The Spectacles Opportunity
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Snap Inc. The Spectacles Opportunity CENTRAL QUESTION What is Snap’s position in the wearables and augmented reality space? Question: What is Snap’s position in the wearables and augmented reality space? Snap may have started as a photo disappearing app in the convergence of wearables and augmented reality (AR). It’s 2011, but the company now has the potential to reinvent how clear the wearables and AR markets are gaining momentum as people use the camera. Now a public company, Snap must quell evidenced by the growth in wearable offerings and AR Wall Street’s demands while also competing against established development kits released recently. As the market and tech mature social media giants for revenue. The market expects nothing short over the years, Snap is strategically positioned to bring AR of flawless execution from 6-year-old Snap Inc. spectacles to the mass consumer market. Despite short-term stress, Snap’s position is envious. Its core With the release of seemingly unambitious Spectacles, Snap product, Snapchat, enjoys high engagement with a young, has ingeniously dipped into wearables without upsetting lucrative demographic that evades advertisers through traditional consumers. Spectacles offer little beyond Snapchat’s core usage. avenues like television. More importantly, despite competitors’ However, as Snapchat begins to introduce and become associated willingness to copy offerings, Snapchat is unique in its offerings to with AR, the gradual convergence of Snapchat’s AR offerings onto both users and advertisers. Snapchat’s competitive advantage is Spectacles will open up the possibility of mainstream adoption. not only its high quantity of engagement but also the quality of Snap’s product development shows it is swiftly striving engagement afforded by the camera. Still, this immediate ad towards a wearables and AR future. If Snap can succeed at revenue only scratches the surface of the opportunity. bringing AR spectacles to the mass market, it may truly reinvent Snap’s company-defining opportunity likely exists at the camera — establishing itself in the decades to come. Snap Today 4 Snap Overview Snap Inc. is a public technology and social media company behind Snapchat and Spectacles. The company sells ad products generating $182 million in revenue from its 173 million users. CONSUMER PRODUCTS AD PRODUCTS KEY EXECUTIVES Evan Spiegel Bobby Murphy Evan is one of the founders and Chief Bobby is one of the founders and Chief Executive Officer of Snap. He has led Technology Officer of Snap. A Stanford Snapchat from inception at Stanford to alum, he oversees product, its 2017 IPO. engineering and research at Snap. Snapchat Spectacles Snapchat is a camera app Spectacles is the company’s Imran Khan Michael Lynton that lets users communicate first hardware product and Snap Ads Filters Lenses Imran is the Chief Strategy Officer of Michael is the Chairman of Snap. with friends and discover lets users record snaps Snap. Before, he was Global Head of Before Snap, he was the Chief content from publishers. seamlessly with a click Full screen ads Location-based Interactive, Investment Banking at Credit Suisse Executive Officer of Sony with audio snap filters shareable Lenses and lead the Alibaba IPO. Entertainment and an early investor. 1 Growth 2 Monetization DAILY ACTIVE USERS QUARTERLY REVENUE AVERAGE REVENUE PER USER (MILLIONS) (MILLIONS) (DOLLARS) 182 153 158 166 173 166 150 122 143 128 86 94 107 0.84 1.05 0.9 1.05 57 62 71 80 72 46 33 39 0.32 0.5 4 5 17 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 The Spectacles Opportunity / Snap Today 5 SHORT TERM PRESSURES The market judges Snap on two key metrics: Growth and Monetization. Growth: Fierce Competition As a young social product, Snapchat needs to show strong user growth. It may have trouble with growth going forward as competitors copy and commoditize Snap’s product offerings. 1 Growth QUALIFYING THE THREAT Instagram Winning with Older Demographic. Since Product Positioning. Snapchat’s product offering adding stories, Instagram users over 25 spend over 24 overlaps with numerous product uses: social media, minutes daily on the platform, compared to Snapchat’s messaging, and other user-content consumption platforms. Snap has to compete with them all. Older Users Older 20 minutes daily for users above 25. WhatsApp’s International Popularity. WhatsApp is Saturation of Competitors. As the digital the top messaging app in over 109 countries. By communication and social network markets mature, providing the stories functionality, these international older and international users have options beyond users have less reason to ever try Snapchat. Snapchat based on their country and needs. DAILY ACTIVE STORY USERS (MILLIONS) ! Messenger Day’s Daily 250 250 Active User number is likely low because this audience is likely already highly SNAPCHAT VS. COMPETITORS VS. SNAPCHAT 173 engaged with Snapchat. International Users 70 ! With Snapchat’s current product usage—quick video communication—Facebook may have curtailed growth for both older demographics and international users. Snapchat Instagram WhatsApp Messenger The Spectacles Opportunity / Snap Today 7 Monetization: Television + Digital Snap is positioning itself to compete in the television and digital advertising markets. If Snap wants to win in these markets, it will have to mature quickly to compete against established competitors. 