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Snap Inc. recently unveiled its fifth generation of augmented reality (AR) glasses, launching its product just ahead of Meta Platforms’ Connect event, where Meta plans to introduce its latest hardware. Alongside the new AR spectacles, Snap announced a partnership with OpenAI to integrate AI tools into its smart glasses, positioning itself as a key player in the AR market.
Despite the excitement surrounding these developments, the AR market remains in its infancy, and Snap’s timing is raising eyebrows. Snap’s core revenue stream—its advertising business—has been volatile and underperforming, leading to questions about the wisdom of further investment in AR. As of Q2 2024, Snap had yet to generate an operating profit in its advertising division, a worrying trend for investors already concerned about the company’s financial health.
While Meta has committed billions to AR development, backed by its strong financial position—reporting over $39 billion in net income last year—Snap’s situation is starkly different. The company recorded a net loss of $1.3 billion in 2023, and its stock has been in a continuous downward spiral, dropping 40% year-to-date. This financial strain makes Snap’s aggressive R&D spending on AR even more perplexing to shareholders who are already frustrated with the company’s inability to turn potential into profit.
Snap’s history with AR products offers little encouragement. Its first generation of internet-connected spectacles, launched in 2016, resulted in $40 million worth of unsold inventory. Subsequent versions, including a 2021 AR model aimed at developers, also failed to gain traction. Nevertheless, CEO Evan Spiegel remains adamant that Snap’s focus on camera technology is the right hardware strategy, though investors are increasingly skeptical.
Earlier this month, Spiegel attempted to reassure employees by saying that Snap had recovered from its advertising slump and growth would pick up as it focused on small advertisers. However, market sentiment remains pessimistic, and shareholders are not convinced that Snap’s AR investments will pay off.
As Snap’s AR ambitions continue to consume resources without a clear path to profitability, investors are left questioning whether the company’s focus on unproven technology is sustainable in the long run. For now, Snap’s AR initiatives, despite the buzz, are doing little to restore shareholder confidence.