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Snap’s Biggest Cost Driver Revealed: Payroll

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Management sees profitability within reach

Driving operational efficiency will be a big focus for Snap (SNAP) in 2019 as the company increases its focus on becoming profitable. After years of losses, Twitter (TWTR) turned its first annual profit in 2018. For Snap, 2018 was a year spent building its foundation, with chief executive Evan Spiegel saying during the company’s fourth-quarter earnings call last month that it had put together a stronger product, a stronger business, and a stronger team.

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Snap’s net loss narrowed 45% YoY (year-over-year) to $191.7 million in the fourth quarter, firming up Snap’s leadership’s belief that profitability is within reach. Alphabet (GOOGL) and Facebook (FB) reported profits of $8.9 billion and $6.9 billion, respectively, in the fourth quarter. Twitter and Yelp (YELP) posted fourth-quarter profits of $255.3 million and $32 million, respectively.

Payroll accounts for two-thirds of operating costs

Snap incurred $238 million in operating expenses in the fourth quarter, down 9.0% YoY. According to Snap, payroll is the primary driver of its operating expenses. The company says that employee-related costs account for two-thirds of its operating expenses. Last year, Snap laid off some workers in a bid to cut costs. According to Variety, Snap expects to save $34 million in costs annually after letting go of more than 200 employees last year.

With Snap’s shift to a self-serve ad-selling process, there’s more room for it to make its sales organization more efficient. Some of Snap’s layoffs last year were in its sales team.

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