2 Monetization TELEVISION ADVERTISING DIGITAL ADVERTISING Media Ad Spend (% of Total) - Television Media Ad Spend (% of Total) - Digital 2014 2015 2016 2017 2014 2015 2016 2017 39.1% 37.7% 38.6% 35.8% 28.3% 32.6% 35.8% 38.4% PROS CONS PROS CONS Discover SuccessSnap’s Discover product Not Primary Product Usage Despite Snap Maps Through Snap’s acquisition of Lack of Detailed User Profile Snap does has shown high usage with shows like Stay success with products like Discover, it is Zenly, leading to Snap Maps, and through not have access to detailed information Tuned amassing 29 million views with 60% unlikely that users will primarily associate its acquisition of Placed, Snap will be in an about users, their interests, and their of the audience being younger than 25—a Snapchat with content consumptions ideal position to offer engaging, geo- relationships like Facebook. This can be a highly lucrative demographic. instead of communication. fenced and potentially social ad products problem for advertisers who want to run with detailed analytics to show results. highly targeted campaigns. With this route, Crowd Surf Content Snap’s crowd surf Lack of Older Reach Snap lacks access to Snap becomes a Facebook competitor that feature will help in creating TV-like crowd an older demographic that traditional High EngagementThe nature of Snap’s may never be able to achieve the same sourced content at scale. television has access to. For some ad products makes them highly engaging level of effectiveness. advertisers, Snap’s demographic may not and inherently social, something advertisers Scripted Shows After success with be scaled enough yet. value. partnered shows like Second Chances, Immature Ad Platform While Snap is Snap is moving into original content, which Expensive Production The type of Measurement PartnersSnap is working heavily investing in its ads platform, it has a will help the company create a competitive content Snap is trying to create is costly to towards adding measurement partners to long way to go to successfully compete advantage. produce at scale. validate ROI to advertisers. with established firms. The Spectacles Opportunity / Snap Today 8 SNAP’S GREATEST ASSET Despite tough competitors, because of Snapchat’s focus on expression, it is the most natural communication app for a young, hard- to-reach but valuable demographic. Expression Over Consumption Because of how users interact with the product, Snap is uniquely positioned to iteratively alter the camera from a documentation tool to a communication tool. EXPRESSION CONSUMPTION Camera First Unlike other platforms, Insta Clout By publicly displaying when users open Snapchat, the first followers and following counts, users thing they see is the camera – feel inclined to manage their ratio of prompting the user to create. followers to who they are following. Filters, Lens and Bitmoji By adding Curated Identities Since everything innovative and engaging features, users share on Instagram is Snap has shifted the focus from permanent, the bar to share is much curation to creation. Memories Snap’s Memories higher and difficult to meet. product bridges the gap Disappear by Default Snaps and between communication and Consumption Behavior Instagram’s stories disappear in 24 hours. This documentation – meeting the core offering lends well for influencers allows users to be more expressive in use case for when a moment to broadcast. This leads to a an what they share knowing it will needs to be saved. experience of mostly consumption disappear eventually. over communication. Snapchat’s greatest asset is that has engineered a reputation for being the go-to visual communication app of a generation of 173 million young people—something no competitor can easily copy. The Spectacles Opportunity / Snap Today 10 Snap’s Core Strengths Snapchat has high engagement from a young North American demographic—a valuable bloc to advertisers who are unable to engage this segment elsewhere, both on television and digitally. SNAPCHAT AGE BREAKDOWN SNAPCHAT GEOGRAPHIC BREAKDOWN 13-25 North America 25+ Outside North America dollars of purchasing minutes per day users under number of times per day users $44B power for Generation Z 42 25 spend on Snapchat 20 under 25 check Snapchat The Spectacles Opportunity / Snap Today 11 Wearables 12 WEARABLES MARKET The wearables market is expected to reach over 500 million units sold by 2021.