Snap Falls On Layoff Announcement As Redesign Issues Persist

Snap Inc. SNAP is losing steam as concerns about its growth potential are rising.

The redesign of the Snapchat app has garnered significant negative response, which doesn't bode well for the company's advertiser base.

Moreover, celebrities like Rihanna are using nearest competitor Facebook FB's Instagram to criticize Snapchat's advertising practices. This has significantly dented its brand value.

Snap's back-to-back layoffs have now come under scrutiny. The concern regarding the company seems to have aggravated with its current revelation to cut down 100 sales and advertising employees, after terminating 120 engineers in March.

In a recently filed 8-K, the company mentioned that it anticipates to save around "$25 million in 2018 and $34 million on an annualized basis" pertaining to the restructuring of the workforce.

Stiff Competition Hurts

Snap has been introducing features to make the platform more attractive but these are yet to contribute meaningfully to top-line growth. This is largely due to the highly competitive environment in which the company operates.

The user base of Facebook owned Instagram, its biggest rival, is much higher than Snapchat and thus presents a much larger canvas for advertisers.

Per market research firm eMarketer, U.S. user base of Instagram will grow 13% this year, while that of Snapchat's is projected to rise 9%.

Snap should therefore focus more on creating innovative products in order to lure more users to the platform and increase engagement levels. The termination of so many engineers thus raises questions about its strategy.

Moreover, per a latest survey by Digiday, 42% of the respondents said that Snapchat was the most difficult platform for digital advertisements. Therefore, layoff of so many sales and advertising employees is alarming for a company, which is entirely dependent on advertising revenues.

We believe Snap's inability to attract advertisers coupled with the latest uproar over redesign amid stiff competition from its well established peers remain a concern, at least in the near term.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report