The parent company of Snap (NYSE:SNAP) increased in the first half of the month due to several causes. One of these was the announcement that 1 million users had signed up for the premium version of Snapchat, Snapchat+. After initially gaining ground, stocks retreated on fears of higher interest rates, only to surge at the month’s close on reports of layoffs and other cost-cutting measures.
What’s the Reason?
On August 10th, despite the lack of essential news, Snap shares began to rise. However, investors may have regained faith in the digital advertising business after hearing The Trade Desk’s impressive earnings report.
A Pew Research survey found that 60% of U.S. teenagers use Snapchat, making it the third most popular social media app among teens after Instagram and TikTok, and the stock continued to soar over the next few days. Moreover, the firm announced that Snapchat+ had hit the 1 million membership milestone immediately after its June launch, and media sources suggested employees were expecting layoffs during a recent Q&A call. To have access to premium features such as personalized app icons, profile badges, data insights, and more, users must pay $3.99 monthly for the service.
Over the subsequent two weeks, tech stocks slumped significantly after Federal Reserve Chair Jerome Powell warned that the central bank’s interest rate hikes could cause economic harm.
On the last day of the month, Snap (NYSE:SNAP) announced extensive cost-cutting measures, including the layoff of 20% of its personnel, the closure of standalone apps like Zenly, and the cancellation of side projects like Snap originals. Snap also said that its revenue for the third quarter was up just 8% year over year as the company continues to confront macroeconomic problems and the departure of two top executives who announced they would be leading Netflix’s new advertising unit.
The Snap (NYSE:SNAP) stock surged 8.7% on the day after the update was released, even though it revealed continued challenges for the company.
Layoffs and cost-cutting initiatives seem like the proper choice for Snap (NYSE:SNAP), given the company’s challenges, including slower revenue growth, competition from TikTok, and the impact of Apple’s ad tracking transparency initiative.
Despite historically excellent top-line growth, the corporation has spent too much on new initiatives and share-based pay. The social media stock could turn around if the macro-level headwinds abate and prove to investors that it can generate consistent profits.
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