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Snap Stock Leaps As Cost Cuts, Layoff Plans Offset Ad Exec Departures to Netflix

Snap lost two of its key advertising executives to Netflix this week, while confirming the messaging app maker its set to lay off more than 1,200 employees amid a prolonged market downturn.

Updated at 9:43 am EST

Snap Inc  (SNAP) - Get Free Report shares jumped higher Wednesday after the messaging app maker unveiled a series of layoffs and cost cuts that offset the  loss two of its key ad executives to streaming giant Netflix  (NFLX) - Get Free Report.

Snap's chief business officer, Jeremi Gorman, as well as its vice president of ad sales, Peter Naylor, will join Netflix as it ramps-up its ad-based offering following the biggest half-year subscriber decline in the streaming group's history.

The departures are likely to add further pressure to Snap's near-term ad sales outlook, which the Snapchat app maker said late last month would continue to suffer the impact of broader macro slowdown and Apple Inc.'s  (AAPL) - Get Free Report privacy changes, which prevent user tracking.

Snap also confirmed reports that it's looking to lay off as much as 20% of its 6,400-strong workforce, with job losses focused on its hardware, gaming and mapping app units, as the group navigates a tougher macro environment over the back half of the year.  

"Recent policy changes have upended a decade of advertising industry standards (this) requires building new models to drive direct response advertising business and tools to measure returns of direct response advertising," Snap said in an investor presentation.

"Macro headwinds such as high inflation, rising interest rates, and geopolitical risks disrupting many industry segments that are critical to growing advertising demand (and) as advertising dollars in aggregate grow more slowly, competition for these dollars intensifies."

Snap shares were marked 6.44% higher in early Wednesday trading to change hands at $10.65 each.

"While the cuts suggest that Snap is preparing for a longer downturn in advertiser demand than it initially anticipated, we believe the departure of Ms. Gorman is more meaningful as she improved execution across Snap’s salesforce and we believe is a key executive for advertising clients," said JMP Securities analyst Andre Boone, who carries a 'market perform' rating with a $24 price target on the stock.

"Simply put, her replacement will have to do more with less as he or she will deal with macro headwinds and a reduced salesforce," he added. 

Late last month, Snap said intensifying competition and a slower ad sales growth rate lead to a overall loss of 2 cents per share for the three months ending in June, even as active users rose 18% from last year to 347 million.

Snap added the current quarter revenues are essentially flat, citing the broader macro slowdown and the impact of Apple's privacy changes

The warning trimmed hundreds of millions in value from social media stocks, including big tech giants Google  (GOOGL) - Get Free Report and Meta Platforms  (META) - Get Free Report, while reminding investors of the challenges that continue to face most companies over the second half of the year as supply chains remain tangled, input costs continue to surge and demand begin to wane.