Gerry Palmers Tech 08.09.2022 05:Aug AM EDT

Snap Will Reportedly Lay Off Employees Following Q2 Earnings Results

Due to disappointing earnings results and the failure to give earnings forecasts for the third quarter that led to a downward spiral of its stock price to near all-time lows, Snap is reportedly planning to layoff employees, according to The Verge in its report quoting people familiar with the plans.

It remains uncertain how many among Snap's more than 6,000 employees will be lose their jobs, as managers across the company are still planning the job cuts withinin their respective teams.

Snap Business Hit Hard by Apple Move, Rising inflation that Cut Ad Spending

Snap's business had been hit hard on two fronts, The Verge further noted in its report. One is the introduction of the "Ask App Not to Track" prompt on the iPhone, which an estimated majority of users chose "Yes" to, making it difficult for such companies as Snap to effectively target their ads.

The second factor is the broader economic downturn that that has affected the stock prices of Snap and other cash strapped companies, making them plummet considerably. It isworth noting that Snap was only profitable in one quarter since going public in 2017.

Snapchat said the difficulties were borne out of some advertisers' challenges in facing supply-chain disruptions and labor shortages, and many others struggle with rising costs brought about by record inflation, which has led to ad spending cutbacks.

Snap actually laid off several employees in the past. This was in 2018, when the company hajust emerged from user backlash over a poorly executed sie redesign. But it had since recovered from that debacle reaching 347 million daily users, a metric that made the social media firm surpass Twitter.

However, even with a strong user base, Snap found it difficult to establish and maintain a thriving ads business. And, attempts at marketing hardware, such as a $230 selfie drone, did not take off successfully. Last May, CEO Evan Spiegel told Snap employees that the company would freeze on hiring and instead look for "additional cost savings."

Tough Times Ahead for Ad-Driven Tech Firms

But tough times seem to be ahead for tech firms, in general. Twitter, TikTok, and other tech firms have either announced job cuts or a freeze in hiring in the recent months. Even Snap's much larger and profitable competitor in the social media landscape, Meta, has slowed down on hiring and warned its employees about difficult times ahead.

Meta, Google parent company Alphabet Inc and other companies that sell online ads bled about $80 billion in combined stock market value on Thursday after the results of Snap, which was the first of the major tech firms to report second-quarter earnings. Twitter Inc (TWTR.N) will report its results on Friday.

Investors are expecting the slowest-ever growth for social media ad earnings this year, given that rising inflation and other economic challenges lead brands to cut their marketing budgets.

Snap's revenue for the second quarter ended June 30 was $1.11 billion, which missed analyst expectations of $1.14 billion, according to a Reuters report quoting IBES data from Refinitiv. This, however, grew 13 percent from the same quarter last year.