Sometimes things just don’t work out the way you’d like, and sometimes, it’s better to save some money than it is to continue haring off after something that won’t work. That’s what happened to Snap (NYSE:SNAP) today, as the social media player closed a business unit and recouped the costs accordingly. That was enough for investors to send it up nearly 2% in Wednesday afternoon’s trading session.
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The cost-cutting move that investors are applauding focuses on Snap’s augmented reality unit, which it set up back in March. Snap referred to it as ARES, the Augmented Reality for Enterprise Services. ARES would have offered an entire array of AR services, starting with the 3D Viewer, the AR Try-On, and the Fit Finder, which would have been very useful if mostly only for clothing retailers. It would have meant a whole new revenue stream unconnected to advertising, but ultimately, the project was scrapped. CEO Evan Spiegel noted that it would have required “significant incremental investment” to get it off the ground, one that Snap just couldn’t swing right now.
The move is expected to shut down 170 jobs, though at least some of those who got let go will be rehired at other positions instead. Still, it’s part of a bigger problem; analyst Victoria Greene with G Squared Private Wealth pointed out that Snap “just can’t make money.” Bad enough, but the specifics are worse: “They’re burning cash and their operating margins are going backwards.” Admittedly, that’s somewhat ameliorated by the news that Snap is working on a generative AI system, but with AI’s bubble also looking to potentially burst, that may be too little too late for Snap.
Is Snap a Buy, Sell, or Hold?
Analysts are taking a cautious approach with Snap, declaring Snap stock a Hold on the back of three Buy ratings, three Sells, and 18 Holds. Nevertheless, Snap stock does offer 19.08% upside potential thanks to an average price target of $10.11.
