Snap Spectacles Write-Down Presents Existential Questions

Snap Inc SNAP posted year-over-year daily-active-user growth of 17 percent and average-revenue-per-user growth of 39 percent in its earnings report.

But those achievements couldn’t compensate for the firm’s 13.2-percent sales miss.

Spectacular Miss

The miss was partly driven by excess inventory and purchase commitment cancellation charges on Spectacles, the firm’s camera-embedded sunglasses. The loss wasn’t entirely unexpected, but its $39.9 million magnitude was.

“It was impossible to know what Spectacles inventory was, but it was crystal clear that they were a fad and completely out of favor now,” Wedbush analyst Michael Pachter told Benzinga. “I expected a write-down, but that is a pretty big one and implies hundreds of thousands of units in inventory. It also makes me wonder if they still consider themselves a ‘camera company.’”

Make It Simple, Stupid

Now, Snap is getting serious about its shortcomings. CEO Evan Spiegel said on the earnings call that he was simplifying Snapchat, apparently to boost average user age. The platform has largely failed to appeal to an older demographic.

Pachter said an increase in adult users shouldn’t detract from the app’s coolness factor.

“I do not think older users will alienate younger users,” Pachter said. “Parents might friend their kids, but I’m not going to friend my 17-year-old daughter’s friends. We tend to socialize with our own friends, so old people will friend old people and youngsters will friend other youngsters.”