Social media app, Snap Incorporated has announced that it will lay off 20% of all staff and shut down projects, including mobile games and novelties like a flying drone camera, as high inflation and a deteriorating economy ravage the advertising industry.
According to the app, the cuts will help the company save an estimated $500 million in costs annually, which it will focus on improving sales and the number of Snapchat users.
Analysts and investors have viewed Snap as an early indicator for 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 worsening economic conditions sparked a sell-off in social media stocks.
Revenue growth so far in the third quarter is up 8% from the previous year, which is “well below what we were expecting”, chief executive Evan Spiegel wrote in a memo to workers.
If that growth rate holds, it would be the slowest revenue growth Snap has had since becoming a public company in 2017 – a far cry from triple-digit growth rates it has recorded in previous quarters.
Despite reducing spending in some areas, Snap must now “face the consequences of our lower revenue growth and adapt to the market environment”, CEO Spiegel wrote in the memo.
Snap and other social media platforms including Meta have all suffered from privacy updates that Apple introduced on iPhones last year.
These have made it difficult for digital ad sellers and advertisers to target ads to relevant audiences and measure their sales results.
Closer collaboration between engineering and sales could potentially help Snap improve the targeting and measurement of its ads.
The restructuring of the ad sales division also includes three new president roles that will oversee the Americas, Europe, Middle East and Africa, and Asia-Pacific regions.
Snap will also discontinue investment in its Pixy flying drone camera, just a few months after its debut in May.