TWITTER CUTS JOBS, VINE AS IT SEEKS PROFITABILITY
Social media firm slashes 9% of workforce, ends video app as it aims for profitability in 2017
Twitter appeased Wall Street by restructuring to chart a course to profitability and by showing early signs its business is perking up.
User growth and revenue climbed more than analysts expected as the social media company announced 350 job cuts, or about 9% of its workforce. It also said it would shutter mobile video app Vine.
“The current quarter results were ahead of expectations and user figures provided some promising elements as well,” said Pivotal Research Group analyst Brian Wieser, who is maintaining his target of $ 26 and a buy recommendation.
The effort to right the company comes as potential buyers such as Google, Salesforce and Walt Disney declined to pursue an acquisition. The lack of interest has cranked up pressure on management.
Jack Dorsey, the Twitter chief executive who returned to the helm last year to reinvigorate growth, declined to comment on the takeover discussions, saying only that Twitter’s board is committed to “maximizing long- term shareholder value.”
“We see a significant opportunity to increase growth as we continue to improve the core service,” Dorsey said.
Still, analysts say a takeover could be in the cards.
“We see Twitter aggressively experi- menting with its product, and that’s the right thing to do,” RBC Capital Markets analyst Mark Mahaney said. “But we continue to believe an M& A exit is plausible, just not in the near term nor near current valuation.”
The service known for its 140- character messages has struggled to broaden its mainstream appeal and bring in advertising dollars while the fortunes of competitors such as Facebook have soared and newer entrants such as Snapchat and Facebook- owned Instagram have quickly gained traction. Snapchat, the messaging service run by Los Angeles company Snap, is planning an initial public offering in 2017 that could raise billions of dollars and bring a heady valuation of up to $ 40 billion.
Twitter, on the other hand, is being forced to retrench, discontinuing its Vine mobile app and launching its second round of cuts after it let go 8% of its workforce a year ago. The company said it’s targeting profitability in 2017.
Twitter said it expects the restructuring to rack up cash costs of $ 10 million to $ 20 million, in addition to stock- based compensation of $ 5 million to $ 10 million. Most of the charges would come in the fourth quarter.
“Twitter is overstaffed for the revenue it generates, relatively speaking. It has far more people working on a far smaller and less complex product than Facebook does. So some cuts make sense,” said Jan Dawson, chief analyst with Jackdaw Research. “But it makes you worry about their ability to achieve their goals around improving the product, cutting down on abuse and ultimately driving growth.”
Executives say increasing daily usage and engagement on Twitter were boosted by live- streaming of NFL games and the presidential debates. Twitter did not say how many daily active users it has.
Third- quarter revenue rose 9% to $ 616 million, the smallest gain since Twitter went public three years ago and the ninth consecutive quarter of declining growth but beating expectations of $ 605.5 million.
“Twitter is overstaffed for the revenue it generates ... It has far more people working on a far smaller and less complex product than Facebook does.” Jan Dawson, chief analyst, Jackdaw Research