Snap Is Laying Off Employees in One of Its Most Important Divisions

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In case you haven't heard, Snap (NYSE: SNAP) is making some big changes to its app. The early reviews are harsh, but management expects to roll out the redesign to everyone by the end of the first quarter 2018.

The biggest change to the app is the separation of your friends' Snaps and Stories from content provided by third-party publishers and celebrities. A big fear is that Snapchat's Discover section will lose a lot of traffic once the rollout is complete. Discover collects content from third-party publishers in exchange for a share of ad revenue from ads sold against the content; it's a major revenue source for Snap. The move could also reduce the number of Stories people view, another important revenue source.

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It seems Snap might hold similar fears about Discover and Stories now. The company just laid off two dozen employees, mostly from the company's content division, according to a report by Cheddar. These are the people in charge of curating content for Stories and Discover. This could be an early warning that the short-term disruption CEO Evan Spiegel warned could result from the redesign is upon Snap shareholders.

Nobody is watching Discover or using Snap Maps

Leaked data about Snapchat's users found that just 20% of the app's 178 million daily active users will watch Discover content on any given day. Snap doesn't share that data with publishers, so the leak could have a major impact on its ability to attract new content partners. Combined with the app redesign potentially hurting Discover viewership, things are not looking good for Discover. That could explain the need for a smaller content team.

If you want to look at it from a glass half full (or maybe just a quarter full) perspective, Snapchat's redesign implements an algorithmically sorted feed for Discover content. That could enable Snap to increase the amount of time users spend consuming Discover videos -- at least for those who go to the Discover section at all. It also means Snap doesn't necessarily need to increase the number of content partners for Discover in order to increase watch time.

Even fewer users are using Snap Maps, a feature that curates content based on locations. The data shows just an average of 19 million users access the feature. Content curation requires human editors, so the layoffs really don't bode well for features like Snap Maps and Our Stories, which collects user generated content around events. That's particularly damning for Snap considering it spent $250 million on an acquisition to accelerate Snap Maps' rollout.

In a memo to employees, Spiegel wrote that he wants the company to focus on things that scale, not things that just make the company bigger. For example, Discover scales much better than Our Stories or Snap Maps because it doesn't require editors manually reviewing content 24/7. That said, he specifically called out the content team as an "obvious caveat" to his desire to scale products. So, it's very curious why a dozen or so people from the team got laid off shortly after the memo went out.

A lot of uncertainty at Snap

Snap has consistently underperformed analysts expectations every quarter since becoming a publicly traded company. The rollout of the Snapchat redesign only adds further uncertainty to Snap's performance, and the recent round of layoffs adds yet another layer of question marks.

The redesign may end up benefiting the company long term. It could focus users on more scalable features that produce higher profit margins, and it could enable Snap to run a leaner team of engineers and content editors. But in the short term, it certainly seems to be causing a lot of problems for the company. It's still not clear if Snap will emerge from those issues as a company that can reinvigorate its user growth and revenue growth and eventually translate both into profits.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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