Snap will lay off a fifth of its 6,500 employees and cut investments in its augmented reality glasses, among other things, as the social media group struggles with an advertising slump.
The Los Angeles-based company formally announced the reorganization on Wednesday, adding that revenue growth so far in the current quarter has slowed to 8 percent year-on-year, compared to 13 percent in the second quarter.
The cuts and bleak outlook mark a striking turning point for Snap, which has enjoyed blockbuster growth in the first two years of the coronavirus pandemic and increased headcount as users spent more time and money online during the lockdown.
However, boom times for social media groups have turned into a deep and broad stock sell this year amid high inflation and a broader economic slowdown, forcing the biggest tech giants like Meta and Google to freeze hiring and implement other cost-cutting measures.
Snap said it expects to realize savings of $500 million per year from the restructuring compared to second-quarter costs. It added that it is expected to spend between $110 million and $175 million to implement the restructuring, which would mostly be incurred in the current quarter.
“Today, we are restructuring our business to better focus on our three strategic priorities: community growth, revenue growth and augmented reality,” said CEO Evan Spiegel. “Changes of this magnitude are always difficult, and we are focused on supporting our departing team members in this transition.”
Among the biggest changes, Snap said in an investor slide that it was “restricting its ability to invest” in its long-touted Spectacles augmented reality glasses to “focus on highly differentiated long-term research and development efforts.”
It also said it’s weeding out investments in Snap Originals, short-form video content it produces in-house, and significantly reducing investments in games and Snap Minis, which developers create simplified versions of their apps within the main Snapchat app be able.
It will cut 20 percent of its global workforce, which stood at 6,446 at the end of June.
According to a report by The Verge, which was confirmed by Snap, Jeremi Gorman, chief business officer, and Peter Naylor, vice president of ad sales for the Americas, are leaving the company as part of the restructuring. Gorman said in a social media post that she and Naylor will join Netflix, where she will serve as the streaming site’s president of global advertising.
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Snap’s shares fell more than 6 percent in after-hours trading Tuesday after Verge and the Financial Times first reported on the layoffs. Shares of the company have lost nearly 80 percent of their value year-to-date after issuing a profit warning in May and releasing dismal second-quarter results in July.
In both cases, Snap said, tough macroeconomic conditions have prompted advertisers to cut their budgets. It also blamed increasing competition in the industry and Apple’s privacy changes, which have made it harder for apps to target ads and measure campaign success.
In its earnings statements in July, Snap said it was “not happy” with its earnings “regardless of current headwinds.”
Spiegel said the company plans to focus on product innovation, revenue diversification and investment in its direct-response advertising business to combat the slowdown.