Social media company Snap, owner of popular app Snapchat, announced major layoffs on Monday, cutting over 20% of its global workforce. The company said it is laying off around 500 employees, part of a larger restructuring plan aimed at trimming costs.
Background
Snapchat exploded in popularity among teenagers and young adults over the past decade with its disappearing messages and fun filters for photos and videos.
The company went public in early 2017, raising $3.4 billion in one of the tech industry’s hottest IPOs. The stock popped on the first day of trading as investors saw huge potential for growth and advertising sales.
Key Snap Financials
| Year | Revenue | Net Loss |
|---|---|---|
| 2022 | $4.12 billion | $487 million |
| 2021 | $4.02 billion | $488 million |
| 2020 | $2.51 billion | $944 million |
Snap’s revenue grew steadily to over $4 billion in 2021 and 2022. However, the company has struggled to turn a profit, losing between $487-$488 million the past two years.
While Snap beat Wall Street’s Q3 2023 estimates and reported a return to revenue growth to end 2022, issues still lurked under the surface. Daily active users were lower than expected during the quarter. This likely signaled worries over future growth potential to investors.
Restructuring & Layoffs
In a memo to staff obtained by several media outlets, Snap CEO Evan Spiegel said the workforce reduction will cut layers of middle management and restructure to improve efficiency. The layoffs represent over 20% of Snap’s over 2,500 global employees.
Spiegel said the restructuring will focus resources on three strategic priorities:
- Community growth
- Revenue growth
- Augmented reality
“As a result, we are restructuring our business to increase focus on our three strategic priorities,” Spiegel wrote. “This restructure will help us further prioritize our investments, consolidate resources, and enable self-service tools to empower our creative teams.”
The layoffs appear concentrated in divisions like hardware research, partnerships and marketing. They represent a pullback from Snap’s once-aggressive growth initiatives and an effort to conserve resources during difficult economic conditions.
Snap is offering a minimum of four months severance pay plus additional benefits to laid-off employees based on tenure and location. The company said it is also working to help place fired employees into new roles.
Advertising Woes
At its core, Snapchat is an advertising platform. The service itself does not generate revenue. Instead, ads targeted based on user data and behaviors provide nearly all of Snap’s income.
Like other tech and social media platforms, Snap is dealing with cutbacks from advertisers due to high inflation and fears over a potential recession. Global ad spending is expected to grow at a much slower rate in 2023. This compounds issues already created from Apple privacy changes in iOS that restrict targeting capabilities.
Though the ad market downturn is affecting the entire tech sector, Snap appears to be getting hit exceptionally hard – likely due to its heavy skew toward younger demographics. The company said advertising demand deteriorated much faster than expected at the end of 2022.
Other social media platforms like Facebook and Twitter have already made deep cuts in response to the advertising pullback. Snap’s layoffs indicate these issues are bleeding deeper into the industry as platforms contend for shrinking ad budgets.
What’s Next
Snap will be left much leaner after shedding 20% of positions. The more streamlined structure aims to keep the company nimble enough to adjust operations based on evolving user behaviors and advertiser needs.
Focusing innovation and monetization efforts around community, revenue and augmented reality align with Snap’s strengths in messaging, ads and creative tools. Doubling down on these core competencies provides a targeted path forward.
However, the road ahead remains filled with challenges. Snap must still address the impact of reduced ad targeting capabilities, continue appealing to its young user base as they age, and fend off competition from apps like TikTok.
For investors, it remains unclear if rightsizing alone can reignite significant growth. Snap’s stock plunged over 30% in early trading Monday on news of the restructuring and layoffs. The company may need to unlock new channels of business if it hopes to return to Wall Street’s good graces.
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