Snapchat’s parent company is cutting staff and reducing investments in lagging businesses, in a bid to rein in costs after a slowdown in ad revenue growth.
Snap Inc. is cutting about 20% of its workforce, Chief Executive Officer Evan Spiegel said in an internal statement. memorandum sent to staff on Tuesday. The change was necessary because revenue growth of 8% in the current quarter was below the company’s initial assumptions. Snap, which makes a social app popular with young people, has never reported single-digit quarterly revenue growth as a public company, according to data from Bloomberg.
Any project that does not contribute to the company’s increased users and sales or augmented reality offerings will be removed or receive a “substantially reduced investment,” Spiegel said in his memo. “While we will continue our work to re-accelerate revenue growth, we must ensure Snap’s long-term success in any environment.”
The shares gained 6.7% in New York to $10.68. The shares are down 78.7% this year through Tuesday’s close, on track for their worst year since going public in 2017.
A pullback in advertiser spending on its platform has crippled Snap’s sales growth this year. Employees in the struggling ad sales departments will now report to a new COO, Jerry Hunter, who previously held the role of senior vice president of the engineering team. The advertising divisions previously reported to chief commercial officer Jeremi Gorman, who is leaving the company to take a position at Netflix, the company said.
With investors losing confidence, the company is tasked with raising and controlling costs simultaneously. The company is selecting work to prioritize growing the user base, improving the advertising business and finding new sources of revenue.
To help with these efforts, the company is also adding three regional president roles in the Americas, Asia Pacific, and Europe, Middle East, and Africa regions.
Snap is known for its flagship social media app Snapchat, which is popular for sending disappearing photo and video messages. The company is reducing or discontinuing investments in the following areas:
- Snap Originals, shows and series produced by Snap
- Minis, the stripped-down version of third-party services like ticketing apps and meditation apps on Snapchat
- Pixy, the flying camera drone in development since 2017 that launched earlier this year
- Zenly, a separate social mapping app
- Voisey, a separate app for writing songs with others
The company will also reduce the scope of development of its Spectacles camera glasses.
“As aggregate ad dollars grow more slowly, the competition for these dollars intensifies,” Snap said in an investor presentation.
While Spiegel said it’s difficult to project revenue for the year under these conditions, this restructuring will help ensure the company continues to generate free cash flow in 2023. The company expects to see a one-time cost of $110 million to $175 million tied to the worked. cuts, according to an investor presentation. Ultimately, Snap expects to reduce annualized content and operating costs by $500 million, relative to the second quarter.
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