After retaking the helm as CEO of Twitter last week, Jack Dorsey is making some big changes in an effort to push the company back in the right direction. He does so as stock prices have seen a steady drop-off since May of this year. As you may anticipate, the responses have been mixed among investors and industry experts. So, what does this mean for Twitter?
8 Percent of Workforce Cut
According to reports, the San Francisco-based microblogging site will lay off 336 employees – or roughly eight percent of the company’s global workforce. The news came early Tuesday morning, as the company was setting up meetings with those affected. Dorsey sent out a simple and brief tweet about the situation that read, “Made some tough but necessary decisions that enable Twitter to move with greater focus and reinvest in our growth.”
In an email to employees, Dorsey wrote, “Thank you all for your trust and understanding here. This isn’t easy. But it is right. The world needs a strong Twitter, and this is another step to get there. As always, please reach out to me directly with any ideas or questions.”
According to the numbers, Twitter reported adjusted earnings per employee of just $83,000 in 2014. That number pales in comparison to Facebook’s $900,000 and Google’s $479,000. Victor Anthony, an analyst at Axiom Capital Management, says Twitter is a work in progress. “Much work is ahead to drive up engagement and user growth. A more streamlined and more nimble organization could help with those efforts.
The layoffs will cost Twitter nearly $20 million in severance, but will free up a lot of capital for future growth and development. And while the layoffs may be news to the mainstream media, those inside Twitter have known about the possibility for a few days.
The cuts do not involve anyone at the executive level, report company officials. Instead, the large majority of the layoffs will take place at the bottom tiers.
Twitter Stock Improving
Despite the seemingly bad news, Twitter’s stock is expected to improve. “I don’t like job cuts, don’t get me wrong…but I think Twitter was bloated,” says former hedge fund manager Jim Cramer. “This is the first time Twitter recognizes that you can’t just be part of some sort of club where it doesn’t matter how you do.” Cramer believes people will now look at Twitter as a company that was being run “haphazardly and now it’s being run laser-focused.”
Anthony believes there could be slightly tougher times ahead for the stock. “The initial read on layoffs is often negative as it signals revenue pressures,” he points out. However, he’s encouraged that the company is possibly “prioritizing investments towards more productive projects.” The question is how will the general public look at the situation? Will they see it as Cramer does, or will the initial negative publicity scare investors off?
More Changes Coming for Dorsey
This certainly won’t be the last major change for Dorsey. While it may be the most public change, those familiar with Twitter’s inner workings know the company is in for major shifts. Dorsey didn’t decide to become CEO of Twitter again without a plan. While he’ll still retain his role of CEO of Square, the mobile payment company he co-founded, Dorsey has committed to giving full-time attention to Twitter, too.
Many experts have questioned how this will work, but Dorsey doesn’t seem afraid of the challenge. “Jack has built a deep bench of talented senior executives,” says Square spokesperson Aaron Zamost, “and has shown for the past several months he has the ability, passion, and commitment to lead both companies effectively.”
While those 336 laid off employees may question that statement, the rest are trying their best to trust Dorsey’s direction for Twitter.