In response to the misery that high inflation and the deteriorating economy are causing in the advertising sector, Snap Inc. announced on Wednesday that it will lay off 20% of its entire staff and halt future projects, including mobile games and novelties like a flying drone camera.
According to Snap, the cost reductions from the changes will help the company save $500 million a year.
The company declared that it would concentrate on increasing revenues and Snapchat users.
Investors have been reassured by the “clear and defining action” to refocus its business, according to Paolo Pescatore, an analyst at PP Foresight.
Because Snap is frequently the first to provide quarterly earnings reports or company updates, analysts and investors have considered Snap as an early signal for developments affecting rival social media platforms.
A sell-off in social media equities was spurred by Snap’s May warning that it will miss its revenue objectives owing to deteriorating economic conditions.
shares of the Santa Monica, California-based company The Verge was the first to expose Snap’s plans for layoffs, while AdAge was the second to announce two top advertising executives had left the company. On Tuesday, Snap finished down 2.5% at $10.
CEO Evan Spiegel stated in a memo to staff that was also made public on Wednesday that revenue growth so far in the third quarter is up 8% from the prior year, which is “well below what we were expecting.”
If that growth rate holds, Snap will have experienced the worst revenue growth since going public in 2017, a far cry from the triple-digit growth rates it has experienced in prior quarters.
Chief Business Officer Jeremi Gorman and Vice President of Ad Sales Peter Naylor, two of Snap’s top ad sales executives, are leaving to work for Netflix and expand their ad operations there.
Gorman, a longtime advertising executive who previously worked at Amazon, was instrumental in building Snap’s ad business, said Jasmine Enberg, principal analyst at research firm Insider Intelligence.
The exits of Gorman and Naylor come after Snap announced a weak second quarter and it now has additional competition from TikTok, according to her.
“Snap is clearly going through a tough time,” Enberg said.
Despite reducing some expenses, CEO Spiegel stated in the message that Snap must now “face the consequences of our lower revenue growth and adapt to the market environment.”
Jerry Hunter, senior vice president of engineering, will be given the title of chief operating officer and be in charge of improving communication between the engineering, ad sales, and product teams, according to Spiegel.
Due to these, it is now challenging for digital ad sellers and advertisers to target ads to the right demographics and track the success of their sales campaigns.
The targeting and measurement of Snap’s ads may be improved with closer technical and sales cooperation.
Three new president positions that will be in charge of the Americas, Europe, the Middle East and Africa, and Asia-Pacific areas are also part of the restructure of the ad sales sector.
Snap will also stop investing in its Pixy flying drone camera, just after its May debut.