Despite ongoing struggles in its core advertising business, Snap unveils its latest AR glasses.

• On Tuesday, Snap unveiled the fifth generation of its Spectacles augmented reality glasses, which superimpose digital graphics onto the real world.
• While Meta has been attempting to expand into consumer hardware for several years, Snap's online advertising business has been facing difficulties.
• It's unclear how much longer investors will stomach Snap's hardware push.

The company announced the launch of its fifth-generation Spectacles augmented reality glasses, which superimpose digital graphics onto the real world.

Developers can only access the latest Spectacles if they agree to pay $99 per month for a full year, and these glasses offer more impressive digital visuals than the previous model, thanks to the redesigned Snap OS software.

OpenAI, the creator of ChatGPT, is partnering with Snap to provide developers with tools to create and transfer AI features for smart glasses.

Snap's announcement precedes the Connect event, where Facebook's parent usually reveals new hardware. While Meta has been attempting to break into consumer hardware for years, Snap's core online advertising business has been underperforming.

After reporting weaker-than-expected guidance for the third quarter and trailing analysts' expectations for the second quarter, Snap's shares plummeted more than 20% in August.

Despite Meta reporting better-than-expected quarterly results that caused the stock price to rise 7%, the company's Reality Labs unit still suffered a $4.5 billion loss in the second quarter. This loss is attributed to Meta's ongoing investments in augmented reality and virtual reality technology.

Meta has invested over $63 billion in hardware since 2020, but despite this, the company has not yet achieved significant success. However, Wall Street has granted Meta patience with Reality Labs due to the strong performance of its advertising business.

In 2023, Meta generated $131.9 billion in advertising sales and reported a net income of $39.1 billion, while Snap recorded $4.6 billion in total revenue and a net loss of $1.3 billion.

According to Leo Gebbie, a principal analyst and director at CCS Insight, the challenge with Snap is that it is functioning at a different scale than Meta.

Meta is currently losing money on its Quest VR headsets in order to dominate the VR market. If Meta launches an AR device, Gebbie predicts that the company will employ a similar aggressive pricing strategy. In order to compete with Meta, Snap's AR device must be exceptional and incorporate the best features of its Snapchat app, appealing to the younger demographic that sets it apart.

Meta discloses its financials for its hardware initiatives, while Snap keeps its hardware efforts confidential. Despite this, Snap has faced challenges in selling hardware.

In 2016, Snap launched its first internet-connected Spectacles glasses, which were marketed as an effortless way for users to record short, first-person videos for posting on Snapchat. However, a year later, Snap revealed that it had incurred nearly $40 million in losses due to unsold Spectacles, highlighting the difficulties it faces in selling consumer hardware products.

The company has released various versions of its Spectacles smart glasses, including a $380 version in 2019 and a limited release of AR-enabled glasses to developers and creators in 2021.

In 2022, Snap announced that it would cease developing its Pixy flying camera drone, which was released just months prior at $230.

Snap is following the strategy of Facebook's parent company, Mark Zuckerberg, who revealed details of the Quest 3 VR headset a week before the much-anticipated Vision Pro VR headset was announced.

The partnership between Meta and EssilorLuxottica has been extended to continue developing smart glasses.

Meta glasses, which were launched in October and are sold out in many styles and colors, continue to perform well, according to Zuckerberg. As a result, Meta is working to produce more and release new styles as quickly as possible.

Evan Spiegel, CEO of Snap, has focused the company's hardware development on camera technology, which he believes aligns with the core features of the Snapchat app and its 850 million monthly active users.

It's unclear how much longer investors will stomach Snap's hardware push.

"Meta has been experiencing losses on Reality Labs, but investors have tolerated this because the company's advertising business is generating enough profits," Gebbie stated. "However, Snap faces significant challenges in competing on hardware due to its limited resources."

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