Snapchat has announced that they are to be cutting their workforce by approximately 20%. This means the company will be losing well over 1,000 of their 6,400 employees.  As a result of the news, the share price of the company has dropped significantly.

Why is Snapchat cutting its employees?

Throughout the pandemic Snapchat grew incredibly quickly. The lockdowns meant that people were living in an evermore digital world, and social messaging apps like Snapchat capitalised on their product market fit and spent a lot on hiring new employees.

They hired a lot of new people.  In fact, in March 2020 Snapchat had only 3,427 employees who worked full-time, and last quarter that number had risen to 6,446 (a 38% increase from the previous year).

Such meteoric growth is difficult to sustain, especially when the market as a whole turns bearish and the Federal Reserve embarks on a series of rate hikes.

Acquisition of WaveOptics in 2021

In 2021, as part of Snapchat’s expansive growth ambitions, the company acquired WaveOptics for $500m.

WaveOptics is a company that makes VR displays and builds AR functionality into glasses. The acquisition showcased Snapchat’s huge confidence in the company and the fact that they believe that showing artificial reality through glasses and sunglasses will become a thriving industry.

However, an acquisition of this size can also put a lot of strain on a company like Snapchat. $500m is a huge amount for Snapchat to spend on an acquisition, especially considering that Snapchat has also experienced some financial difficulties.

Other Big Tech companies also making cuts

Despite reaching a multi-billion dollar valuation and having more users than Twitter, Snapchat has had a lot of difficulties over the past few years in terms of financials and generating revenue.

Famously, the CEO initially refused to sell to Facebook because, like the CEO of WhatsApp, he was concerned that Facebook’s bombardment of advertising would permanently damage the experience of using the app for the worse.

Since then, Snapchat has introduced adverts, but this hasn’t been plain sailing either.

Snapchat isn’t the only social media that has suffered since countries began to come out of lockdown. Facebook, Twitter, and Instagram have all reported declines in usage since people were no longer confined to their homes.

Now that we are also in recession, it shouldn’t be surprising that the exuberance of markets in the past isn’t necessarily to be reflected in their futures.

The crypto markets have been hit particularly hard since they reached all time highs, and many companies are feeling the pressure. and Coinbase have both been forced to cut their workforces: removing 5% of theirs and Coinbase removing 18% of theirs.

On the other end of the scale, there are companies like Celsius who have appropriated their user funds as part of chapter 11 bankruptcy proceedings in order to ensure that they keep as many of their current employees as possible, despite the company being completely bankrupt.

On the other hand, there are some companies that prepared for this decline and took the appropriate steps.  Binance, for example, functions on the understanding that at an 80% drawdown is always possible in the markets, and they are therefore to ensure that their revenue streams are diversified and can they can withstand market turmoil.

One of the unexpected benefits that Binance has experienced by adopting this strategy is that now that their competitors are suffering, they are able to acquire talent for far less money than they were six months ago, when solidity developers with little to no experience were charging six figure salaries.

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