About seven months since Spectacles launched in the U.S. and about three months since Snap (SNAP) - Get Report had its IPO, the company has decided to make the whimsical-looking video-recording glasses available in Europe.
The black, coral or teal-colored sunglasses record 10- or 30-second video clips that automatically show up in the Snapchat mobile app to send to friends. This is the first time the device is available outside the United States as Snap looks to further engage its European audience, of which 55 million use the app every day for at least 30 minutes.
The device is available for $129.99 online or at "Snapbot" vending machines that will pop up on Friday in five cities across Europe: London, Paris, Barcelona, Berlin and Venice. Snap used this same limited-release strategy in the U.S. this past September as a way to pump up demand for its first hardware product. The device has only been available online since February.
Spectacles generated about $8 million in sales for Snap, according to its first earnings report released in May. With each device costing about $130, that translates to sales of about 60,000 pairs of Spectacles during its first quarter as a public company. That's nothing to write home about considering its total $150 million revenue for the quarter.
But the Spectacles revenue doesn't really matter to analysts because Snap's hardware business isn't meant to be a money maker, according to Drexel Hamilton analyst Brian White. Rather, Snap is experimenting with different ways to make the Snapchat app more fun, more creative and more engaging because a better app leads to more engagement, which leads to more ad revenue. "The big money is in ad revenue, not hardware--unless you're Apple (AAPL) - Get Report ," he said.
Perhaps more telling is that Spectacle users only uploaded 5 million snaps directly from their glasses in the first quarter vs. the 3 billion total snaps uploaded per day on the app. "It's a modest program for us right now," Snap CFO Drew Vollero said on the earnings call.
Snap's hardware strategy is to work on devices in-house, CEO Evan Spiegel noted during the conference call. "That's our way to explore something really, really quickly and learn from it," he explained.
The company emphasized that Spectacles were an "experiment," or what many view as an entry for Snap into hardware. Next up for Snap: a drone.
In late 2016, Snap acquired Los Angeles-based small drone manufacturer Ctrl Me Robotics for less than $1 million, sources told BuzzFeed in late May. Previously, Snap had been in talks with Lily Robotics, a drone startup that later filed for bankruptcy in January. As part of the deal, Snap absorbed Ctrl Me Robotics' talent, including founder Simon Nielsen. Whether Ctrl Me Robotics ever got to the point where it was actually manufacturing drones is unclear, according to BuzzFeed. Snap has not yet commented on the purchase.
Considering it's already been about six months since the deal was made, White said he would be surprised if Snap didn't come out with a drone-related product in the next 12 to 18 months.
Editors' pick: Originally published June 2.
The drone sector growth forecast indicates that it should be a more promising revenue stream for the company than its experimental sunglasses. Worldwide drone unit sales grew by an estimated 60% last year, to 2.2 million units, which represents $4.5 billion in sales, according to research firm Gartner. For 2017, the firm sees drone production increasing by 39% year-over-year, to 3 million drones and $6 billion in sales. By 2020, sales are projected to hit $11.2 billion. If Snap could grasp just 1% of that $11.2 billion market, that's $112 million in additional revenue.
While a consumer drone could make more money, it's unclear whether Snap is working on a drone for inside use, for advertisers' use or for consumer use, White noted. But no matter what drone comes out, the ultimate goal still isn't an additional revenue stream. Snap is simply continuing its strategy to make its app more creative, he said. "A smartphone has such a limited vantage point so this is a way to expand the view and increase creativity," White explained.
This push into drones is also part of Snap's continued rebranding as a "camera company," which it started calling itself in late 2016, White wrote in a recent note. "This would afford users the opportunity to gain a new vantage point when recording videos and taking photos," he wrote.
Snap has never been a company to shy away from innovation, as it believes that's the best way to drive user growth and user engagement, White reiterated. Snap had 166 million global daily active users in the 2017 first quarter vs. Facebook's (FB) - Get Report 1.28 billion DAUs.
As an added bonus, Facebook may have a harder time copying Snap's physical devices compared to the relative ease with which it has been copying the app's software, including its geofilters that provide location-specific filters for pictures and its stories feature that allow users to post a video for 24 hours before it disappears. "Launching hardware is a way to differentiate yourself and a way for Snap to prevent being pigeon-holed as a social media company," he noted.
Snap and Facebook are both great companies, but they are different, White claimed. Digiday sees the mobile ad market reaching $215 billion by 2021, which means it's not a winner-take-all market. There's room for both players. "Snap has a swagger and style about it that reminds me of Apple, while Facebook reminds me more of Microsoft (MSFT) - Get Report ," he said.
Shares of Snap closed down 1.17% to $21.09 on Friday.
Jim Cramer and the AAP team hold positions in Apple, Alphabet and Facebook for their Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL, GOOGL, FB? Learn more now.
Click here for the latest business headlines.