Twitter: The Good, the Bad and the Downright Ugly (Layoffs)

Adrian Ip
Posted Oct 27, 2016
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Twitter has been having a bit of a rollercoaster ride from a financial perspective in recent times. Today the company announced its latest performance numbers to the markets, but along with that came some rather unsurprising additional news.

The Good

Twitter (NYSE: TWTR) released its earnings today during trading hours and beat estimates for the third quarter coming in at 13 cents per share excluding items on revenue of $616 million compared to an expected 9 cents per share on $606 million.

Additional good news came in the form of its user numbers, now up to about 317 million which again slightly beat expectations, up another 4 million from the previous quarter while the number of daily active users also increased by 7%.

In early trading today, Twitter stock was up to as high as $18.12 from a close yesterday of $17.29 for a gain of 4.8%.
Unfortunately, this is where the good news ends.

The Bad

Since then, it would appear that reality has set in and the stock closed the day out at $17.40, or about 0.6% up.

As many will be aware, Twitter (NYSE: TWTR), despite beating expectations as per the above, in real terms is not actually profitable. On a GAAP basis, the company posted a net loss of $103 million, translating into a 15 cents per share loss.

Many will no doubt recall the heady heights of a $25+ per share price as recently as earlier this month when many in the market expected the firm to be acquired. Unfortunately that two week period a few weeks ago must now seem a distant memory as all of the potential suitors pulled out of discussions one by one and the share price collapsed to below its pre-rumour levels which of course is where we are now with Alphabet (Google), Disney and Salesforce.com all declining to submit a bid.

Even so, the news isn’t a complete disaster, revenue is increasing, as are user numbers and engagement, all promising signs and senior management has of course been making the right noises regarding aiming to hit profitability in 2017.

Twitter Moments Is Now Available For Mobile Users Too And Things Just Got A Whole Lot Easier

BAM! Here it comes folks, Twitter the UGLY!

Well, it’s no surprise really considering I put it in the article title. The firm has announced that it will be cutting about 9% of its global staff from the total of 3,860 that it had on the books in June. This of course comes hot on the heels of a similar cost cutting round about a year ago where 336 people were laid off when Jack Dorsey took over as permanent CEO (he had been interim CEO prior).

The over 300 people now to go are expected to be cut primarily from Twitter’s (NYSE: TWTR) sales and marketing departments.

Of course in the highly charged atmosphere of a tech startup, major restructuring and layoffs are often seen as a death knell, particularly in the competition for the brightest minds. Additionally, Twitter invested heavily in these divisions banking on continued major growth in user numbers but user growth has slowed somewhat since the firm hit 300 million users.

Twitter’s marketing and sales costs run at about $473 million, approximately 40% of its revenue whereas spending on these divisions at competitors comes in significantly lower being 19% at Yahoo, 15% at Facebook and 12% at Alphabet (Google) according to analysis of earnings reports by Reuters.

As such, it makes sense that this is where the axe should fall. Unfortunately where the company is now, it needs to figure out its game plan and turn the business around, then maybe when it’s a bit more of an attractive proposition, it will succeed in courting a rich suitor, but for now, another tech firm is coming to grips with the harsh reality of the financial markets and perhaps soon with activist investors.

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