How social media giant Snap has been snapped back to reality
The original social media disruptor has been disrupted itself. Can it turn round mounting losses?
Like its vanishing photos, Snapchat itself is facing up to fears it might too be just a momentary diversion.
On Monday, Snap announced plans to trim its workforce by about 10 per cent, leaving approximately 500 employees on the chopping block.
A spokesperson for the parent company said the decision was a reorganisation aimed to “reduce hierarchy and promote in-person collaboration.”
But over the past year, the company has tried to get a grip on slippery profits and revenue by halting projects and reshuffling its leadership team.
This marks Snap’s second significant layoff wave. In August 2022, the company slashed 20 per cent of its employees, a casualty of the sleepy ad market and TikTok’s giddy ascent.
“Snap is likely trying to garner some goodwill with investors, who rewarded its competitor for its cost-cutting measures and its continued ‘do more with less’ mantra going into 2024,” according to principal social media analyst at Insider Intelligence, Jasmine Enberg.
The company is not, of course, alone in the melee of layoffs; tech companies everywhere are still tightening their belts as they navigate the post-pandemic economy.
Last month TikTok announced it is planning to cut 60 roles across its advertising and sales division. In 2023, Meta laid off thousands to focus on its “year of efficiency”.
But it has worked out well for the latter. Last week Zuckerberg’s company reported quarterly profits tripled year-on-year, substantial user growth, reduced expenses, and increased ad revenues. The tech giant did so well that the chief executive even said he is upping the employee cash bonus.
Meta’s soaring success only serves as a bitter reminder of Snap’s shortcomings.
Once hailed as a disruptor in the social media sphere, Snap is now struggling to find its footing amid fierce competition and revenue threats. Instagram shamelessly copied its ‘stories’ feature, and TikTok is syphoning off its younger user base.
The playful nature of the app has failed to capture the attention of older adults with disposable income and Snap seems stuck in a perpetual adolescence, neither growing up with its original teen user base nor truly finding its place in the heart of younger audiences enamoured with Tiktok.
Part of Snap’s financial problem is that it has yet to diversify successfully beyond Snapchat. In September 2023, it made the decision to shutter a business segment dedicated to providing augmented reality (AR) services for businesses. This marked the end of Snap’s division aimed at diversifying the company’s revenue streams.
Enberg added that Snap also needs to show its path to growth in the core line of its business, advertising. “Its ad business has struggled to recover from the ad market downturn and Apple’s privacy changes, and urgency is high after Meta’s blockbuster earnings,” she told Morning Wire.
“Snap has tried to distance itself from social media, but it’s still competing for the same social ad dollars as Meta, TikTok and others.”
And the user numbers don’t lie. While Snap boasts a respectable 406m daily active users, it is outnumbered by TikTok’s 900m and Facebook’s 2bn.
At their peak in September 2021, Snap shares hit $83.11 per share before they came thundering down throughout the following year. The stock plunged almost 83 per cent as the ghost-logo app spooked investors by posting consistent losses.
In 2022, Snap’s total revenue rose 12 per cent year on year to $4.6bn but its net losses widened to $1.4bn, compared to $488m in 2021. The stock has kept better than steady – despite a fall from highs, it’s still worth more than double what it was five years ago – but a net loss of more than $350m in its latest quarterlies tells its own story.
As Snap gets underway in its second decade, it faces a challenge: how to transform itself from a one-trick pony into a mature, profitable enterprise.
It is still around for now but if there is one thing Snapchat knows well, it’s that anything can disappear quickly.