Snap (NYSE: SNAP), maker of the messaging app Snapchat, wrote in an email to workers on Tuesday, August 30, that it would be laying off 20% of its staff in combination with several other efforts to restructure the business in the face of financial difficulties. Snap will be dropping at least six of its products, and is appointing a chief operating officer for the first time in seven years.
"While we have built substantial capital reserves, and have made extensive efforts to avoid reductions in the size of our team by reducing spend in other areas, we must now face the consequences of our lower revenue growth and adapt to the market environment," Snap CEO Evan Spiegel said. "We are restructuring our business to increase focus on our three strategic priorities: community growth, revenue growth, and augmented reality."
The roughly 1,300 layoffs are expected to primarily affect Snap workers in the hardware and developer products divisions. Products being dropped include Snap's Pixy camera drone, Snap Games, third-party Snap apps, and Snap's original content for premium users. Eventually, the Zenly map feature and Voisey music product will also be removed.
Snap says it hopes to save $500 million through its restructuring.
The reopened chief operating officer position will be filled by Jerry Hunter, the company's current senior vice president of engineering, a position he will continue to hold, as well.
Along with reopening the operations role, the company will also be adding Ronan Harris, vice president of Google (NASDAQ: GOOGL) and managing director of Google U.K. and Ireland, as Snap's president of its business in Europe, the Middle East and Africa, a new position. The company said it will also be adding a president for the Asia Pacific region and a president for the Americas, though candidates have yet to be decided.
Since the beginning of 2022, Snap's share price has declined more than 76%. The social media company saw its share price fall 25% after it released a dismal second-quarter earnings report in July. In that report, Snap declined to provide guidance regarding its Q3 performance, saying, "forward-looking visibility remains incredibly challenging."
"Changes of this magnitude are never easy, and we must act decisively to meet this moment as a team," Spiegel wrote. "I am proud of the strength and resilience of our team as we have navigated the myriad challenges of growing our business in a highly competitive industry during uncertain and unprecedented times."
Following the announcement of the 20% cut in staffing, Snap's shares rose by as much as 15%, according to CNBC.
Snap is one of several major social media companies that have been failing to meeting analysts' expectations, along with Twitter (NYSE: TWTR), Pinterest (NASDAQ: PINS), and Meta's (NASDAQ: META) Facebook.
According to the companies, the disappointing reports are the result of cuts in digital advertising spending by businesses, as well as new challenges for advertisers on Apple (NASDAQ: AAPL) devices. Social media sites largely make their revenue from showing ads and selling user data for use by advertisers. Competition from TikTok has been another major factor.
"When the economy starts to slow, advertising budgets get tight," Jefferies equity analyst Brent Thill said. "Advertisers tend to rise to the proven platforms, like Google or Amazon (NASDAQ: AMZN), where the wallets are."