Snap Takes Aim at Pinterest With its Latest E-Commerce Acquisition

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

Fit already works with about 18,000 retailers worldwide, including VF Corp.‘s The North Face, PVH Corp.‘s Calvin Klein, Hugo Boss, and Puma. The company is also developing visual search technology that will enable shoppers to upload their own photos to find similar products.

Fit’s team of about 100 employees will report to Nima Khajehnouri, Snap’s VP of Engineering, after the deal closes. Snap didn’t 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 with Pinterest (NYSE:PINS) in the nascent social shopping market.

A smiling woman in sunglasses goes shopping.

Image source: Getty Images.

Reviewing Snap’s e-commerce efforts

Snap initially expanded its e-commerce features in 2018. It rolled out shoppable ads on Snapchat, and let shoppers search for products on Amazon (NASDAQ:AMZN) by taking photos.

Snap subsequently dabbled with some other experimental e-commerce initiatives, including an in-app baseball game from adidas in 2019 that let players directly buy shoes in the game.

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

During Snap’s first Investor Day presentation in late February, Spiegel claimed the convergence of AR and e-commerce technologies could help a brand build an “emotional connection” with its customers via AR experiences and fitting rooms instead of simply facilitating online sales. That connection, Spiegel claims, will enable online shopping to “evolve” from a transaction into an experience.

Spiegel said Snap was already working with retailers to help shoppers find the “right fit” and the “right product” with its AR tools, and he declared the process could reduce costly and wasteful returns for online orders. Buying Fit Analytics is clearly an extension of that strategy.

Why Pinterest should pay attention

Snap still generates nearly all of its revenue from ads, and it doesn’t disclose its revenue from shoppable ads separately.

But during its Investor Day presentation, Snap declared it would generate about 50% annual revenue growth over the next few years, and achieving that goal wouldn’t rely on its growth in daily active users, which rose 22% to 265 million in 2020.

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Instead, Snap believes that growth will be supported by its rising average revenue per user, which increased 33% year over year in the fourth quarter as its ad prices increased and users spent more time within its ecosystem of videos, AR lenses, and games. Expanding that ecosystem into a full-fledged social shopping platform would complement that growth.

Snap’s e-commerce investments might initially seem like defensive maneuvers against Facebook‘s (NASDAQ:FB) Instagram, which also offers shoppable posts. However, a 2019 study by Cowen & Company revealed that 48% of American social media users actually use Pinterest to find and shop for products, compared to just 10% for Instagram and 4% for Snapchat.

Pinterest's "Shop the Look" feature.

Image source: Pinterest.

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

Pinterest’s virtual pinboards are a natural fit for shoppable pins, and a growing number of retailers are uploading their entire online catalogs to its platform. Pinterest traditionally serves an older audience than Snapchat, but it experienced an uptick in Gen Z and millennial users throughout the pandemic, which suggests a growing number of potential shoppers are simultaneously using Snapchat and Pinterest.

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Snapchat isn’t a serious threat to Pinterest in the social shopping arena yet, but its previous e-commerce moves, its purchase of Fit Analytics, and its ambitious growth targets all indicate it could become a major competitor in the near future.

The bottom line

Snap’s takeover of Fit won’t move the needle right away, but it represents another brick of its expanding digital ecosystem. Snap will likely integrate Fit’s tools into Snapchat’s camera, which could make shoppable ads more appealing and pave the way for a broader expansion of its social commerce business. That initiative would complement the growth of its AR lenses, Discover videos, and games, and potentially shore up its defenses against both Instagram and Pinterest.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/03/24/snap-takes-aim-at-pinterest-with-its-latest-e-comm/

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