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Snap Is Laying Off Employees Yet Again

By Evan Niu, CFA – Mar 7, 2018 at 6:52PM

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The Snapchat operator is letting approximately 100 engineers go.

It's been nearly two months since the last round of reported layoffs at Snap (SNAP 1.49%), and now investors are hearing word of yet another group of employees that are getting let go as the Snapchat operator continues right-sizing its cost structure. After layoffs in September, October, and January, this will be the fourth batch of cuts in just a few months. This time around, the layoffs are concentrated in Snap's engineering department.

While not part of recent dismissals, longtime head of engineering Tim Sehn resigned back in November on the same day the company reported dismal third-quarter earnings.

Man wearing Spectacles

Image source: Snap.

The last cut is the deepest

The layoffs were first reported by Cheddar and subsequently corroborated by CNBC. This batch of dismissals will be much larger than prior rounds, with approximately 100 employees in Snap's engineering department being affected. That represents less than 10% of the department but will still take a chunk out of the company's engineering talent. Put another way, laying off 100 employees would translate into about 3% of Snap's total headcount of 3,069 at the end of 2017. Snap had hired "slightly more than 100" net employees last quarter.

Snap has recently implemented an internal employee performance evaluation system, according to Cheddar. Many employees also reportedly didn't get their year-end bonuses because Snap didn't hit internal performance goals, although that didn't stop Spiegel from getting a ridiculous IPO award valued at nearly $640 million for taking the company public. Bizarrely, that award vested immediately, so theoretically Spiegel could walk away from the company and still enjoy his lofty payout, which Snap is now obligated to deliver to him in quarterly installments over the next three years. Current and former Snap employees aren't so lucky.

Why engineering?

Previous rounds of layoffs have made more sense. Spectacles were an utter flop, so Snap justifiably cut jobs in its hardware and hardware marketing departments. The company realized that it needed to slow hiring, so laying off recruiters was appropriate. But why is Snap cutting engineering resources just as it has deployed the biggest app redesign in its history?

Spiegel had said on the earnings call last month that the company now wants to make its current workers more productive:

While it was critical to build our team to keep pace with the growth of our business, it's become clear that we can now unlock substantially more productivity simply by changing the way that we work and by continuing to build an inclusive and creative culture. As such, we plan to moderate the growth of our team over the next year and focus on making sure that we have the right team, leadership, and organizational practices in place to support our culture and our mission.

But those comments didn't hint that more job cuts were on the horizon.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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