On February 6th, Snap, the social media company, declared a 10% reduction in its global workforce, impacting around 500 employees. According to the company, this move is partially aimed at "facilitating in-person collaboration."
Snap's CEO, Evan Spiegel, stated that the layoffs include several executives, with a goal to reduce stock-based compensation to executives. Among those affected are Sam Corrao Clon, the Head of Content, Ding Zhou, the Vice President of Content Engineering, and Konstantinos Papamiltiadis, the Vice President overseeing platform partnerships.
Similar to many smaller tech firms, Snap has been burdened by high stock-based compensation expenses relative to its revenue, significantly impacting its operating profits. For instance, in the first three quarters of last year, Snap reported nearly $1 billion in stock-based compensation expenses against its revenue of $3.2 billion, resulting in an operating loss of $1.1 billion after factoring in stock compensation costs.
Since 2022, Snap has undergone multiple rounds of layoffs, with the most recent being in November last year, where a small portion of the product team was let go. The last significant layoff occurred in August 2022, when the company cut 20% of its workforce and underwent a business restructuring.
According to regulatory filings, Snap expects the current layoffs to incur costs ranging from $55 million to $75 million. A spokesperson for Snap confirmed, "We are restructuring our team to flatten the organization and facilitate more direct face-to-face communication and collaboration. We are also committed to supporting those team members who will be departing."
Snap is not alone as the latest tech company to undergo layoffs in 2024. Just in January, nearly 24,000 tech industry workers lost their jobs in the United States. This month, cybersecurity firm Okta and video conferencing platform Zoom also announced layoff plans.
Last week, Spiegel testified before the U.S. Senate Judiciary Committee, becoming one of several social media executives under scrutiny for the negative impact of their platforms on young people.
Investors typically support layoffs by tech companies. For example, Meta, the parent company of Facebook, implemented an "efficiency year" plan, resulting in significant layoffs. Meta's stock price reached historic highs after announcing strong earnings and initiating its first-ever dividend payout.
Meanwhile, Amazon and Alphabet, Google's parent company, have also conducted similar layoff actions. Like Google and Facebook, Snap heavily relies on digital advertising revenue. Despite some quarters of underperformance, the company recently reversed its trend of declining revenue in the latest quarter. Additionally, Snap has initiated a $500 million stock repurchase program.
In early trading, Snap's stock price initially dropped by 3%, but later recovered, ultimately closing down by 1.8%. However, Snap's stock price remains below its IPO price and significantly lower than its peak of around $83 in 2021.
