Snap Inc (NYSE:SNAP) has a hardware problem. The company’s camera-equipped Spectacles were being touted as a huge success, with sales that had exceeded expectations.
That seemed an excellent start to a push into hardware that was expected to be key to Snap’s long-term growth. Now a report claims that hundreds of thousands of Spectacles are sitting unsold in warehouses, putting its hardware ambitions in doubt.
SNAP stock was down nearly 4% in early morning trading thanks to the news.
Snap Spectacles Sales: Early Rush Didn’t Pan Out
Snap launched its camera-equipped Spectacles near the end of 2016 and they quickly became an “it” item, especially during the holiday shopping season. The company sold the $130 glasses through Snapbot vending machines, and then pop up stores. People stood in line for hours for the chance to score a pair, and they began showing up on eBay Inc’s (NASDAQ:EBAY) doorstep for $300 or more.
In February, Snap began online Spectacles sales, while continuing to roll out Snapbots in various cities. They also started appearing in brick-and-mortar stores. However, it is now apparent that demand for the glasses had died off significantly after the initial launch excitement and holiday rush, catching Snap by surprise.
At the start of October, Snap’s CEO told a conference his company had sold “over 150,000” Spectacles, claiming the glasses were more successful than the original iPod.
The problem with that comparison is that the original iPod sold 125,000 units in its first two months of availability. And from there, sales ramped up, with Apple Inc. (NASDAQ:AAPL) quickly releasing new models that built on the growing demand. The company went on to sell hundreds of millions of the devices. Even though Apple officially killed off the last music-only iPods this summer, it still sells the iPod Touch — 16 years after the first iPod was released.
In contrast, it appears that Snap Spectacles sales quickly cratered after the launch hype was over. The Information is reporting that Snap has hundreds of thousands of unsold units gathering dust in warehouses in China. Instead of the iPod, Spectacles are looking more like Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Glass.
Snap Labs Struggles
Snap Labs is the company’s hardware division, and it’s tasked with developing hardware to help protect the company — and SNAP stock — from the challenges of running a social network. Monetizing Snapchat is a challenge, its user base growth is slowing and competitors like Facebook Inc (NASDAQ:FB) have been copying features.
Hardware sales are a way to boost revenue and Spectacles offered a one-two punch of hardware that integrated closely with Snapchat, boosting the social network.
Now, it seems that Spectacles aren’t the success they were made out to be. Maybe they exceeded company expectations at launch, but with piles of them sitting in warehouses, Spectacles sales clearly haven’t met anticipated demand since.
Snap Labs was also reportedly in the market to buy Chinese drone maker Zero Zero Robotics, but that deal appears to have fallen through. There has also been speculation that Snap Labs could work on second generation Spectacles that support augmented reality. However, with even Apple saying the technology doesn’t exist for AR glasses to be done right, that seems doubtful.
At this point, Snap seems to be trying to minimize the impact of disappointing Spectacles sales without giving up on the idea of hardware, but also walking back investor expectations about hardware revenue. The company shook up Snap Labs in September with a reorganization and job cuts. And at the October conference, while bragging about outselling the iPod, Snap’s CEO also said that hardware was going to be important to Snap “maybe in a decade.”
In other words, it looks like the company will keep trying, but Spectacles sales and hardware revenue is not going to be boosting SNAP stock in a meaningful way any time soon.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.