The familiar Snapchat ghost isn’t smiling now. In its latest round of downsizing, Snap Inc. (NYSE: SNAP) – the owner of the popular Snapchat app – is cutting 100 employees on the advertising side of the house, reports Bloomberg News. These employee cuts are in addition to the reduction of 120 engineers earlier this month and two dozen content employees who were let go in January. They are part of a restructuring the company started during the fourth quarter of last year.
‘Late last year we asked senior leaders across Snap to look closely at their teams to ensure they had the right resources and organizations to support their missions,’ said Imran Khan, the company’s chief strategy officer, in a statement. ‘Tighter integration and collaboration between our teams is a critical component of sustainably growing our business.’
In the company’s SEC filing dated March 30, Snap revealed that the cuts in March amount to about 7 percent of the company’s global headcount. These cuts will yield about $25 million in savings in 2018, and $34 million on an annualized basis, in salaries and payroll taxes thereafter.
‘The reduction in force is to align resources around our top strategic priorities and reflect structural changes in our business,’ said Snap in its Form 8-K filing.
In the same filing, Snap notified the SEC that the company expects to incur losses of $25 million to $45 million for exiting leases before the end of the contractual lease term.
The cuts follow a challenging 2017 in which Snap went public but posted dismal financials and in which the company introduced a ‘new Snapchat’ in November.
In the video, a Snapchat spokesperson explains the reasons for the changes: ‘Today we’re making Snapchat more personal. One of the complaints we hear about social media is that photos and videos from your friends are mixed in with content from publishers and creators and influencers. But your friends aren’t content – they’re relationships. That’s why today we’re separating the social from the media and reorganizing Snapchat around your relationships to make it more personal.’
So far, the redesign has not been popular. In fact, to date 1.26 million users signed a petition on Change.org to protest the redesign.Some believe that Kyle Jenner’s tweet in February contributed to Snap losing $1.3 billion in value overnight.
Snap CEO Evan Spiegel doesn’t seem to be bothered by it, reports The Verge. At a Goldman Sachs Internet & Technology Conference last week, he said, ‘The complaints we’re seeing reinforce the philosophy. Even the frustrations we’re seeing really validate those changes. It’ll take time for people to adjust, but for me, using it for a couple of months, I feel way more attached to the service.’
According to Bloomberg News, the cuts are a result of over-hiring done to ramp up Snap’s advertising business and to release new products. The company has changed the way it sold ads by using an automated bidding process to open opportunities to more marketers and dropping the average price of an ad.
On February 6, Snap reports its fourth quarter and full-year 2017 financials which showed increases in revenue, daily active users (DAU) and average revenue per user (ARPU), but a net loss of $350.0 million for the quarter and $3.45 billion for the year. Other highlights from the financials include:
- DAU increased 8.9 million to 187 million for the quarter and 28.8 million for the year.
- Revenue was $285.7 million in Q4, a 72 percent increase. Full-year revenue was $824.9 million, an increase of 104 percent.
- ARPU was $1.53 in the fourth quarter, a 46 percent increase. Cost of revenue per user was $1.02 in Q4.
- Adjusted EBITDA loss was $158.9 million for the quarter, and a loss of $720.1 million for the full year.
- At year end, cash and marketable securities were $2.0 billion.
The day after these financials were reported – February 7 – Snap’s stock value spiked from $14.06 to $20.75 per share. Since then, it has fluctuated, ending at $15.87 per share on March 29 at 7:58 PM EDT.
Snap has had a tumultuous year, including everything from a lackluster IPO and highly-criticized redesign to major job cuts and huge financial losses. It seems like Snap not only needs a restructuring but maybe a reinvention too. It needs to stabilize itself financially and figure out how to work with its users to create a product they actually want to use. Spiegel’s dismissal of the user concerns does not seem like a solid growth strategy.