As Snap tries to keep pace with investors’ growth expectations, Snapchat‘s parent company reportedly expects to slow down its internal growth pace.
Last week Snap laid off 18 employees in its recruiting division and reportedly plans to slow hiring in 2018, according to an internal company email obtained by Business Insider. A Snap spokesperson confirmed the layoffs but declined to comment further.
The fact that Snap plans to ease off hiring and has laid off some of those who do the hiring indicates that the business isn’t growing at the same pace it has been.
The company, which went public in March 2017, has been on a hiring spree over the past couple of years. Between December 31, 2015, and December 31, 2016, the company’s full-time employee base rose from 600 people to 1,859, according to the company’s most recent earnings report.
Thanks to its ballooning headcount and hosting costs, Snap has yet to turn a profit despite triple-digit revenue growth in Q2 2017. And with daily active user growth decelerating over the past year, the company has faced questions over its future growth prospects, leading to a dwindling stock price since its initial public offering.
The hiring slowdown signals that Snap may need to narrow its purview, concentrating on reinforcing its established business rather than establishing new products. Take Snap’s foray into hardware as an example. Last year the company released its first hardware product. While the company’s CEO Evan Spiegel described Spectacles as a “toy,” the video-recording sunglasses also had the potential to be Snap’s entry into the augmented reality/virtual reality/mixed reality headset market.
But Spectacles’ sales have reportedly been unspectacular. According to Business Insider, the company laid off a dozen employees in September that had worked on Spectacles. Then, on Monday, The Information reported that Snap had hundreds of thousands of unsold $130 sunglasses stashed in warehouses.
It’s unclear what exactly the hiring slowdown indicates about Snap’s core advertising business. Business Insider’s report did not cite any specific divisions within the company for which Snap plans to slow hiring.
All three of Snap’s main organizations have been on a hiring blitz and could be due for a deceleration. In Q2 2017, Snap’s research and development headcount increased by 190 percent, while sales and marketing headcount grew by 160 percent and general and administrative headcount rose by 110 percent, according to the company’s most recent earnings report. The report did not disclose the total headcount for any of the three organizations.
The size of Snap’s sales and marketing organization may have swelled this year, but it’s unclear how closely that growth correlated with Snap’s ad revenue growth and how much a hiring slowdown may affect future revenue growth.
Any company’s own sales team serves as its best advocates to ad buyers and its best opportunity to attract big bucks from major marketers. Indeed, Snap’s sales team is the only way for brands to buy its most premium ads, such as Sponsored Lenses, and to package those campaigns with Snapchat’s other inventory.
However, Snap’s sales team has struggled to sell ads against some of Snapchat’s most premium content, such as its original shows, according to Digiday. Then there’s the fact that an increasing share of Snap’s ads are not sold by its sales team. In Q2 2017, 60 percent of the vertical video Snap Ads that ran on Snapchat were sold either through Snap’s advertising API or its self-serve ad-buying tool. And now the company is looking to these automated sales channels to offload more of its Shows inventory, per Digiday.
Ad buyers’ issues with Snapchat haven’t been with its sales team so much as with the availability of its ads for sale. Thanks to the ad API and self-serve tool, those issues have begun to ease. Now it’s question of whether or not Snap’s planned hiring slowdown will cause a similar deceleration in its revenue growth.
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