Snap has literally bet the farm on this thing, and Evan Spiegel has said as much. He called this launch his crucible moment, and the street was still less than impressed. The stock immediately lost a tenth of its value. Snap has been sliding for a long time now, but in my view, this might just be the nail in the coffin.
Welcome to Prof Markets. I'm Edson. It is June 18th. Let's check in on yesterday's market vitals. The major indices tumbled following the Federal Reserve's press conference. More on that in a moment. Treasury yields spiked, as did the dollar, and the odds of a rate hike before the year end are now at 62% on Kalshi. Meanwhile, SpaceX declined for the first time since it went public, ending the day down 5%. Okay, what's happening?
Snap just unveiled its new augmented reality glasses, and despite a lot of anticipation and a lot of hype, it was a bit of a flop. The glasses, called Snap Specs, feature an in-frame display, which overlays apps onto the real world. They're priced at $2,195, making them significantly more expensive than Meta's Ray-Ban Display glasses, which start at $800. CEO Evan Spiegel called Snap Specs a leapfrog advancement and the computer of the future, but the market doesn't seem to agree. The stock closed down almost 8% today, and it's now off 40% over the past year. So, here to tell us more about the Snap Specs and potentially why it was such a flop to Wall Street, we're speaking with Mark Gurman, managing editor and chief correspondent for Bloomberg News. Mark, thank you for joining us. These glasses are all over my social media feed, and not in a good way. Everyone is making fun of them, and I got to say, I've looked at these things. I've seen the way that they sit on Evan Spiegel's face, particularly his ears. And I just think this thing is way too heavy and cumbersome, and they don't seem to look very good. And I wonder if that's the problem here. What do you make of these Snap Specs and also the reaction to them?
I think for the available technology today, something that has augmented reality, something that's an all-in-one wearable headset, I think the design actually is quite good. And I think the price is actually quite reasonable for the tech. Now, I don't think it's reasonable for a mass consumer. I don't think anything of this ilk is going to become a hit at $2,200 US. But I do think for what the state of this technology is, they are in a fairly good place. I think the 8% decline in their stock is more a reaction to how expensive these are to develop and build and how much money Snap is putting into this product that is unlikely to become a smash hit. So I think that's what the concern is stemming from. But in terms of the technology, it's intense technology. It's advanced technology. And I think it's an exercise that's showing us what eventually is going to be a mainstream computing form factor because I do heavily believe in the augmented reality category. I'm just not sure Snap is going to be the one to take it to that next level.
What do we know about how much they're spending on this stuff? Because we know that Meta's been plowing, you know, tens of billions into this thing. Apple the same, doing the same thing, but it's almost like they have the capital and the cash flows to do it. Snap is a significantly smaller company, and yet they're also going for the big fish in augmented reality. So what do we know in terms of the spending and whether this is even possible for a company like Snap?
They've spent billions on this, and I do think it is certainly possible for a company like Snap. If there's a scenario in which there is gigantic demand for these things, I think they are going to find a way to be able to get these into the hands of consumers. But I think early on this is going to be the early adopter of early adopters. This is going to be developers. This is maybe going to be an enterprise play. If you think about the other products that have launched in this space, none of them have really taken the world by storm with consumers. A lot of these are enterprise products, and a lot of these companies, they don't even sell the product anymore. Microsoft tried their hands on this with the HoloLens. Meta has tried their hands on this as well. The Quest is no longer the priority. It's all about the smart glasses. Magic Leap no longer sells their product anymore. They've become an AR lens supplier now, based in the US. The Apple Vision Pro obviously has not taken off in the way that Apple had anticipated. So, this is not a thriving category at this point. I think we're still in a very early stage here.
What is it going to take for this stuff to work? Because, you know, we've been hearing about it for such a long time, and it seems like there's issues with how long it lasts in terms of battery, like the look of them, motion sickness. I mean, so many things. Like, what do you think it would look like to see an AR headset that actually is popular?
