Snap’s Investment in Spectacles backfires

Published on: 24 Oct, 2017

Snap Inc. (NYSE: SNAP) overestimated the amount of sales for the Spectacles. Now, the company is backed up with over hundreds of thousands of unsold Spectacles just sitting in a warehouse waiting to be bought, first reported by The Information.

The company had expected to sell an increased volume of Spectacles for the upcoming holiday season. The previous holiday season last year, Spectacles were a huge hit and a popular gift.

Earlier in October Evan Spiegel, Snap’s CEO, said that the company sold over 150,000 Spectacles, surpassing all expectations.

Attributable to the holidays and recent increased sales, Snap invested into hundreds of thousands of Spectacles in anticipation of high demand.

Snap sold the camera glasses for $130 and generated approximately $8 million in revenue in the first quarter, representing only 5 percent of the total revenue of $150 million in that quarter.

According to Business Insider, in Snap’s second quarter, the company reported that it had made $5.4 million in other revenue, which is down from the $8 million from the first quarter. Majority of the “other” revenue is contributable to the Spectacles.

But now, it is not certain how many Spectacles the company has sold recently.

Spiegel projected Spectacles sales to increase within the next ten years. Spiegel wants to expand the usage of Spectacles instead of just a point of view version recording but for other uses such the hardware and construction field.

Snap has not commented on the matter on addressing the financial impact of the overbought Spectacles, but investors can be sure that this will factor into the full year earnings for the company.

But the in the past month, Snap shares have rose approximately 8.6 percent. Shares began to slowly recover in October, especially with the surge in mid-October when shares rose almost 15 percent.

Shares skyrocketed because of Credit Suisse analyst, Stephen Ju, raising his price target for Snap to $20 from $17. He raised his price target due to the increased active users on the app.

Snap’s third quarter earnings are expected to be reported on November 7. Consensus forecast for Snap’s EPS still remains as a loss, but less than the previous quarters. Analysts’ consensus project a EPS loss of  $-0.31 for the third quarter. In the first quarter, Snap posted a huge EPS decrease of $-2.31 and in the second quarter of $-0.36.

The company’s shares are now down 39 percent since its IPO launch back in March.

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Austin Chiu

Email: Austin@financialinsiders.com

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