What happened
Shares of Snap (SNAP 27.63%), the parent company of social media app Snapchat, surged higher on Wednesday. The stock rose as much as 14.9% but was up 13.1% as of 10:31 a.m. ET.
The tech stock's gain was fueled by news of the company's plan to cut costs. Perhaps investors think the move would bolster profits and help it become more agile.
But other important news was buried in the update, including the completion of a meaningful share repurchase program and an update on the company's quarter-to-date revenue performance for the third quarter.
So what
In an investor update posted on its investor relations website on Wednesday morning, Snap detailed a restructuring plan aimed to give its business more focus and make it more profitable. In addition to announcing that it is reducing its full-time employee headcount by about 20%, the company said it is either substantially reducing or entirely eliminating investments in some of its more speculative and nascent product lines and services. Among the changes it's making, it's eliminating the development of its flying camera, Pixy, winding down stand-alone apps Zenly and Voisey, reducing investment in its Spectacles hardware product, and refraining from further investment in original content.
Image source: Getty Images.
Snap also provided an update on its revenue performance so far in Q3, saying that it's up 8% year over year. This means the growth rate is tracking ahead of analysts' consensus forecast for revenue during the period to be approximately flat compared to the year-ago quarter.
Snap also said it has completed its $500 million repurchase program, buying back more than 3% of its outstanding shares.
Now what
Management said these moves will help Snap save $50 million annualized in fixed content costs, which are categorized as cost of revenue. Further, it anticipates $450 million in annualized adjusted operating expenses. These changes, management said, should lead to positive free cash flow even at current revenue levels.
Snap warned investors that visibility for future revenue growth "remains limited given uncertainty in the macro environment."
