Twitter plots new path after merger talks fail
Twitter said Thursday it has a path to growth and profitability as it unveiled hefty job cuts and more losses after talks to find a buyer collapsed.
The struggling social network said it would cut nine percent of its workforce after another money-losing quarter, as it suggested it could reach profitability for the first time in 2017.
“We see a significant opportunity to increase growth as we continue to improve the core service,” chief executive Jack Dorsey said in the earnings report.
“We have a clear plan, and we’re making the necessary changes to ensure Twitter is positioned for long-term growth.”
Twitter reported a net loss for the quarter of $103 million, compared with a $132 million loss a year earlier. Revenues meanwhile grew eight percent to $616 million, most of that from advertising.
The key metric of monthly active users rose only modestly to 317 million from 313 million in the prior quarter — a growth pace that has prompted concerns over Twitter’s ability to keep up in the fast-moving world of social media and attain profitability.
Twitter said the restructuring “is intended to create greater focus and efficiency o enable Twitter’s goal of driving toward (net) profitability in 2017.”
The company was widely reported to be in talks to sell the one-to-many messaging service, and it held meetings with Google parent Alphabet and cloud computing giant Salesforce. But no deal materialized and Salesforce said Twitter was not a good fit for the group.
– ‘Trending positive’ –
Even though Twitter has never posted a profit, Dorsey said the results show upbeat signs.
“The key drivers of future revenue growth are trending positive, and we remain confident in Twitter’s future,” he said.
The cuts would amount to about 350 jobs based on the Twitter website’s headcount of 3,860 employees worldwide. Twitter will incur a charge of $10 million to $20 million for the reorganization.
Twitter shares rose 1.4 percent to $17.53 after the results topped most analyst forecasts and after one financial blog reported that Walt Disney Co. had reopened talks on an acquisition.
In a conference call with analysts, Dorsey declined to comment on the speculation, saying only: “Our board is committed to maximizing long-term shareholder value.”
Twitter’s 2013 public offering was among the most anticipated in the sector, but after a brief rise, the shares have been slumping. Based on its most recent share price, Twitter’s market value is some $12 billion.
Dorsey, one of the co-founders of the messaging platform, returned as CEO last year as part of an effort to revive growth.
Under Dorsey, Twitter added new services such as live video including partnerships with major sports organizations and new advertising options. Twitter has drawn large audiences for events such as the US presidential debates and NFL football games.
“This strategy is working,” Dorsey said, claiming that Twitter “hit an inflection point” in the second quarter.
– Analysts cautious –
Analysts remain cautious about Twitter’s ability to break out of its rut and accelerate growth. It is far behind Facebook, which has an audience of over 1.7 billion, and Facebook-owned Instagram, with some 500 million.
While Twitter is popular with a core group of celebrities, politicians and journalists, it has failed to expand beyond that base.
“They are pretty close (to profitability) and if they cut expenses and maintain revenue that should lead to profitability in a year,” said Roger Kay of Endpoint Technologies Associates.
“But I don’t know if that’s enough to overcome the expectation in the stock price which reflects belief in a much faster growing company.”
Jan Dawson at Jackdaw Research said the reorganization may not be enough to fix Twitter’s problems.
“I and countless others have been saying for years now that Twitter is broken in fundamental ways, and there are obvious solutions for fixing it,” Dawson said in a blog post.
“Yet Twitter keeps going with this same old terrible brokenness for new users, despite repeated promises to fix things. This, fundamentally, is why Twitter isn’t growing as it should be, and why people are losing faith that it will ever turn things around.”
The research firm eMarketer estimates Twitter’s share of US social network users will decline to 28.1 percent this year and will continue to drop through 2020, as it loses users to Snapchat, Instagram and messaging apps.