Shareholders welcomed the news of the layoff at Snap Inc. (SNAP), pushing the stock higher yesterday. The American camera and social media company announced a 20% cut to its 6,400-employee strength. The company even decided to cancel several projects to control its costs and restructure its business operations. Shares ended the day up 8.7% at $10.88 yesterday.
Snap’s CEO, Evan Spiegel, informed employees through a memo that the company must take drastic steps to manage its financial challenges. Snap put up a poor show in its second quarter results, beating earnings but failing to meet revenue expectations. Spiegel even stated that the company’s 8% year-over-year revenue growth in Q2 was well below its own expectations.
Notably, the company seeks to focus its efforts on “three strategic priorities: community growth, revenue growth, and augmented reality.” On the other hand, the company is scrapping projects including the Pixy photo-taking drone, a line-up of Snap Originals premium shows, Snap Minis third-party apps, Snap Games, Zenly map products, and the Voisey music feature.
Snap noted that these steps will help the company save $500 million in annual expenses. Plus, the company will incur one-time costs between $110-$175 million toward employee cuts, project scrapping, and other issues.
Like other social media companies, Snap is dodging the difficult macroeconomic backdrop, which is pulling down advertising spending by companies. Moreover, Apple’s iOS privacy changes introduced in 2021 are making it more difficult to track the performance of ads. Similarly, increased competition from rivals like TikTok’s short videos is gaining far more attraction than Snap’s features. Plus, the potential threat from new entrants like Netflix (NFLX) into the advertising space continues to challenge Snap’s survival.
Analysts’ Reaction to Snap’s News
Following Snap’s 20% layoff news, Jefferies analyst Brent Thill called the reductions expected but more than anticipated, for a company that was rapidly increasing headcount in the last five quarters. However, the analyst was soothed by the company’s renewed focus on profitability.
Thill noted, “While we welcome the renewed focus on profitability, we believe it will take time for investors to regain confidence in the underlying fundamentals.” Thill maintained a $20 price target (83.8% upside potential) on SNAP with a Buy rating.
On the contrary, analyst Barton Crockett of Rosenblatt Securities lowered the price target on SNAP to $11 (1.1% upside potential) from $14 while maintaining a Hold rating. The analyst was surprised by the news of the loss of key ad executives over the report of steep layoffs.
Commenting on his stance, Crockett noted, “Our Neutral rating is maintained, in the belief that Snap’s strong youth audience position will allow it to eventually recover when the ad market and macro does.”
What is the Target Price for Snap Stock?
On TipRanks, SNAP stock has a Hold consensus rating. This is based on nine Buys, 23 Holds, and three Sells. The average Snap price target of $14.28 implies 31.3% upside potential to current levels. Meanwhile, the stock has lost a massive 76.6% so far this year.