Snap’s Specs Gamble

**Travis Hoium** (0:02)
Is the AR future here? Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium. Joined today by Lou Whiteman and Rachel Warren. And guys, we've got to talk about probably the most entertaining story of the week. That is Snap introducing its new augmented reality glasses. Lou, these seem to be right up your alley. I assume you're already in line by these $2,200 AR glasses that look like there's like a reflective film on them. How in the world does this product, I'm actually a believer in the future of AR and VR, we're kind of moving in that direction with a lot of different platforms like Google, but this doesn't seem like it. And Snap just can't seem to be getting anything right at this point.

**Lou Whiteman** (0:56)
I'm not going to isolate Snap here. I don't get it for everyone. Okay, but definitely with Snap. This seemed like a bad Saturday Night Live sketch. If you watch Evan Spiegel talking about this on CNBC. Was it CNBC or Saturday Night Live? I'm not sure. You know, the expression, the beatings will continue until morale improves. I feel like the goal here now is for this whole industry to keep telling us that it's inevitable until the consumer somehow gets brainwashed into thinking, oh, I guess I have to buy these. I'm skeptical. Spiegel's pitch here is after two decades with the smartphone, quote, people are ready to think about computing differently. My take on that is after two decades with the smartphone, we need a new product to sell.
I don't think people are out there thinking, gosh, I wish I could have one-eighth of the screen always in my face because I'm just so sick of looking at this nice screen that I can use for all these things. Unproven form factor, unproven user interface.
Look, Snap's answer to people questioning, should we be on the phone as much as we are, is to put a smaller screen in our line of vision 24-7, which is a really bold move. I don't think neck pain is the reason people are starting to have a conversation about are we online too much, right? But somehow that's the answer. Even the timing here is wrong. Travis, you mentioned the price. This is probably the worst economy in the last 15 years to try to launch a premium product, especially in Snap's demographic, which to be honest is much younger than me. These are not the people that are saying, you know what, I'm sick of my iPhone. I want to spend twice as much for something new right now. I just don't see it.

**Travis Hoium** (2:44)
Yeah, Rachel, it does seem interesting that I'm not surprised that these AR glasses are coming out. I'm actually kind of excited about the potential for them. I don't know if it's necessarily something this year or next year. But you look at a $2,200 price point, that's almost as much as the Apple Vision Pro, which was a complete flop. So is there any silver lining here?

**Rachel Warren** (3:04)
Yeah, well, I think that's the big question. And this comes at a time when Snap's business is struggling, right? I mean, you look at their Q1 results, they had 12% revenue growth. They generated a little under $300 million in free cash flow, but they're operating in a net loss. Daily active users grew just 5% year over year in the recent quarter. So you're already in a time where the business is not really giving growth to write home about. So specs, right? Their first true standalone consumer augmented reality glasses. So these feature a 51-degree field of view. They use these really advanced nanostructure waveguides. They project see-through 3D graphics directly onto the physical world. They're even featuring an integrated multimodal AI assistant because of partnerships with OpenAI, with Google.
The price tag sits in a bizarre sort of purgatory, if you will. So they're cheaper than Apple's Vision Pro, but they're dramatically more expensive than the Metabray bands, which have somewhat captured the mainstream cultural zeitgeist. But I think the important thing to note is, these are still a really far cry from looking like normal everyday eyewear. This is not something that average consumer is going and purchasing en masse. They're very bulky. It's a tough sell for people to wear them outside the home or office. That price tag around $2,200 is also notable. Another thing, Evan Spiegel, he was saying, snaps burned about $3 billion over 11 years developing AR hardware.
There's the argument that this R&D budget is something of a vanity project being funded by a volatile advertising business. I think that's another really key point to make. This is a business that is struggling to find its operational footing. They initiated yet another restructuring of the business, slashing about 16 percent of their workforce just a few weeks ago, and their longtime CFO just left. So this is a company with a really turbulent internal period they're seeing right now. The growth is not what it was a few years ago. Does this feel like the right time to launch expensive AR glasses? I wonder, that remains to be seen. I don't think this is going to be a big cash cow for Snap.