(Reuters) – Snap Inc said on Wednesday it would lay off 20% of all employees and wind up projects that include innovations like mobile games and flying drone cameras, as high inflation and a deteriorating economy ravaged the advertising industry. continues to do.
Snap said the cuts would help the company save an estimated $500 million in costs annually.
Shares of Snap were up nearly 10% in morning trading, echoing across the sector. Shares of Facebook parent Meta Platforms Inc. rose 5% and Pinterest Inc. 6%.
The company said it would focus on improving sales and the number of Snapchat users.
Investors see Snap as an early indicator of trends affecting other social media platforms, as Snap is usually the first to report quarterly earnings or provide business updates.
Snap’s warning in May that it would miss its revenue targets due to the deteriorating economic situation led to a sell-off of social media shares.
Shares of Santa Monica, Calif.-based Snap closed down 2.5% at $10 on Tuesday, when The Verge first reported Snap’s layoff plans, and AdAge reported the departures of two top advertising executives.
Revenue growth so far in the third quarter is up 8% over the previous year, which is “far below what we were expecting,” Chief Executive Evan Spiegel wrote in a memo to employees that was made public on Wednesday. was issued from.
If this growth rate holds up, it will be the slowest revenue growth since it became a public company in 2017 — a far cry from the triple-digit growth rate recorded in previous quarters.
Snap’s two top advertising sales executives – Head Business Executives Jeremy Gorman and Peter Naylor – Vice President of Advertising Sales – are going to join Netflix Inc. and build the streaming service’s advertising business.
Gorman, a longtime advertising executive who previously worked at Amazon, was instrumental in building Snap’s advertising business, said Jasmine Anberg, principal analyst at research firm Insider Intelligence.
Snap reported a disappointing second quarter following the departures of Gorman and Naylor and that it faces more competition from TikTok, she said.
“Snap is clearly going through a tough time,” Anenberg said.
‘face the consequences’
Despite reducing spending in some areas, Snap must now “face the consequences of our low revenue growth and adapt to the market environment,” CEO Spiegel wrote in the memo.
Jerry Hunter, senior vice president of engineering, will be promoted to chief operating officer and will be responsible for improving coordination between engineering, advertising sales and product teams, Spiegel said.
Other social media platforms including Snap and Meta have all suffered privacy updates that Apple Inc introduced on iPhones last year. This has made it difficult for digital advertising vendors and advertisers to target ads to relevant audiences and measure their sales results.
The close collaboration between engineering and sales could potentially help Snap improve the targeting and measurement of its ads.
The restructuring of the advertising sales division also includes three new chairman roles that will oversee the Americas, Europe, Middle East and Africa and Asia-Pacific regions.
Snap will also stop investing in its Pixie flying drone camera, just a few months after its debut in May.
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