Snapchat is going public tomorrow. Sometime in the next 24 hours, you’ll be able to buy Snap Inc.’s stock, $SNAP, through your broker or brokerage. Whether or not you should actually buy the company’s stock is up to you, but investors and traders are nonetheless excited about the company’s IPO.
Right now, however, the company is losing money. Despite making hundreds of millions in revenue, Snap Inc. lost over $500 million last year. The company relies almost exclusively on ad revenue, and though they have hundreds of millions of users, user signups are slowing down.
If Snap wants to make more money over time and not just rely on ad revenue like the troubled Twitter, they have to offer more products. That’s why they’re venturing into uncharted waters…by building a drone.
Right now, Snap Inc. makes all of their money from ad sales.
Snapchat has video ads all over it, along with sponsored filters, stickers, and content placement. Brands spend hundreds of thousands of dollars per ad, and every brand is clamoring to be on the service. The company also makes money through sales of their Spectacles, video-recording glasses that can send anything they record to Snapchat. While these glasses are popular and have a low barrier of entry ($130), they’re more of a niche item.
To expand their product offerings, Snap Inc. is allegedly experimenting with a drone.
This drone, which is more of a rumor than a sure thing, would allegedly take photos and videos of users from overhead. The user would then (again, allegedly) send these clips to Snapchat. Snap Inc. has yet to comment on the drone, though they’re probably busy getting ready being a public company.
Snap’s drone could be a sign of things to come of the company’s future growth.
Snap’s Spectacles were the company’s second product offering after Snapchat, and their first physical product. A Snap drone would further extend the company’s commitment to bringing Snapchat into the real world, while allowing them to improve their revenue streams and hopefully turn a profit on product sales. The drone and glasses make sense because Snapchat is all about photos and videos, and future products would likely have some compatibility with the company’s main app.
Is Snapchat’s foray into the physical product space a sure-fire way to make a profit? The company needs to improve ad sales, cut costs, or rely on another revenue stream entirely. Building more products that tie into their service would accomplish the third task, though that depends on how many products they sell. If Snapchat has 400 million users, only a small subset of those users would be interested in buying a drone. Yet if that same subset repeatedly buys future product offerings from Snap, they could see a much-needed uptick in revenue.