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Chapter 1: What is the main topic discussed in this episode?
Is the AR future here? Motley Fool Hidden Gems investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoy. I'm joined today by Lou Whiteman and Rachel Warren. And guys, we've got to talk about probably the most entertaining story of the week. That is Snap introducing its new augmented reality glasses. Lou, these seem to be right up your alley.
I assume you're already in line to buy these $2,200 AR glasses that look like there's a There's like a reflective film on them. How in the world does this product... I'm actually a believer in the future of AR and VR. We're kind of moving in that direction with a lot of different platforms like Google. But this doesn't seem like it.
And Snap just can't seem to be getting anything right at this point.
I'm not going to, you know, you know, isolate Snap here. I don't get it for everyone. OK, but definitely with Snap. This seemed like a bad Saturday Night Live sketch. If you watch Evan Spiegel talking about this on CNBC. Was it CNBC or Saturday Night Live?
Chapter 2: What are Snap's new Specs and their potential impact?
I'm not sure. You know the expression, the beatings will continue until morale improves. I feel like the goal here now is for this whole industry to keep telling us that it's inevitable until the consumer somehow kind of gets brainwashed into thinking, oh, I guess I have to buy these. I'm skeptical.
Spiegel's pitch here is after two decades with the smartphone, quote, people are ready to think about computing differently. My take on that is after two decades with the smartphone, we need a new product to sell.
I don't think people are out there thinking, gosh, I wish I could have one eighth of the screen always in my face because I'm just so sick of looking at this nice screen that I can use for all these things. Unproven form factor, unproven user interface. Look, Snap's answer to people
questioning should we be on the phone as much as we are is to put a smaller screen in our line of vision 24-7, which is a really bold move. I don't think neck pain is the reason people are starting to have a conversation about are we online too much, right? But somehow that's the answer. Even the timing here is wrong. Travis, you mentioned the price.
This is probably the worst economy in the last 15 years to try to launch a premium product, especially in Snap's demographic, which, to be honest, is much younger than me. These are not the people that are saying, you know what? I'm sick of my iPhone. I want to spend twice as much for something new right now. I just don't see it.
Yeah, Rachel, it does seem interesting that I'm not surprised that these AR glasses are coming out. I'm actually kind of excited about the potential for them. I don't know. It's necessarily something this year or next year. But you look at a twenty two hundred dollar price point. That's almost as much as the Apple Vision Pro, which was a complete flop. So what is there any silver lining here?
Yeah, well, I think that's the big question. And this comes at a time when Snap's business is struggling, right? I mean, you look at their Q1 results. They had 12% revenue growth. They generated a little under $300 million in free cash flow, but they're operating in a net loss. Daily active users grew just 5% year over year in the recent quarter.
So you're already in a time where the business is not really giving growth to write home about. So specs, right, their first true standalone consumer augmented reality glasses. So these feature a 51 degree field of view. They use these really advanced nanostructure waveguides. They project see-through 3D graphics directly onto the physical world.
They are even featuring an integrated multimodal AI assistant because of partnerships with OpenAI, with Google. The price tag sits in a bizarre sort of purgatory, if you will. So they're cheaper than Apple's Vision Pro, but they're dramatically more expensive than the MetaRay bands, which have somewhat captured the mainstream cultural zeitgeist.
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Chapter 3: Why are Snap's Specs priced at $2,200 and is it justified?
But I think the important thing to note is These are still a really far cry from looking like normal everyday eyewear. This is not something the average consumer is going and purchasing en masse. They're very bulky. It's a tough sell for people to wear them outside the home or office. And that price tag around $2,200 is also notable.
Another thing, you know, Evan Spiegel, he was saying Snaps burned about $3 billion over 11 years developing AR hardware. And again, You know, there's the argument that this R&D budget is something of a vanity project being funded by a volatile advertising business. And I think that's another really key point to make. This is a business that is struggling to find its operational footing.
They initiated yet another restructuring of the business, slashing about 16% of their workforce just a few weeks ago. And their longtime CFO just left. So this is a company with a really... turbulent internal period they're seeing right now. The growth is not what it was a few years ago. Does this feel like the right time to launch expensive AR glasses? I wonder. That remains to be seen.
I don't think this is going to be a big cash cow for Snap.
I don't want to pile on here, but just one more point to kind of just show how ridiculous and non-serious this is. OK, on that CNBC interview, Spiegel justified the price tag by saying not that it is definitely not an accessory. to the iPhone or to your phone, that it is a replacement. And that's why it's worth the price it is. These things have four hour battery life, four hours.
So this is going to replace your phone. You can get rid of your phone. Maybe it is a solution to our smartphone addiction, because by default, we're going to spend most of the day. We're going to get rid of our phones and then spend most of the day charging these things. Good luck. Good luck.
The crazy thing for Snap is that this is a company that also has a lot of financial risk. They have currently about $2.8 billion worth of cash. They also have $3.5 billion worth of debt on the balance sheet. That debt only started coming on the balance sheet in 2018. I just...
This is one of those companies that I have wanted to root for a turnaround for a competitor against a company like Meta in the past, but I just can't get over these what seems like continual missteps and the financials never quite seem to turn around. I don't know. I think we're in agreement. This probably doesn't seem to be it.
When we come back, we're going to talk about more layoffs in the market, this time from Rivian. You're listening to Motley Fool Hidden Gems Investing.
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Chapter 4: What challenges is Snap facing with its new AR glasses?
They should be in this growth phase. Why in the world are they laying off people in what should be an area of growth, you would think at this point?
Yeah, and I think where these layoffs are coming matter. You mentioned customer service and marketing. Yesterday on the podcast, we were talking about Robinhood layoffs. It was mostly layers of middle management. That I find easier to dismiss because I do think a lot of these companies are bloated.
And if you're just trying to get rid of some layers of middle management, but it's hard to spin layoffs in customer service and marketing at a time you're trying to ramp your product in a good way. Now, look, you know, there are people out there who say that this is just as ridiculous of a product as those glasses we were just talking about.
I know there are a lot of mixed reviews on what the R2 looks like. I don't think we know yet whether or not it's going to be a success or not. I don't want I'm trying to take the glass half full approach here, which is I think, you know, Rivian, they do need to lower their burn to the extent they can hope that Other people have more positive feelings about the R2 that they can gain scale here.
I don't think that layoffs you can look at it and say this is they're definitely doomed, definitely success. But look, here's the thing. Automaking is very hard. Tesla was the exception, not the rule in that they made it. And look, they almost went under a few times. I think anyone investing in this, if you believe in the R2, I don't think the story is ruined.
If they can if this is a popular product and they can start generating cash flow, marketing would have been a nice to have and not a needed. But this is a this was a long shot, even when things were going well. And it definitely, I think, highlights the risks here.
Yeah, Rachel, one of the things that stands out to me is that the cash from operations is negative $1.3 billion over the past year. That's the thing they're trying to answer. It just seems like, like Lou said, the place and the timing is a little bit strange when you're launching your most important product ever.
Yeah, it is a bit strange. I mean, this layoff comprises about 2% of the total workforce. But you have to think, right? You noted that one number, but Rivian also lost almost $4 billion last year. They're losing thousands of dollars in every vehicle they build. And that era of, you know, easy, unlimited startup capital is gone.
And so if you're looking at this, you know, trying to take the bull angle here, maybe you look and you think, OK, management, they're executing these cuts now. Maybe they're trying to show institutional and individual investors that Rivian has cost discipline. We already know the R2 has an enormous backlog of reservations. So I want to kind of add that angle. But there is a bear case here.
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