Snap Stock Investors Aren’t Blind to the Absurdity of Spectacles
Here we go again. Despite turning into an expensive flop when they first surfaced in 2016 and then inspiring only minimal interest with the reboot from earlier this year, Snap (NYSE:SNAP) — parent to messaging app Snapchat — is reportedly planning a third version of its Spectacles camera/glasses due to launch before the end of this year.
Current and prospective owners of SNAP stock have good reason to roll their eyes, literally or metaphorically. Snapchat is a platform that’s in a proven business, and though it competes with venerable social media names like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR), there’s room for a differentiated player. Failing to poach users of other online messaging services through a head-on approach though, wasting time and resources on a proven non-starter like Spectacles isn’t being especially well received.
That’s because Spectacles are a solution to a problem nobody actually has.
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Doubling Down
On the off-chance anyone reading this isn’t aware, Snap isn’t a messaging app company. It’s a camera company that also operates a clever little messaging and picture sharing app that Facebook has copiously copied. Never mind the fact that Snap actually sells very few cameras, with many of those purchases arguably being made only by the morbidly curious. A large number of owners of the first batch of the camera-laden sunglasses stopped using them within a week, not seeing enough purpose and functionality in them.
Grossly overestimating demand for Spectacles in 2016, Snap was forced to take a $40 million write-down on all the first-generation units it couldn’t sell… which was most of them.
To CEO Evan Spiegel’s credit, he appears to have at least partially learned from his mistake. Rather than ordering another 800,000 as he did with 2016’s first-generation units, he only ordered 35,000 units for April’s version, and added 52,000 for a slightly updated version that became available in September. Cheddar reports Snap is only ordering 24,000 pieces of the version to launch within the next few weeks, at least partly aware that the hefty $350 price tag will cause most would-be buyers to balk. (Still, there are some consumers that will be almost anything at any price.)
The reason for forging ahead? Spiegel’s made no bones about it, recently saying at an investor conference “Five years from now, I think people are going to be using the camera in ways that they can’t even imagine today – in a way that makes as essential a tool as your phone is.” The buzz is that he’s completely ok with losing money on the cultivation of Spectacles until 2020, when he expects the camera/glasses venture to break-even.
Unfortunately, it’s still a mostly-misguided decision.
Seen it Before
If owners of SNAP stock are experiencing deja vu, it may not just be because Snapchat’s parent has repeatedly sold a camera/glasses combo. We’ve seen this kind of hubris before. All too often, it ends badly.
GoPro (NASDAQ:GPRO) comes to mind. Back in 2014 when its action cameras were all the rage and its initial public offering was fresh, investors had no problem believing in the culture-changing potential of small, portable, high-quality action cameras. As it turns out, however, there just aren’t that many people that want an action camera. There are even fewer people that want to upgrade their current action camera.
Like Spiegel now, however, GoPro CEO Nick Woodman was fully convinced that an action camera would be a must-have for a wide swath of the world.
There’s also the not-so-minor detail that a large handful of companies have already tried to make virtual reality and augmented reality a viable business, but were unable to make anything that was widely marketable. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) was one of those outfits. It effectively shuttered the project in 2015, unable to find enough practical applications that worked well enough to justify the cost.
Facebook’s also likely regretting its 2014 acquisition of Oculus, at a price of $2 billion. The VR revolution it was supposed to usher in simply never happened.
It seems unlikely that Snap, with a product at a comparable price point, will be able to turn Spectacles into a revolutionary AR/VR product, either. As it turns out, consumers just aren’t that interested.
Bottom Line for SNAP Stock
Are Spectacles a reason to dump your SNAP stock, if you haven’t already? It’s rare that a single project has the potential to torpedo an entire company that’s currently doing something else to drive revenue, but yes, the insistence on developing Spectacles as a self-sustaining business is arguably enough to give up on Snapchat.
It’s got far more fruitful opportunities to address and far bigger challenges to focus on (okay, just one more pun). The company needs to devote more time and effort to anything else if it’s to have any shot at picking SNAP stock up off the mat.
Unfortunately, opportunity cost is almost as tough for investors to recognize as irrational optimism is.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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