Stock Price Rises as Twitter Slashes Jobs, Uproots Vine

Twitter shares were up Friday in the aftermath of the company’s report of third-quarter earnings that beat Wall Street estimates, despite declining revenue growth. Twitter also announced a widely expected round of job cuts and the unexpected shutdown of Vine.

Twitter has been on financial oxygen in recent weeks, after failing to find a buyer. Investors responded positively to the news that it will slash 9 percent of its workforce, or about 350 employees. Further, the company reported 13 US cents per share in non-GAAP profit for the quarter on revenue of $616 million, representing an 8 percent increase from year-ago figures.

Twitter incurred a net loss of $103 million, or 15 cents a share, in the quarter.

The job cuts, which were expected to affect 300 workers, or 8 percent of its staff, instead will reduce the global workforce by 9 percent, with losses mainly in sales, partnerships and marketing.

Twitter will incur a charge of between $10 million and $20 million in cash during the quarter to cover the cost of restructuring, mainly in the form of severance payments. The firm will incur another $5 million to $10 million in charges primarily for stock compensation expenses related to the restructuring.

Twitter has been seeing positive trends on several metrics, including daily active usage and audience engagement, CEO Jack Dorsey said during a conference call.

The company is working to make Twitter a safer place to be, with some changes scheduled for rollout in the next few weeks, he added.

Slow Growth

Average monthly active users rose 3 percent year-over-year to 317 million for the quarter. That compared with 313 million during the second-quarter ending in June. Average daily active usage grew 7 percent year-over-year, up from 5 percent in the second quarter and 3 percent during the first quarter.

Twitter has taken steps to increase engagement through live video, including Thursday Night Football, which drew an audience of 3 million in the last three games, up from 2.35 million at the start of the season, Dorsey noted in a letter to shareholders.

Plus, ad agencies have indicated a greater share of online video budgets will shift to Twitter, he said.

Shutting down the Vine mobile app, which was unexpected, wasn’t mentioned in the initial earnings announcement.

Vine, which recently announced plans to expand its trademark 6-second videos to 140 seconds to boost engagement, had become a staple of young content creators looking to make their mark on social media. However, it had to compete against several major rivals in a difficult space.

Twitter will maintain the Vine website online so that users still have access to vines already created.

Close, No Cigar

While Twitter’s metrics are improving, they are not moving fast enough to move the needle in any substantive way, said Tim Mulligan, senior analyst at Midia Research.

“This is clearly not a spectacular growth story, and the absence of any new innovative product features effectively positions Twitter into post-growth mode versus its competitors,” he told the E-Commerce Times.

Twitter is making a painful but necessary transition into a tech company that “participates in rather than drives digital innovation,” Mulligan said, and it is focused mainly on improving operating margins and moving toward GAAP profitability in 2017.

Twitter has another problem, in that millennials have been exploring alternatives to the service, noted Michael Jude, a program manager at Stratecast/Frost & Sullivan.

That could be because Twitter is evolving more as a tool for businesses than as a social media growth story, he told the E-Commerce Times.

“Businesses now encourage their employees to use Twitter to get the word out on how the company is doing,” Jude said. “This points to some opportunities to monetize, but Twitter has been slow on the uptake.”

The company declined to provide revenue guidance for the upcoming quarter and financial year, due to the restructuring of the sales force from three units to two. However, earnings are expected to range from $700 million to $715 million in adjusted EBITDA for the 2016 financial year, while capital expenditures are expected to be no more than $360 million.

For the fourth quarter, stock based compensation is expected to range between $150 million to $160 million, GAAP share count is expected to range between 715 million and 720 million shares, and non-GAAP share count is expected to range from 725 million to 735 million.

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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