Snap targets Pinterest with latest ecommerce acquisition

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Break (NYSE: SNAP) recently acquired Fit Analytics, a Berlin-based start-up that helps online shoppers find the right sizes for clothes and shoes. Fit’s main platform, Fit Finder, allows shoppers to enter their own measurements and uses a machine learning algorithm to locate the best-fitting garments.

Fit already works with around 18,000 retailers around the world, including VF Corp.is the north face, PVH Corp.by Calvin Klein, Hugo boss, and Puma. The company is also developing visual search technology that will allow shoppers to upload their own photos to find similar products.

Fit’s team of approximately 100 employees will report to Nima Khajehnouri, Snap’s vice president of engineering, once the deal is struck. Snap did not disclose the financial terms of the deal, but Fit’s technology could complement Snapchat’s other augmented reality and e-commerce features. It could also help Snap keep pace. Pinterest (NYSE: PINS) in the emerging social shopping market.

Image source: Getty Images.

Review of Snap’s Ecommerce Efforts

Snap initially expanded its ecommerce functionality in 2018. It rolled out purchasable ads on Snapchat and allowed shoppers to search for products on Amazon (NASDAQ: AMZN) taking pictures.

Snap went on to try other experimental e-commerce initiatives, including a baseball game built into adidas in 2019 which allows players to purchase shoes directly in the game.

On last quarter’s conference call, Snap CEO Evan Spiegel said Snapchat still has “a tremendous opportunity to innovate in e-commerce” and plans to “experiment quickly and plant lots of seeds” on the market. Spiegel believes that providing “new ways for people to try and interact with products using augmented reality” could make the shopping experience “more entertaining and immersive” while promoting higher conversion rates.

During Snap’s first presentation on Investor Day in late February, Spiegel claimed that the convergence of AR and e-commerce technologies could help a brand establish an “emotional connection” with its customers through experiences. of AR and dressing rooms instead of just facilitating online sales. This connection, says Spiegel, will allow online shopping to “evolve” from a transaction to an experience.

Spiegel said Snap was already working with retailers to help shoppers find the “right fit” and “right product” with its AR tools, and he said the process could reduce costly and unnecessary returns for orders. in line. The purchase of Fit Analytics is clearly an extension of this strategy.

Why Pinterest should care

Snap still generates substantially all of its revenue from ads and does not separately disclose its revenue from purchasable ads.

But during its Investor Day presentation, Snap said it will generate roughly 50% annual revenue growth over the next several years, and meeting that goal will not depend on its growth in the number of active users. dailies, which increased 22% to 265 million in 2020.

Instead, Snap believes growth will be supported by an increase in its average revenue per user, which rose 33% year-over-year in the fourth quarter, as its advertising prices rose and users were spending more time in its ecosystem of videos, AR lenses, and games. Expanding this ecosystem into a fully-fledged social shopping platform would complement this growth.

Snap’s investments in e-commerce may at first seem like defensive maneuvers against Facebook‘s (NASDAQ: FB) Instagram, which also offers purchasable posts. However, a 2019 study by Cowen & Company found that 48% of U.S. social media users actually use Pinterest to find and purchase products, compared to just 10% for Instagram and 4% for Snapchat.

Pinterest "Buy the look" characteristic.

Image source: Pinterest.

Pinterest’s lead may have widened since then. Its monthly active users grew 37% year on year to reach 459 million in 2020, and it has repeatedly cited the social shopping market as a major tailwind.

Pinterest’s virtual bulletin boards are a great fit for pins to buy, and a growing number of retailers are uploading their entire catalogs online to its platform. Pinterest has traditionally served an older audience than Snapchat, but it has seen an increase in Gen Z and Millennial users throughout the pandemic, suggesting that a growing number of potential buyers are using Snapchat and Pinterest simultaneously.

Snapchat is not yet a serious threat to Pinterest in the social shopping arena, but its previous ecommerce moves, its purchase of Fit Analytics, and its ambitious growth goals all indicate that it could become a major competitor in a market. near future.

The bottom line

Snap’s buyout of Fit won’t move the needle just yet, but it represents another brick in its expanding digital ecosystem. Snap will likely integrate Fit’s tools into Snapchat’s camera, which could make purchasable ads more engaging and pave the way for a wider expansion of its social commerce business. This move would complement the growth of its AR goals, Discover videos and games, and potentially strengthen its defenses against Instagram and Pinterest.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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