Snap CEO Sees Challenges in Taking Recovery Actions

Snap CEO Sees Challenges in Taking Recovery Actions

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Chief Executive Evan Spiegel said it is bracing for a challenging recovery period as the company tries to renew itself and revive sales growth at a time when digital ad spending is under pressure.

“We really have to focus on execution. It’s going to be tough,” Spiegel said Wednesday at the Code conference in Beverly Hills, California.

Despite the short-term challenges that saw Snap’s shares tumble about 85% last year, Spiegel said he remains optimistic about the future of the business he co-founded. “I believe we are far from reaching our full potential.”

Snap last week unveiled plans to reduce its workforce by 20% because of deteriorating market conditions and sales growth that had slowed from more than 40% at the start of the year to about 8% in the current quarter. “We don’t see a lot of things that we’re optimistic about, so what we had to do was really restructure our business,” Spiegel said at Wednesday’s event.

In addition to announcing it was laying off about 1,200 employees, Snap said last week it would also end several projects, including its recently launched selfie camera drone, after recording its slowest sales growth in years in July. The company said it was prepared for a period of low revenue growth that could extend into next year and that the changes it is making should reduce annual costs by about $500 million.

Tech companies more broadly are redefining their plans in the face of an economic downturn. Google CEO Sundar Pichai said on Tuesday that he intended to do Alphabet Inc.

company about 20% more productive. Amazon.com Inc.

CEO Andy Jassy said the company was slowing the pace of growth for its team.

Snap has been particularly hit by disruptions to the digital ad market caused by Apple. Inc.

privacy policy changes, inflationary pressures and broader economic weakness. As companies slashed their ad spend, Snap was left fighting for ad dollars against other tech giants such as Meta Platforms Inc., the parent of Facebook, and Google.

The company said the ad market deteriorated rapidly. In May, Snap issued an earnings warning, telling investors that quarterly revenue would likely fall short of projections made just a month earlier. He also said he would cut back on hiring and spending at the time.

Snap also said competition for the ad spend that remains has become fiercer. This partly reflects the strong rise of TikTok, the video-sharing app owned by China’s ByteDance Ltd. which has become a household name in recent years.

Spiegel suggested that TikTok’s pace of growth came as a surprise. “I think what nobody predicted in the US was the level of investment that ByteDance made in the US market and of course in Europe it was unimaginable,” he said. “No startup could invest billions and billions and billions of dollars in user acquisition like this around the world,” Spiegel added.

Having so many users deliver content to TikTok has allowed the platform to expand and helped improve its algorithm, in part by enabling highly personalized feeds, Spiegel said. Replicating that sophistication has been a challenge for established social media companies now trying to fend off TikTok, he said.

TikTok did not immediately respond to a request for comment.

write to Meghan Bobrowsky at Meghan.Bobrowsky@wsj.com

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