Snap Cuts 16% Betting on AI Efficiency, Shares Surge Over 10% Premarket

TradingKey - On Wednesday local time, Snap ( SNAP) announced it will lay off approximately 1,000 employees globally, representing 16% of its full-time workforce, while closing more than 300 vacant positions. Following the news, the company's shares rose more than 10% in pre-market trading.

Snap CEO Evan Spiegel stated in an internal memo to employees that the layoffs are a necessary move for the company to shift toward profitable growth and improve operational efficiency. Through this workforce optimization and reduced hiring, the company's annualized costs are expected to decrease by more than $500 million by the second half of this year.

Spiegel specifically mentioned in the memo that the rapid iteration of AI technology is reshaping work patterns. AI tools have already helped teams reduce repetitive labor and accelerate project progress. Core projects such as Snapchat+ service upgrades, ad platform performance optimization, and Snap Lite infrastructure efficiency improvements have all achieved efficient small-team operations through AI.

To facilitate the smooth implementation of the layoffs, the company requested that most employees work from home on Wednesday.

As the parent company of the world-renowned social platform Snapchat, Snap has faced pressure from a slowing digital advertising market in recent years. This layoff is the latest in a series of cost-cutting measures aimed at concentrating resources on high-priority strategic projects to ultimately achieve profitability targets.

In the letter, Spiegel recalled that the company was at a 'critical test' last fall and established a requirement for a 'faster and leaner' work model; this personnel adjustment is a continuation of that strategy.

Snap Earnings Stabilize

At a critical stage of its business restructuring, Snap’s first-quarter earnings report sent positive signals, with revenue growing 12% year-over-year to $1.53 billion, slightly exceeding the market consensus of $1.52 billion. Additionally, Snap raised its quarterly guidance, providing an optimistic outlook for future sales and core profitability.

On the earnings front, the company expects adjusted EBITDA to be approximately $233 million, a core profitability metric that far exceeds the market consensus of $184.5 million.

Notably, while Snap has remained profitable on an adjusted EBITDA basis for the past 10 quarters, it has only achieved positive net income in two of those quarters.

Regarding market performance, despite a recent rebound in share price, Snap’s year-to-date decline stood at 30.6% as of Tuesday.

In terms of its business strategy, Snap continues to invest resources in its independent subsidiary, Specs, to develop consumer augmented reality (AR) smart glasses, with plans to bring them to market this year.

Coinciding with the layoff news, Snap announced a multi-year strategic partnership between its newly formed XR subsidiary, Specs, and Qualcomm. Qualcomm will provide Snapdragon XR platform chips for Snap’s next-generation Specs AR glasses, and both parties confirmed that this highly anticipated flagship AR device will officially debut later this year.

However, this strategic move has also sparked controversy. Activist investor Irenic Capital Management has publicly urged Snap to divest or shut down the Specs business, noting that the unit has cumulatively consumed over $3.5 billion in investment and still requires approximately $500 million in annual cash infusions.