As the social media industry battles a decline in advertising, the company behind Snapchat is slashing funding in projects like augmented reality glasses and laying off roughly 1,300 employees.
The current quarterly revenue growth of 8%, according to Snap’s CEO, was “far below” projections, and the company’s planning makes the assumption that the sluggish advertising market will persist into the following year.
“Unfortunately, given our current lower rate of revenue growth, it has become clear that we must reduce our cost structure to avoid incurring significant ongoing losses,” said CEO and cofounder Evan Spiegel.
Spiegel informed employees that the US-based business would reduce its 6,400-person workforce by 20% and halt investments in things like mobile games and its Pixy drone camera. Additionally, Snap is dissolving its Originals division, which has worked with celebrities like Megan Thee Stallion and Anthony Joshua to generate content.
The job cuts come after Snap, which generates more than two-thirds of its revenue in North America, issued a profit warning in May, which was followed by disappointing results in July. Snap claimed that advertisers were being negatively impacted by supply chain disruptions, a labor shortage, and high inflation.
Apple’s privacy measures have also made it more challenging for social media businesses to target users with digital advertising and assess the effectiveness of that advertising.
Snap stated that it will be “narrowing” its investment in augmented reality (AR) glasses, which overlay digital graphics on what a wearer sees, in a presentation slide for investors that went along with the announcement.
The prototype glasses have received a lot of attention from Snap, but the firm announced that it would now concentrate on long-term research and development for the glasses.
As a result of the news, Snap’s shares increased 9.2% to $10.93 (£9.39), as investors were comforted by the company’s decision to reduce expenditure in some aspects of its business. There are 347 million users of Snap’s messaging service globally.
Jasmine Enberg, an analyst at market research firm Insider Intelligence, stated that Snap has a strong chance of emerging from this by going “back-to-basics” and narrowing its focus on to its core product, though it will take time.
Jerry Hunter, senior vice president of engineering at Snap, will be given the new title of chief operational officer as part of the changes, and he will be in charge of enhancing communication between the engineering, ad sales, and product teams, according to Spiegel.
The business declared that it would concentrate on increasing revenues and Snapchat users. Investors have been reassured by the “clear and defining move” to refocus its business, according to Paolo Pescatore, an analyst at PP Foresight.
As Snap is typically the first to release quarterly earnings reports or company updates, analysts and investors have looked to Snap as an early sign of developments affecting rival social media platforms.
If the 8% growth rate indicated in Snap’s announcement is accurate, it will be the worst growth rate the firm has had since going public in 2017 and a far cry from the triple-digit growth rates seen in prior quarters.
Jeremi Gorman, chief business officer at Snap, and Peter Naylor, vice president of ad sales, are leaving the company to work for Netflix to expand the streaming service’s advertising division.
