noted that hardware could be an important vehicle for delivering the company’s customer experience in the next decade or so.

The company is likely to focus on the imaging space, marrying its software and Internet services initiatives with custom devices. Snap may be particularly well-placed in the augmented reality (AR) space. AR essentially overlays virtual objects onto images of the real world, by using smartphones or specialized glasses. The company was an early entrant into the AR space with its popular lenses features, which place real-time special effects over people’s faces. The company has been increasingly monetizing its AR initiatives, creating sponsored lenses and world lenses that brands can use for advertising campaigns. Snap’s patent filings indicate that the company could deploy AR technology into future versions of its Spectacles. That said, this could take some time, as the technology is still quite specialized and it could take a while before it becomes more mainstream and economical. Snap has demonstrated that it understands the millennial demographic better than most other technology companies, and it could eventually use that strength to come up with an innovative AR product.

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