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Twitter: The Problem With Layoffs

Summary

The speculated layoffs next week will spark volatile trading in Twitter.

The Q4 guidance is now in prime focus if the company needs to cut employees with revenue growing substantially.

The previous recommendation that Twitter will find difficulty holding gains remains intact.

After the close Friday, news leaked that Twitter (NYSE:TWTR) is planning layoffs for next week. With Jack Dorsey inserted as the permanent CEO, it isn't a surprise that some corporate shuffles are taking place. The warning last week was that these volatile issues around an executive change are impactful to the stock.

The stock rallied strong on the hiring of the permanent CEO and the successful launch of Moments. The shocking part is that a high-growth company is cutting employees right after the end of Q3. Does this portend bad numbers for the quarter or future guidance?

Reviewing The Costs

Twitter has a rather large employee base of roughly 4,100 that has ballooned since the IPO. As a comparison, Facebook (NASDAQ:FB) had only 11,000 employees at the end of Q2 with a revenue base that is nearly 8x the level of Twitter.

In the last quarter, Twitter didn't even address the cost side of the income statement in the earnings release. In fact, the whole focus of the company has been on the audience growth part. Considering the company produced non-GAAP income of $48.5 million, it is a big surprise that costs are now...


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