Personal Finance

Snap's Spectacles Sales Fell in Second Quarter

Woman wearing Spectacles with a red background

Snap (NYSE: SNAP) has only been selling its Spectacles for a couple of full quarters now. The sunglasses with embedded cameras were first released in November 2016 to much fanfare, following a largely successful marketing campaign that built up hype around the product thanks in part to perceived scarcity. Spectacles were initially only available through the company's own bright yellow vending machines, but Snap has since started selling Spectacles online, including on Amazon.com .

Spectacles revenue fell in the second quarter, though, to $5.4 million.

Woman wearing Spectacles with a red background

Image source: Spectacles.

Spectacles revenue fell 35% sequentially

I've already made the case that Spectacles are totally not worth it for Snap: The company loses money on them and they barely contribute to user engagement. Spectacles were not widely available in Q4 2016, so the performance over the last two quarters should capture the vast majority of this business.

Spectacles Q1 2017 Q2 2017
Revenue $8.3 million $5.4 million
Implied units* Approximately 64,300 Approximately 41,900
Other cost of revenue (non-GAAP) $20 million $18 million

Data source: Snap conference calls and earnings presentations. *Based on $129 retail price.

Snap breaks down non-GAAP cost of revenue into three main categories, the biggest of which is hosting costs , after excluding stock-based compensation expenses and depreciation and amortization expenses:

Chart showing a breakdown of cost of revenue over the past five quarters

Image source: Snap earnings presentation.

That other category is primarily related to Spectacles. Per Snap's SEC filings: "In addition, cost of revenue includes inventory costs for Spectacles and facilities and other supporting overhead costs, including depreciation and amortization." Remember, depreciation and amortization are already excluded in the chart above.

On the last call, Snap CEO Evan Spiegel said that Spectacles had created 5 million Snaps to date, which was utterly meaningless at the time compared to the 270 billion Snaps that were created in the first quarter. The company did not mention how many more Snaps had been created via Spectacles in the second quarter, but it's impossible that the engagement is meaningful.

A numbers game

Snap's Q1 figures suggest that Spectacles owners create approximately 80 Snaps in a quarter with the device, based on 5 million Snaps and around 64,300 units sold. If the installed base has grown to approximately 106,200 and that level of usage remains constant, Spectacles would have created perhaps 8.3 million Snaps during the second quarter.

On the call, Spiegel said that each DAU now "creates over 20 snaps per day, on average." With 173 million DAUs now, that translates into nearly 3.5 billion Snaps created per day (up from 3 billion Snaps per day in Q1), or around 311.4 billion Snaps created throughout the second quarter. Putting all of these estimates together, Spectacles would have contributed maybe 0.003% of all Snaps created during the second quarter. That's up from my 0.002% estimate from the first quarter, but still a literal rounding error.

Still not worth it.

10 stocks we like better than Snap Inc.

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Snap Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Evan Niu, CFA has the following options: long January 2019 $20 puts on Snap Inc. The Motley Fool owns shares of and recommends AMZN. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SNAP

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More