Drones/Snap: US market grounded by Chinese competition and regulation

In less than four months, Snap’s little yellow drone has fallen to earth. Sales of the Pixy will continue but development is over.

Snap’s determination to add hardware to its suite of products has been a bust so far. Its experiments on social media are popular. But the $250 Pixy selfie camera drone joins camera glasses and plush toys on the list of novelties that have done little to improve the top line. As the company acknowledged when it joined public markets, its manufacturing experience is limited.

Snap is right to pull back on investment in periphery projects. The share price is down 75 per cent in the year to date as digital advertising slows and the company adjusts to privacy changes from Apple that make it more difficult to collect user data. Hardware such as Pixy, which was not widely available, makes little impact on group revenue but development adds to losses.

Some of the share price markdown is unfair. Snap is growing its user base at a faster clip than rivals such as Meta. Its experiments are small compared to Meta’s investment in the metaverse, which lost nearly $6bn in the first half of the year. But its penchant for new ideas has not helped it to achieve consistent quarterly profits. With advertising down, the company has to focus on reducing operating losses. Especially as the company trades at a higher price to sales ratio than Meta.

The consumer drone market was always going to be difficult to crack. It is dominated by China’s DJI. US companies account for less than a tenth of the market, according to research company Drone Analyst.

Drones have yet to live up to their promise. In 2016, Goldman Sachs predicted a $100bn global market opportunity by 2020, with $30bn in non-military spending. But Drone Analyst estimates that non-military drone sales that year were $3.5bn. In the US, the Federal Aviation Administration’s safety concerns have limited the number of unmanned aerial vehicles. Alphabet and Walmart have launched delivery drone services, but they remain limited. For now, the skies are still mostly clear.