Snap to cut 1,000 jobs after activist pressure, bets on AI efficiency
FILE PHOTO: FILE PHOTO: A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange while waiting for Snap Inc. to post their IPO, in New York City, NY, U.S. March 2, 2017. REUTERS/Lucas Jackson/File Photo/File Photo
April 15 : Snap will lay off about 1,000 employees, including 16 per cent of full-time staff, the company said on Wednesday, becoming the latest tech firm to shift toward leaner teams as it ramps up AI adoption to streamline operations.
The move, which also includes the closure of more than 300 open roles, comes weeks after Irenic Capital Management pushed the Snapchat parent to optimize its portfolio and improve performance. The activist investor has an economic interest of about 2.5 per cent in the company.
Snap said advances in artificial intelligence are helping it streamline operations and operate with smaller teams, with AI generating more than 65 per cent of new code as it assigns critical work to focused teams and AI agents. The company had about 5,261 full-time employees as of December.
The social media firm's shares rose 5.8 per cent. The stock has fallen about 31 per cent so far this year.
The company has invested heavily in its augmented reality glasses unit Specs, and plans to launch the product this year.
However, Irenic Capital has urged it to spin off or shut the cash-burning business, citing more than $3.5 billion in investment, while also calling for broader cost cuts.
"Cutting costs may appease an activist in the near term, and give long-suffering shareholders some relief, but whether it really leaves the company with a defensible business model and competitive position that it can defend, develop and turn into profits and cash flow is still unclear," said Russ Mould, investment director at AJ Bell.
COST SAVINGS
Snap expects to cut more than $500 million in annualized expenses by the second half of the year, driven significantly by the recent layoffs, and broader efforts to reduce operating costs and stock-based compensation, CEO Evan Spiegel said. He asked North America employees to work from home on Wednesday.
AI is reshaping the workforce by automating routine tasks, with 80 tech companies cutting about 71,440 jobs so far this year, according to data aggregator Layoffs.fyi.
Snap expects first-quarter revenue to rise about 12 per cent to roughly $1.53 billion, largely in line with Wall Street expectations, according to data compiled by LSEG.
The company declined to comment on whether preliminary results include revenue from the $400 million Perplexity deal, announced last year. Snap said in February that the companies "have yet to mutually agree on a path to a broader rollout".
Despite its efforts, Snap has underperformed rivals in recent quarters, a trend advisory firm Madison and Wall does not expect to reverse.
The company forecast adjusted core profit of about $233 million for January-March, higher than Wall Street expectations of $186.8 million.
It expects $95 million to $130 million in layoff-related charges, mostly in the second quarter, a regulatory filing showed.
Snap is set to report quarterly results on May 6.
