Snap, the maker of popular social media platform Snapchat, has announced plans to reduce its workforce by 10%. This move will result in layoffs for over 500 employees. The decision was revealed in an SEC filing, where Snap explained that the restructuring was necessary to support its future growth.
The company estimates that it will incur pre-tax charges ranging from $55 million to $75 million as a result of the layoffs. These charges will primarily consist of severance and related costs, with the majority expected to be incurred in the first quarter of 2024. However, some costs may extend into the second quarter due to local law and other factors. Snap is set to report its earnings after the market closes on February 6.
A spokesperson for Snap stated that the reorganization aims to reduce hierarchy and promote in-person collaboration. They expressed gratitude for the hard work and contributions of the departing team members. This round of layoffs follows a smaller reduction in headcount that occurred late last year when Snap reorganized its product team to streamline decision-making processes.
Snap’s struggles extend beyond workforce reductions. The company recently discontinued its Pixy drone due to fire risks and shuttered its enterprise services division after less than a year. Additionally, its investments in hardware products, such as Snap Spectacles, have not yielded favorable results.
In 2022, Snap cut 20% of its staff as part of a larger restructuring effort. Despite this, the company’s stock price initially rose after reporting better-than-expected Q3 earnings. Snap surpassed analysts’ estimates for both revenue and earnings per share, as well as exceeded expectations for user growth. However, its net loss widened by 2% year-over-year to $368 million in the quarter.
Snap faces challenges in the highly competitive digital ad market, where it holds a 0.6% share. The company cautioned investors about the volatility of the ad market and revealed that some clients had paused their ad campaigns. Research provider Insider Intelligence estimates that Snap will generate $4.12 billion in net worldwide ad revenue in 2024.
Jasmine Enberg, a principal analyst, commented on the layoffs, stating that they do not bode well for Snap’s upcoming Q4 2023 earnings. Enberg also noted that Snap is likely trying to gain favor with investors after Meta’s cost-cutting measures were well-received. She predicts a 3.3% year-over-year decline in Snap’s ad revenue for 2023.
Snap had a total of 5,367 employees as of Q3, according to its press release. Business Insider reported that the layoffs began on Friday, with several dozen employees being let go ahead of the company-wide announcement. Further job cuts are expected to occur throughout the week.
Snap’s decision to reduce its workforce reflects the company’s efforts to streamline operations and position itself for future growth. While challenges persist in the digital ad market, Snap remains committed to adapting and finding new avenues for success.