Snap ‘may have to go deeper’ in laying off workers, analyst warns

Brian Sozzi

Snap (SNAP) may have to cut even more employees than it previously thought given the sharper-than-expected slowdown in business in the third quarter, one longtime tech analyst warned.

"Yes, I mean they do [have to cut expenses more]," Jefferies Analyst Brent Thill said on Yahoo Finance Live (video above). "They just restructured the company. They obviously are in the process of still reducing the workforce by 20%. They may have to go deeper."

Snap stock crashed more than 24% on Friday morning after the social media platform reported that third-quarter sales decelerated for the fifth-straight quarter. Shares of the company topped Yahoo Finance's 'Trending Ticker' page throughout the session.

In late August, Snap announced it would cut 20% of its workforce, or around 1,300 employees.

Despite the recent round of mass layoffs, profits in the third quarter were lackluster as Snap continued to blame an advertising slowdown and Apple's (AAPL) privacy changes for its missteps in execution. The company also warned that sales trends in the fourth quarter would get worse.

Here's a snapshot of Snap's challenging quarter:

  • Net Sales: $1.13 billion vs. $1.14 billion estimated

  • Daily Active Users: 363 million vs. 358 million estimated

  • Average Revenue Per User: $3.11 vs. $3.17 estimated

  • Adjusted EPS: $0.08 vs. estimated loss of $0.02

  • Guidance: "Flat" revenue growth seen in the fourth quarter

An image of the Snapchat logo created with Post-it notes is seen in the windows of Havas Worldwide at 200 Hudson Street in lower Manhattan, New York, U.S., May 18, 2016, where advertising agencies and other companies have started what is being called a
An image of the Snapchat logo created with Post-it notes is seen in the windows of Havas Worldwide at 200 Hudson Street in lower Manhattan, New York, U.S., May 18, 2016. REUTERS/Mike Segar (Mike Segar / reuters)

Meanwhile, other Wall Street analysts echoed Thill's concerns on the medium-term outlook for Snap.

"With limited visibility around a potential rebound in advertising growth (despite compares easing) given (1) the softening macro backdrop, (2) growing competition for experimental budgets (particularly from TikTok), (3) engagement shifts away from high-monetizing Stories, (4) user growth that is increasingly skewed towards lower-monetizing regions, and (5) time spent on content in the U.S. declining, we struggle to identify a clear and sustainable inflection point to the upside," Deutsche Bank analyst Benjamin Black wrote in a note to clients.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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