Snap shares spiked 7% on Wednesday after billionaire CEO Evan Spiegel revealed plans to slash about 1,000 jobs and rely on artificial intelligence to take over their work.
Spiegel, whose personal fortune is pegged by Forbes at $2.3 billion, said he was “deeply sorry” in a staff memo announcing the cuts, which amount to 16% of the Snapchat parent’s overall workforce.
The company is also closing more than 300 open roles.
“While these changes are necessary to realize Snap’s long-term potential, we believe that rapid advancements in artificial intelligence enable our teams to reduce repetitive work, increase velocity, and better support our community, partners, and advertisers,” Spiegel said in the memo.
“We have already witnessed small squads leveraging AI tools to drive meaningful progress across several important initiatives, including Snapchat+, enhanced ad platform performance, and efficiency improvements in our Snap Lite infrastructure,” Speigel added.
Snap employees in North America were told to work from home on Wednesday following the announcement, with impacted workers learning their fate by email.
The social media firm, which has struggled with intense competition from rivals like Instagram and TikTok, had about 5,261 full-time employees as of the end of last year.
The layoffs came as Snap faced pressure from activist investor Irenic Capital Management, which had pushed the company to streamline its business, according to Reuters.
Irenic advised Snap to either spin off or shut down its “Specs” augmented reality glasses business and enact other cost-cutting moves.
Even after Wednesday’s intraday trading gains, Snap shares were still down about 26% since the start of the year.
Snap expects to achieve cost savings of more than $500 million by the second half of this year, which will help the company “establish a clearer path to net-income profitability,” according to Spiegel.
Snap will report quarterly earnings on May 6.
The rise of advanced AI models has contributed to fears of major upheaval in the US job market.
In February, financial tech firm Block said it would cut 40% of its workforce, or more than 4,000 employees, while pivoting to a full embrace of AI tools.
At the time, Block CEO Jack Dorsey, best known for cofounding Twitter, predicted that more companies would make the same move in the coming months.
“Within the next year, I believe the majority of companies will reach the same conclusion and make similar structural changes. I’d rather get there honestly and on our own terms than be forced into it reactively,” Dorsey wrote in an open letter.
