Snap will lay off a 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.
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.
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 $500mn a year from the restructuring, compared with its second-quarter costs. It added that it expected to spend between $110mn and $175mn 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.”
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. Gorman said in a social media post that she and Naylor will be going to Netflix, where she will serve as the streaming site’s president of worldwide advertising.
Shares in Snap fell more than 6 per cent in after-hours trading on Tuesday after the Verge and Financial Times first reported the lay-offs. The company’s shares have lost nearly 80 per cent of their value 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”.
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.
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