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Why Snap may find it difficult to ditch the chat and become a hardware company

A woman wears Snapchat's Spectacles on the floor of the New York Stock Exchange during the company's initial public offering in New York, March 2, 2017.
Brendan McDermid | Reuters
A woman wears Snapchat's Spectacles on the floor of the New York Stock Exchange during the company's initial public offering in New York, March 2, 2017.

Late last year, photo sharing platform Snap rebranded itself, ditching the "chat" and positing itself to investors as a hardware company touting $130 smart Spectacles – available by vending machine, of course.

But the company's first ever earnings report, published Thursday, disappointed investors. Its augmented reality and camera glasses made just over $8 million, a drop in the ocean of its $150 million revenue.

Following the news, Snap shares plummeted to roughly $17.50, their lowest since the company's initial public offering (IPO) in early March. According to Reuters, this wiped off more than $6 billion of its market value.

Facebook and its other platforms Instagram and Whatsapp have launched copycat offerings of Snap's main selling point – photos and videos that disappear from users' view after 24 hours.

Earlier in April, Facebook announced that its Instagram Stories feature boasts over 200 million daily active users. This eclipses Snapchat's count of 161 million, revealed just ahead of the company's IPO in March.

The buzz around Snap is largely based on the app being a hit with millennials and generation Z, considered a lucrative market for advertisers.

Neil Campling, head of global TMT research at Northern Trust Capital Markets, told CNBC's Street Signs Thursday that "very few companies have managed to innovate in hardware and software." One of the few outliers to the trend is Apple, which Campling described as having "super normal margins as a result of that."

Ultimately for Campling, the size of Snap's user base – which is not growing quickly enough in comparison to competitor Instagram – is its biggest headache. "It hasn't got the scale and that's a big problem for them," Campling said.

While Campling acknowledged that there was room for diversity in the social media space, "we would still rather be owning the big Goliaths in this space, which are Facebook and Tencent."

Disclosure: NBCUniversal, the parent company of CNBC, is an investor in Snap.

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