Snap (SNAP.US) follows Meta in playing the "AI efficiency" card: Layoffs by 16%, aiming for increased profitability.

Social media company Snap Inc. (SNAP.US) announced on Wednesday that it will lay off approximately 1,000 full-time employees, which accounts for 16% of its global workforce, and close over 300 vacant positions. This is the latest major restructuring the company has taken to reduce costs and focus on profit growth. CEO Evan Spiegel stated in a memo to employees that this move is aimed at improving operational efficiency, and mentioned that advancements in artificial intelligence technology are prompting the team to reduce repetitive work. Focus on AI Efficiency According to Spiegel's memo, the layoffs are expected to save Snap over $500 million in operational costs annually, starting from the second half of this year. In response to this news, the company's stock price rose over 11% in pre-market trading, but narrowed to 7% by the time of publication. Spiegel wrote in the memo, "Last fall, I described Snap as being at a crucial moment, needing a faster, more efficient way of working, while moving towards profit growth. In the past few months, we have carefully reviewed the work needed to better serve our community and partners, and made difficult decisions to prioritize investing in projects we believe are most likely to create long-term value." However, this is Snap's fourth major round of layoffs in less than four years. Previously, impacted by slowing advertising revenue growth, the company laid off about 20% of its employees in 2022, followed by another 10% globally in 2024. The consecutive staff optimizations reflect the financial and growth pressures the company continues to face in the fierce social competition landscape. Spiegel also implied that artificial intelligence was one of the reasons for the layoffs announced on Wednesday. Spiegel stated in reference to the layoffs, "While these changes are necessary to realize Snap's long-term potential, we believe that the rapid advancement of artificial intelligence can enable our team to reduce repetitive work, improve efficiency, and better support our community, partners, and advertisers." This narrative aligns with recent collective moves by Silicon Valley tech giants. Competitor Meta (META.US) conducted layoffs involving artificial intelligence-related roles in January and March of this year. Analysts point out that tying layoffs to AI technology implementation has become a common narrative for tech companies to signal a "strategic transformation" to the capital markets when facing cost optimization. Financial Pressure and Pressure from Aggressive Shareholders Spiegel referred to the current situation as a "crucial moment" for Snap in the memo. Data shows that despite the company expecting total revenue growth of 12% to $1.53 billion in the first quarter of 2026, with adjusted EBITDA around $233 million, its core monetization ability still lags behind industry giants. Snap's global average revenue per user (ARPU) is significantly lower compared to Meta's Instagram, whose ARPU exceeds $200 per user. More direct pressure comes from Wall Street. Just a few weeks ago, the activist investment firm Irenic Capital Management publicly disclosed an investment in Snap and issued an open letter to management explicitly requesting large-scale layoffs to correct the "over-hiring" mistake and suggesting divesting the Spectacles augmented reality glasses business, which costs hundreds of millions annually but has not yet turned profitable. The current layoff plan - cutting approximately 1,000 people and reducing over $500 million in costs - is highly aligned with the reform proposal put forward by Irenic Capital Management. Although Spiegel did not directly respond to shareholder demands in the internal letter, the market widely perceives this restructuring as a direct response to external investor pressure. Snap's stock price has fallen nearly 31% this year, and the company faces challenges in user growth, including measures taken by legislators and regulators worldwide to restrict teenagers' use of social media. In addition, the company's efforts to reform its advertising business have seen limited success. While consolidating its position and pursuing short-term profitability, Snap has not abandoned its hardware bet on the future. Spiegel remains committed to advancing the vision of AR glasses and plans to launch a new generation of consumer-focused Spectacles later this year. However, this business direction is precisely the focus that activist investors want to see closed or divested. The company heavily relies on external firms for AI products. Meanwhile, larger competitors are heavily investing in building and developing their cutting-edge AI products and infrastructure. Balancing cost reduction, responding to shareholder demands, and maintaining long-term technological investment will be a serious test for Spiegel and his management team going forward. With the layoffs taking effect, the market is closely watching whether Snap can truly deliver on its promise of "profit growth" in the second half of 2026.