Snap will lay off one-fifth of its 6,500-strong workforce and slash investment in its augmented reality glasses, among other areas, in a big shake-up as the social media group battles a slump in advertising.
The Los Angeles-based company formally announced the restructuring on Wednesday, adding that revenue growth in the current quarter so far had slowed to 8 per cent year on year, compared with 13 per cent in the second quarter.
Shares in Snap jumped 13 per cent in early trading on Wednesday in the wake of the news to $11.32 (€11.25).
The cuts and bleak outlook mark a striking volte-face for Snap, which posted blockbuster growth in the first two years of the coronavirus pandemic and expanded headcount as users spent more time and money online during lockdowns.
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However, boom times for social media groups have turned this year into a deep and broad stock sell-off amid high inflation and a wider economic slowdown, forcing the biggest tech groups such as Meta and Google to freeze hiring and implement other cost-cutting measures.
Snap said it expected to generate savings of $500 million a year from the restructuring, compared with its second-quarter costs. It added that it expected to spend between $110 million and $175 million implementing the restructuring, which would mostly be incurred in the current quarter.
“Today we are restructuring our business to increase focus on our three strategic priorities: community growth, revenue growth and augmented reality,” said chief executive Evan Spiegel. “Changes of this magnitude are always difficult, and we are focused on supporting our departing team members through this transition.”
Investment scope
Among the biggest changes, Snap said in an investor slide deck that it was “narrowing its investment scope” in its long-touted augmented reality glasses, Spectacles, in order to “focus on highly differentiated long-term research and development efforts”.
It also said it was culling investment in Snap Originals, short-form video content that it produces in-house, and significantly reducing investment in games and Snap Minis, through which developers can build simplified versions of their apps within the main Snapchat app.
It will slash 20 per cent of its global headcount, which stood at 6,446 at the end of June.
Jeremi Gorman, chief business officer, and Peter Naylor, vice-president of ad sales for the Americas, are leaving the company as part of the shake-up, according to a report from The Verge, which was confirmed by Snap. Ms Gorman said in a social media post that she and Mr Naylor would be going to Netflix, where she would serve as the streaming site’s president of worldwide advertising.
The company’s shares have lost more than 75 per cent of their value in the year to date, after issuing a profit warning in May and posting bleak second-quarter results in July.
In both instances, Snap said tough macroeconomic conditions had caused advertisers to slash their budgets. It also blamed increased competition in the sector and privacy changes by Apple that have made it harder for apps to target advertising and measure the success of campaigns.
In its results statements in July, Snap said it was “not satisfied” with its earnings “regardless of the current headwinds”.
Mr Spiegel said the company planned to focus on product innovation, diversifying revenue and investment in its direct response advertising business in order to address the slowdown. – Copyright The Financial Times Limited 2022
