Twitter hasn't been doing too great in recent years which is why many were surprised when the social media company posted its Q3 2016 financials yesterday and managed to beat the average estimate in just about every aspect. The firm increased its revenue, raised the number of monthly active users, and even brought home significantly more cents per share in comparison to the second quarter of the year. You would think that things were looking up.
Well, no, not if you're a Twitter employee because there's a chance you're losing your job in the coming months through no direct fault of your own. As the company revealed in the aforementioned earnings report, it's planning to cut approximately 9 percent of its workforce in the coming months. That's roughly 350 people or 50 people more than what insiders reported on Tuesday. Twitter's release also notes that the company is expecting to incur between $15 million and $30 million in compensation and severance expenditures and explained this move as a necessary step towards restructuring its business model so that it can continue to post increasingly positive financial results. In other words, the company believes this move will allow it to immediately increase its profits in the following quarters.
Now, if you're wondering how incurring a significant percentage of total revenue in severance costs can make you money in the short-term, the answer is rather simple - stock options. Tech companies have never shied away from partially compensating their employees with shares, and that goes double for severance packages. In addition to that, Twitter is a publicly traded company which means that issuing additional shares is rarely a problem. When you take that information into account, that aforementioned $30 million figure can be broken down into cash and non-cash expenditures of which the latter will amount to up to $10 million, Twitter's release states. Most of the layoffs—or as the company refers to them, "workforce restructurings"—will be conducted by the end of the year.
It's possible that this unfortunate turn of events could have been avoided if Twitter managed to sell itself in recent months, but there are no guarantees. The social media company has simply been struggling for too long to continue with its current strategy, so it's not that surprising it decided to reduce its global workforce and streamline its services. Another result of that new approach is the recently announced discontinuation of Vine which has yet to happen.