Snap Restructures with 'Startup Squads' Amid Ad Revenue Decline

Snap Inc. Undergoes Major Restructuring

Snap is implementing a significant internal overhaul, effectively dismantling its existing structure and rebuilding it from the ground up. CEO Evan Spiegel recently detailed this transformation in a company-wide letter, announcing a shift towards smaller, more agile teams.

These newly formed teams, termed “startup squads,” will consist of between 10 and 15 individuals. The intention behind this restructuring is to enhance Snap’s competitive standing against larger, more established companies in the social media landscape.

Facing Mounting Challenges

This strategic move arrives at a time of increasing pressure for the 5,000-employee organization. Growth in advertising revenue has stalled, registering only a 4% increase during the second quarter.

Furthermore, the number of daily active users in North America experienced a 2% decline, falling to 98 million. This represents a concerning trend within Snap’s key market.

Snapchat+ as a Revenue Driver

Despite these challenges, Spiegel pointed to a positive development: Snapchat+. The subscription service is now generating over $700 million in annual recurring revenue.

Currently, Snapchat+ boasts more than 15 million paying subscribers, establishing direct revenue streams as “one of Snap’s fastest-growing opportunities.”

Investing in Augmented Reality

Snap is also intensifying its focus on AR glasses, known as Specs. The company is developing its own hardware with the ambitious goal of eventually superseding smartphones.

Spiegel describes Specs as representing “a once-in-a-generation transformation towards human-centered computing.” Similar visions are held by Meta and Google, who have partnered with Ray-Ban and Warby Parker, respectively, to pursue AR eyewear.

Valuation and Future Outlook

Spiegel recognizes that the current stock price “reflects doubt” among investors. However, he maintains that Snap possesses “startup-style return potential” given its current valuation of approximately $12 billion.

It’s worth noting that this valuation represents a substantial decrease of 90% from September 2021, when Snap’s market capitalization exceeded $116 billion during a period of heightened enthusiasm for social media companies.