Snap Chat Laysoff Workers Due to Reorganization- Is this a warning?

Today’s morning announcement from Snap CEO Evan Spiegel included a 20% personnel layoff as part of a bigger reorganization.

Snap stock increases following confirmation of big job layoffs and surprising sales growth. The shares of social media startup Snap Inc. increased 10% on Wednesday after the business said in a regulatory filing that it will be cutting 20% of its workforce as part of a “broader strategic reprioritization” intended to reduce expenses and improve free cash flow.

In order to concentrate on revenue and growth, Jerry Hunter, senior vice president of engineering, was also appointed to chief operational officer by Snap.

The disappointing Snap Q2 2022 results raise more concerns about social network advertising. There are roughly 158 million daily active users of the company. Almost all of Snap’s revenue comes from advertising, with 88% of that coming from the United States. The company is based in Venice, California.

Snap has endured months of financial hardship. Spiegel predicted that the business would fall short of its revenue targets for the second quarter of the year in a note to employees back in May. Even while the company’s quarterly sales of $1.11 billion was up 13% year over year, it still fell far short of the 20% to 25% growth that it had previously projected.

In addition to eliminating employees, Snap will strive to reduce costs by slowing down the development of original content, minigames, hardware, and the stand-alone applications Zenly and Voisey that were sponsored by Snap. The Pixy drone will no longer be developed by Snap, despite the company’s assurances that it will continue to work on Spectacles, its augmented reality glasses.

Should you buy Snap, Inc stock? Snap linked its progress to that of Meta,.  Although Facebook’s user base rose much more quickly than Snap’s, the average income per user on Facebook looks to follow a similar trajectory. Eleven years after the creation, Facebook had more than 1 billion daily active users in 2015. (DAUs). The same period saw 347 million DAUs added to Snapchat.

The fact that Snap’s goods are still expanding is a plus, though. Even though its revenue is below expectations, its DAUs increased 18% year over year, while Meta products’ growth has essentially stagnated.

Snap, Inc reports on it investor relations page,  macro headwinds such as high inflation, rising interest rates, and geopolitical risks disrupting many industry segments that are critical to growing advertising demand. Auction-driven direct response advertising is the easiest/fastest for clients to dial back for short term cost savings. As advertising dollars in aggregate grow more slowly, competition for these dollars intensifies. Macro headwinds such as high inflation, rising interest rates, and geopolitical risks disrupting many industry segments that are critical to growing advertising demand Auction-driven direct response advertising is the easiest/fastest for clients to dial back for short term cost savings.

Path to Profitability and Positive Free Cash Flow Quarter-to-date revenue growth is approximately 8% year-over-year.

Forward looking revenue visibility remains limited given uncertainty in the macro environment $500 million1 estimated reduction in the annualized cash cost structure2 relative to Q2’22: ➔ $50 million estimated reduction in fixed content costs within cost of revenue ➔ $450 million estimated reduction in adjusted operating expenses 3 inclusive of personnel and other opex cost reductions ➔ Estimated transition costs of approximately $110 to $175 million, with approximately $95 to $135 million expected to be incurred within adjusted operating expenses2 , and the majority expected to be incurred within Q3’22 Focused on delivering adjusted EBITDA and positive free cash flow at current revenue levels: ➔ Reduced fixed content costs expected to be fully implemented by end of 2022 ➔ Disciplined management of adjusted operating costs to drive meaningful operating leverage when revenue growth accelerates.

 

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