A lot of things are going to have to converge. You're going to have to see a combination of all-day battery life, which we don't have yet. You're going to have to see a price point in the $1,000 to $1,500 range, which we're not at yet. You're going to have to see that be in an all-in-one design that's nearly as thin and light as everyday glasses, and we're so many years away from that. And you're going to have to see that all with visual fidelity and quality where you can't really tell the difference between the real world and what you're seeing in the displays because that technology has to look innovative, has to look impressive, has to look highly legible. And so, I think we're several years away from hitting any of those metrics, let alone all of them converging simultaneously into a singular product. But what we're seeing from Snap is the closest incarnation to that yet.
I just want to read you a tweet that I saw. This is from a user, Uncle Doomer. This individual said, quote, 'Anyone who has ever built anything can tell you that there's a point in the development cycle where the sunk costs become too great and the entire org chart starts walking on eggshells around an exec who is too tunnelled in to realize that his product sucks.' That was in relation to these Snap Specs. And I think it does kind of capture probably what the concerns are on Wall Street, which is that Evan Spiegel is the founder CEO. He and his co-founder at least have 99% of the voting power. He decides what to do as a company. He is going full steam ahead with this thing. And I think there are now concerns for the company, which, you know, the stock has been really struggling, that he's out over his skis or maybe in over his head or too committed to this vision. I'd just be curious to get your reactions to that view of Evan Spiegel and the direction of this company.
I think investors are asking why are we playing with hardware when, you know, the money is to be made on high-margin products, which is applications and software and AI. And so, yeah, the big question is why are you even playing in hardware and burning all this money. And Snap recognizes this. This is why they've created a subsidiary called Specs Inc., which they're running this all through. I think it's going to help, you know, the numbers they're able to talk about in their, you know, earnings reports, and what have you. I think that's the driving force behind this. But, you know, they've been investing so much in this for 12 years. They are really one of the pioneers in the AR space. If you think about the lenses and different overlays and such you can do in Snapchat. So, I think there's a lot to like from this product. It's just not something that people are going to buy.
Say this just doesn't work out. Snap Specs, there are no sales, and it really is a flop. What do you think that means for the company? Like, is there a viable way out for Snap if Specs don't work?
Well, the viable way out is being the platform or the app provider and becoming a hit software product like they were on the iPhone for this next generation of devices that someone is going to have success with. Whether it's Apple, Amazon, or Meta, or even Snap, someone is going to do this successfully, and being able to transform Snapchat to being the killer app on that platform, on that hardware, will probably be their next step. But I think if this Specs product is not successful, I don't think this is a wrap. I think they'll keep trying and keep building and try to get out a subsequent version that's thinner or lighter.
My final question for you, Mark. Would you ever buy these things or wear these things?
It's hard to tell. I haven't used the latest version at this point. I'm going to have to see the use cases and how they would fit into my daily life. I am a huge believer in the AR glasses category. I will say that.
All right. Mark Gurman, managing editor and chief correspondent for Bloomberg News. Mark, we really appreciate your time.
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We're back with Prof Markets. In its first decision under Chair Kevin Walsh, the Federal Reserve held rates steady. It was the fourth meeting in a row that rates went unchanged, but it was the first time this year that the vote was unanimous. Still, the committee is divided on the path forward. Nine officials expect at least one hike this year, while eight expect to hold and one expects to cut. Meanwhile, Walsh declined to submit his own rate forecast, an unusual move for a sitting chair. As a reminder, inflation remains elevated, reaching 4.2% in May, the highest reading in three years. Joining us to discuss this interest rate decision and Kevin Walsh's first press conference, we're speaking with Mark Zandi, chief economist at Moody's Analytics. Mark, thank you for joining us on the show. The Fed has decided to hold rates here, which no one was surprised by. I think the one thing that really stands out to me, at least, is that the vote was unanimous this time. No one voted to cut, which to me says that the Fed and all of its officials are really taking inflation seriously at this point, or at least maybe more seriously than they were before. What do you make of what we saw in this press conference?
Yeah, that's right, Ed. I think they're taking the inflation very seriously. You know, as you point out, we're at 4%-ish, and that's double the Fed's 2% target. And Chair Walsh did make a point several times about price stability and the 2% target. And then you got the dot plots, which are very clear that many of the Fed members want at least one rate hike this year, or thinking there will be at least one rate hike this year, and perhaps two. And that was much more hawkish than I had anticipated, certainly for this first meeting for Chair Walsh. So, yeah, I was a bit taken aback by how aggressive they were at this first meeting.
