Snap’s Gamble on Augmented Reality Gear

The fifth generation of Snap’s augmented reality glasses marks its continued effort to diversify revenue streams beyond ads.

Snap announced the newest iteration of Spectacles glasses – which superimpose interactive graphics over the physical world via cameras and sensors – at its Partner Summit in mid-September.

But investors remain skittish on Snap. The company has struggled to compete against rivals after years of turmoil in the digital ad market, which it relies on for the vast majority of its revenue. In the second quarter, the company missed revenue forecasts and lowered its outlook.

The stock rose around 15% in September, but remains down nearly 33% year-to-date.

Snap has released no plans to release the newest version of Spectacles on the consumer market. For now, the use of Spectacles remains restricted to very few users. Developers can build applications for the glasses for $99 a month.

“That said, without clear and obvious consumer monetization opportunities, we question the ultimate developer uptake,” Benjamin Black, a research analyst at Deutsche Bank Securities, said in a recent note.

The company should bring the new augmented reality glasses to the market “sooner, rather than later,” he said.

The glasses also face heavy competition. Rival Meta recently introduced their own glasses, called Orion, that boast a wider field of vision and allow users to view apps like WhatsApp and Messenger. Like Spectacles, Orion is still only available to a select few, but Meta said a commercial version is in development.

At the Partner Summit, the company also unveiled a major redesign for the app that will consolidate its features as part of a broad effort to draw in a wider range of users.

The augmented reality push has considerable upsides, wrote CFRA Research analyst Angelo Zino, but the company also faces substantial risks. Those include a “significant reduction” in customer engagement and higher-than-expected costs, he said.

Increased Snapchat+ subscriptions continue to be a bright spot, however, with 11 million subscribers added since 2022 – an impressive feat given that paid subscription services are a tricky bet when a majority of users are young adults.