Snapchat parent Snap Inc plans to substantially slow down its rate of hiring to effectively pause its headcount growth, Chief Financial Officer Derek Andersen said on July 21.
With this, Snap Inc joins a slew of tech companies such as Meta, Microsoft and Alphabet who have taken similar steps in recent months.
"I think it's clear, our rate of revenue growth has slowed considerably, and we are acknowledging we must adapt our investment strategy accordingly," Andersen said during the company's earnings conference call.
This remark comes after Snap posted its slowest ever quarterly sales growth as a public company on July 21. The company reported revenues of $1.11 billion for the second quarter of 2022, registering a 13 percent growth year-over-year (YoY). Net loss also widened to $422 million for the quarter, a significant jump from $152 million loss in the same quarter last year.
The user growth however remained robust with the daily active user base growing to 347 million users, an increase of 54 million or 18 percent YoY.
Snap chief executive Evan Spiegel said in a statement the financial results for the quarter "do not reflect our ambition".
"We are evolving our business and strategy to reaccelerate revenue growth, including innovating on our products, investing heavily in our direct response advertising business, and cultivating new sources of revenue to help diversify our topline growth," he said.
In a letter to investors, the company said it will recalibrate its investment level to move towards free cash flow break-even, despite reduced rates of revenue growth. It will, however, continue to invest in areas that are "critical to realising the long-term opportunity of augmented reality".
"We expect to emerge from this recalibration as a more focused and more productive organisation that is well positioned to capture the long-term growth opportunity we see ahead," the company said.
Over the past year, Snap has faced a series of headwinds, including macroeconomic challenges, that have disrupted many industry segments, increasing competition for advertising dollars and Apple's iOS 14 privacy policy changes that now requires apps to ask users whether they want to be tracked or not, which has impacted companies dependent on digital advertising such as Snap and Meta.
The company said these factors have limited the growth of campaign budgets, wherein some businesses have reduced their marketing spends or are reassessing investment levels amid a rising cost of capital.
That said, it continues to see significant room to drive growth through its direct response advertising platform since digital advertising provides a measurable return on spend, it said. Going forward, it plans to scale up its "privacy-preserving" ad measurement tools while continuing to invest in improving ranking and personalisation.
"We are focused on cultivating new models that leverage privacy-safe signals in order to deliver the optimal ad to the optimal Snapchatter at the optimal moment," Snap told investors in the letter.
It also seeks new sources of revenue, including augmented reality advertising, its newly launched subscription service Snapchat+, short video offering Spotlight and over time, monetising its map feature Snap Map through location-based advertising products.
Snap said sales in the ongoing quarter was roughly flat from a year ago but noted that it is "unclear how the headwinds it observed in Q2 will evolve in Q3", due to which it will not provide a financial guidance for the quarter.
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