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Snap (SNAP) Ramps Up AR/VR Capabilities, Acquires PlayCanvas

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Snapchat’s parent Snap Inc. (SNAP - Free Report) is betting big on augmented reality (AR) and virtual reality (VR). The company believes it can boost user engagement by providing better AR experiences on its Camera.

With the introduction of AR Lenses on Snapchat and the subsequent upgrade, the platform has become highly attractive to users. In December 2017, the company launched an application called Lens Studio to design and build AR lenses for Snapchat, thereby grabbing the attention of developers.

Snap is also working with Apple (AAPL - Free Report) to create hyper realistic filters that track one’s facial movements and help imprint the same on emojis.

PlayCanvas to Help Diversify Revenue Stream

With so much buzz created by AR/VR, which are fast emerging as lucrative business opportunities, the company has started to focus on its development. We believe the company’s acquisition of UK-based 3D game engine PlayCanvas is a step toward that direction.

We believe the addition of PlayCanvas will help Snap to expand into AR/VR, providing developers with enhanced features, and thereby boosting the company’s revenue opportunities.

However, given the massive growth potential, there is intense competition in this segment. Tech behemoths like Apple, Facebook , Alphabet (GOOGL - Free Report) and Microsoft are all vying to grab a share of this great opportunity.

According to market research firm IDC, AR/VR spending is forecast to grow 95% to $17.8 billion in 2018. Total spending on AR/VR is expected to soar at a CAGR of 98.8% during the period of 2017-2021.

Moreover, the acquisition of PlayCanvas is interesting as Snap might be collecting revenues from its biggest rival, Facebook, which uses PlayCanvas’s technology to build Instant Games. However, it’s not clear whether it will continue to do so.

The acquisition thus opens a new revenue stream for the company. Notably, the software startup’s “open-sourced gaming engine” has been adopted by leaders in the casual gaming field like King Digital, Disney and Nickelodeon.

We believe it will also help Snap to integrate the technology in building games for its own platform easily. The company’s foray into the video game space with this acquisition might help it to overshadow the growing dominance of Instagram whose total addressable market is way higher than Snap.  The launch of games will make the platform more attractive and engaging to users, and thereby help it earn more advertising dollars, in our view.

Snap Inc. Price

Snap Inc. Price | Snap Inc. Quote

Currently, Snap has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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