Evan Spiegel, the CEO of Snap, is beginning to sound more and more like Mark Zuckerberg. He has been pursuing the same advertisers that the boss of Meta Platforms has been courting and has also made significant investments in artificial intelligence. Meta outperformed Snap in computerized glasses and by copying its key disappearing-messages product. The problem is Spiegel's lack of deep finances.
Spiegel claimed in a Sunday interview with Bloomberg that the $26 billion social media giant was "behind the curve" when it came to machine learning. Understandably so, given that the co-founder was busy resolving Snap's advertising issues, which were made worse by Apple's restrictive privacy policies. As a result, Snap is targeting small and medium-sized companies, which Facebook and Instagram from Meta also aim to attract. It's off to a good start: Snap's revenue increased by 21% year over year to $1.2 billion in the three months that ended in March, marking its strongest rate of growth since early 2022.
A lot of money must be spent to get there. Spending on infrastructure has surged in part due to Snap's AI efforts, which are central to its new sales pitch. For every daily active user, Snap spent almost 59 cents on infrastructure in the first quarter of 2023. It projects spending up to eighty-five cents per quarter this year. Based on LSEG's analysis, analysts project that there will be 442 million Snap members worldwide by 2024, meaning the firm is expected to spend $1.5 billion.
Add the projected $1.3 billion in R&D expenses, and the total comes to more than half of Wall Street's estimated revenue projections for Snap.
The reason it sounds familiar is that tech behemoths like Meta are teasing their own artificial intelligence spending binges. In 2024, Meta's cost of revenue — which includes infrastructure expenses — is expected to account for 19% of its total revenue. However, Zuckerberg also intends to spend up to $40 billion on capital projects this year, or around 25% of revenue. However, in comparison to Snap's $38 million, Meta's free cash flow in the first quarter nearly doubled to $12.5 billion year over year.
Meta has maintained its lead thanks to its prolific spending. Following Snapchat's success, Instagram created a disappearing "Stories" feature of its own. Furthermore, since the disastrous release of Snap's camera-equipped sunglasses, Spectacles, in 2016, CEO Mark Zuckerberg has emphasized the collaboration between his company and Ray-Ban to create its own line of "smart glasses."
As a result of its own copycat streak, Snap's shares have increased by 69% in the last year. Spiegel, though, is falling behind Zuckerberg's AI marketing. Furthermore, Snap lacks the financial resources to keep up with technological advancements, unlike Meta. Spiegel appears to be emulating his arch-rival, but it's a poor man's version.