Published - September 1, 2022 @ 4:05 PM (EET)

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Shares of Snap Inc., (NYSE:SNAP) the parent company of social media app Snapchat, surged as much as 14.9% Wednesday following news of the company's plan to cut costs.

In an internal memo sent to staff earlier this week, Chief Executive Officer Evan Spiegel said Snap is cutting about 20% of its 6,400-person workforce, a change that was necessary after revenue growth of 8% in the current quarter fell short of the company's initial predictions.

The company is emerging as one of the most prominent examples of a tech company shifting from overdrive into reverse as it struggles with its lowest sales growth since going public.

Ad revenue slowdown for Snap was also swift and steep while competition has further heated up across the industry.  

Streaming giant Netflix (NASDAQ:NFLX), who is also launching an ad business, poached Snap's chief business officer, Geremi Gorman, as well as another ad executive, which "could prolong Snap's ad growth challenges and increase execution risk," says Citi analyst Ronald Josey.

WHY IT MATTERS

While the tech stock's gain was fueled by the company's cost-cutting efforts, more important news was stifled in the update, including Snap's completion of a meaningful share repurchase program and a company update on quarter-to-date revenue performance for the third quarter.

Aimed to give its business more focus and make it more profitable, Snap detailed a restructuring plan in an investor update on its investor relations website Wednesday.

In addition to reducing its staff headcount, the company said it is either substantially lowering or entirely eliminating investments, including the development of its flying camera, Pixy, and winding down stand-alone apps Zenly and Voisey.   Snap will also narrow the scope of work for its Spectacle camera glasses.

In doing so, Snap hopes to reduce costs by around $500 million from its annual spending and anticipates it will incur one-time expenses of between $110 million and $175 million to lay off staff.

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