Snap Inc. is trimming its global workforce by around 10%. This development, which aligns with a recent trend among tech giants initiating workforce reductions in the new year, would see the company lay off more than 500 of its employees globally. The company stated in a filing on Monday that these cuts aim to optimize their business for the execution of top priorities.
A spokesperson highlighted a restructuring effort focused on reducing hierarchy and fostering in-person collaboration. Consequently, the stock experienced a 3.1% decline, reaching $16.51 in New York and echoing the broader market downturn.
Similar to its social media counterparts, Snap has been addressing a slowdown in ad revenue by implementing measures such as job cuts and discontinuation of projects deemed less essential.
The parent company of Snapchat, alongside Meta Platforms Inc., faced challenges following Apple Inc.’s privacy policy changes in 2021, impeding advertisers’ ability to track users effectively. While Meta rebounded with an impressive 25% increase in sales during the fourth quarter, Snap is now streamlining its operations. The California-based company, with approximately 5,400 employees as of September, anticipates a workforce reduction of about 10%, translating to around 540 jobs lost.
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Snaps Q2 2024 outlook amidst compliance and analyst predictions
Snap has indicated that the widespread job cuts might persist into the second quarter of 2024 as the company endeavours to adhere to local regulations. Jasmine Enberg, an analyst at Insider Intelligence, remarked the layoffs don’t bode well for the state of Snap’s business ahead of its fourth-quarter earnings report scheduled for Tuesday.
Enberg noted that following Meta’s report, the company faces a challenging comparison. She anticipates a 3.3% decline in Snap’s ad revenue in 2023 compared to the previous year. While Snap recently reported a return to revenue growth after two periods of decline, it cautioned about potential setbacks due to advertiser delays linked to the conflict in Israel and Gaza three months ago.
The company’s workforce reductions contribute to a series of announcements from tech companies since the start of the year, aiming to trim expenses after expanding during the pandemic. Microsoft Corp., Google parent company, Alphabet Inc., Amazon.com Inc., and Salesforce Inc. are among over 100 tech companies signalling layoffs in the past month, impacting nearly 32,000 employees, according to data from Layoffs.fyi.
Investors generally applaud these cost-cutting measures, evident in Meta and Amazon collectively gaining $336 billion in market value last week after surpassing quarterly earnings and outlook estimates. This success underscores the effectiveness of the industry-wide trend of tightening belts over the past year.
Workforce dynamics and recent augmented reality ventures
Snap has previously implemented substantial cutbacks in its operations. In 2022, it terminated 20% of its workforce and discontinued projects deemed unhelpful for revenue growth or the advancement of augmented reality technology. CEO Evan Spiegel later communicated an expectation for employees to spend 80% of their time in the office starting in early 2023.
Just four months ago, the company revealed the closure of a division dedicated to creating augmented reality services for businesses, resulting in the elimination of 170 jobs. The social media company approximated that these reductions would lead to pretax charges ranging from $55 million to $75 million, covering severance, related costs, and other expenses of $45 million to $55 million in future cash outlays. The majority of these costs are anticipated in the first quarter, as per Snap’s announcement.
The company’s decision to cut jobs and discontinue projects comes amid challenges posed by changing user preferences, regulatory shifts, and heightened competition. Investor approval of these cost-cutting measures, as seen in gains by Meta and Amazon, reflects the industry-wide emphasis on financial prudence amidst dynamic economic forces and technological shifts.
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