A couple weeks ago, Snap Inc. announced a plan to restructure the company along with massive layoffs to try and focus on its more successful aspects of the app and business while seeming to finally abandon projects for physical products like glasses and drones that were previously released. This recent news is great as it shows that Snapchat is really trying to finally create more stable growth and become profitable once again. However, analysts still consider these cuts to be only a fraction of what they need to turn a profit. There is still a real possibility that this stock could go to zero.
Despite the troubles with profitability, $SNAP still has a social media app with user numbers that can somewhat compete with their closest competitors like Instagram ($META), TikTok, and Twitter ($TWTR). While the 538M monthly active users might seem small compared to the likes of Instagram with 2 billion and TikTok with 1 billion, Snapchat still has more than Twitter with 436M. So if users are not the problem, what is?
The problem is the way Snapchat is used. More than the original “stories”, Snapchat is mostly based on direct messaging. This causes problems for $SNAP as it makes it harder for the company to monetize their active users because they have to rely on advertised camera filters and most do not care to send their friends filters as ads. This is much easier for their competitors like TikTok, Twitter ($TWTR), and Instagram ($META) because users’ activity seem to have a more public use and therefore get easier ways for ads to be viewed. Another main problem with $SNAP is their problem with spending. The new restructuring might be very helpful for this very issue but Spending has still increased by 120% year over year and total revenue has not been able to keep up. Cost cuts are a good step but simply not going to be enough.
In conclusion, one might think that the recent news of the restructure for $SNAP is a step in the right direction, but these 20% in employee layoffs are also seen as a desperate move for survival. There may be times where $SNAP has interesting news to shoot up their stock price for a brief moment, but for the past year the stock has fallen by more than 70%. So news like this should be taken with a grain of salt as it might just be a move in desperation. Overall, I will definitely be staying away from any investments in $SNAP, but of course, this is just my opinion. Please do your own DD before making any investment decisions.