Spectacles driving Snapchat engagement
Because Snap (SNAP) is a primarily ad-funded business, the company is working to diversify its revenue streams. One of the company’s sources of non-advertising revenues is the sale of Spectacles, which are camera-equipped eyeglasses.
Snapchat subscribers can use Spectacles to capture video clips to share across the social platform, which can encourage more user engagement. According to the company, an average daily Snapchat user now creates more than 25 snaps or messages every day, which implies a high level of user engagement.
Spectacles sales decline
Snap originally sold Spectacles through its proprietary vending machines. However, they can be purchased from third-party sites such as Amazon (AMZN). Spectacles cost ~$130 apiece.
Spectacles are the primary contributor to Snap’s non-advertising sales, which are reported as Other Revenues. Snap reported other revenues of $5.4 million for 2Q17, down from $8.3 million in 2Q16, as illustrated in the chart above. Snap didn’t explain what caused the decrease in Other Revenues, but weak demand for Spectacles could be one of the factors.
Spectacles’ revenue potential
Given the stiff competition that Snap faces from Facebook (FB), Alphabet’s (GOOGL) Google, and Twitter (TWTR) in its core online advertising industry, there could be a need for Snap to accelerate its revenue diversification.
According to Grand View Research, the market for AR (augmented reality) devices, which could apply to Spectacles, would be worth more than $100 billion by 2024.