The timing has an almost rebellious quality. With activist investors circling and Wall Street patience clearly waning, Snap Inc., which is currently trading at $5.23 per share and down around 75% from the $17 IPO price it obtained back in 2017, chose this moment to debut a standalone augmented reality headset priced at $2,195.
The Spectacles AR Specs entered a market that was already suspicious and made it much more so when CEO Evan Spiegel announced them with the kind of measured confidence that, depending on your present position in the company, either reads as visionary or disconnected. After the announcement, shares dropped. There was little to persuade the investors who had been advocating that Snap should reduce its hardware spending.
For more than five years, Snap Stock has been one of the most annoying tales in consumer technology. The company created a truly unique product—Snapchat’s disappearing messages and Stories format were so unique that Instagram imitated them, which is arguably the clearest validation a social media feature can receive—but it struggled for years to turn that uniqueness into profitable outcomes that supported the IPO valuation.
What the share price already indicates is confirmed by the loss-making EPS of -$0.25 on a trailing twelve-month basis: the company continues to burn more than it makes, and the path to profitability has required more patience than those who purchased at $17 anticipated.
Those who regularly observe Snap are most divided about the AR hardware wager. The bull case is as follows: Snap has been developing AR tools and filters for years, the developer ecosystem surrounding its AR platform is real, augmented reality is a category that will play a significant role in consumer technology over the next ten years, and the company that establishes a real hardware presence in this space before the category matures could find itself in a structurally advantageous position.
The bear case is more straightforward and immediate: $2,195 is a price point that restricts consumer adoption to a very small group of early adopters; the hardware division needs capital that the company hasn’t fully proven it can produce from its core advertising business; and the opportunity cost of that capital is real in a company where every expenditure choice matters.
The activist shareholder Irenic Capital is arguing that Snap’s hardware goals and its core social media business shouldn’t be on the same balance sheet and that investors who support Snapchat’s advertising comeback shouldn’t also have to pay for pricey AR hardware development with uncertain returns. Spiegel has retaliated, claiming that the two are strategically linked in ways that would be detrimental to their split. The pressure has been steady enough to create a real overhang on the stock, but it’s still unclear which framing will win out.
The data point that typically receives less attention than the hardware headlines is the S&P credit upgrade from B+ to BB-, which likely conveys a more lasting narrative. An upgrade to BB- with a positive outlook indicates that Snap’s cost-cutting initiatives and recent revenue growth have been significant enough to alter the debt picture in a way that matters to institutions lending against the company’s future.
Credit agencies move slowly and require evidence rather than narrative. It’s not a stock call. However, it does imply that the corporation is not in the financial trouble that a casual observer might assume from a share price close to $5.
