[I am explicitly not weighing in on whether this gambit will work or not. Could go either way, there is a lot of luck involved in business.]
> Twitter certainly has too many employees for the amount of revenue they're bringing in
This doesn't make any sense given that Twitter's revenue per employee (RPE) was roughly double that of well-run companies like Oracle or SAP and in the ballpark of EA and Adobe. This metric is a red herring currently being used to trim workforces. Which, that's the game and this is where we are in the cycle. But the ratio of revenue:employee doesn't tell the story here.
Granted cost structures and business models are different across these firms, and Twitter likely could have cut some staff (they all likely will in coming months now that it is timely to do so). But that's exactly the point here: the Twitter ratio between employees and revenue works fine at other companies, and has done so for a long time. Expedia has built a sustainable business with a lower RPE than Twitter, and it is similarly a pure-play Internet company. From a strictly financial perspective, it's equally likely that there were other levers that could have equally been tuned to fix Twitter's persistent problems.
IMHO the bigger problem was they are tooled as a high-growth company, but they were not growing fast. Even a modest bit of consistent growth, say 15% y/o/y, sustained for years, would likely have ameliorated their problems. Perhaps they have a large fixed cost to running Twitter, and they simply have not scaled the business enough to make it worthwhile yet -- could they double their business from the pre-acquisition base while only increasing staff 25%? That would be a good business! But I would guess the fundamental issue was that they are tooled for hypergrowth that is likely not on the radar.
Big staff cuts, modest (but smaller) revenue drops, then aiming to grow at a slower, sustainable pace is pretty stock PE stuff (although they typically try to pay at or below market instead of much higher than market). Can only assume people who see this as genius have never observed PE work.
Twitter was continually on the cusp of breakeven and would have lost money the quarter ahead of Musk's takeover had they not sold MoPub. Even before Musk took over they had planned on a 25% headcount reduction.
Their revenue per employee pales in comparison to other companies of its ilk, and I think we would disagree whether SAP and Oracle are well-run companies :)
> Twitter was continually on the cusp of breakeven
This also fits the model where they have a large relatively fixed cost base to operate, but could reap profits if they reached a larger elusive size. Again -- my hypothesis is they are tooled for hyper growth and the business has not been able to deliver that. Giving up on high growth and cutting to profitability is part of the stock PE playbook and definitely makes sense in the absence of strategies for generating massive growth.
> we would disagree whether SAP and Oracle are well-run companies
Interesting perspective, I meant it in the sense that they have operated for decades in competitive industries while making oceans of real profit for shareholders over that period. Most of us would be fortunate to run companies as poorly. :-)
> Interesting perspective, I meant it in the sense that they have operated for decades in competitive industries while making oceans of real profit for shareholders over that period. Most of us would be fortunate to run companies as poorly. :-)
Very true, but Twitter has lightning in a bottle captured the way few other companies do.
> Twitter certainly has too many employees for the amount of revenue they're bringing in
This doesn't make any sense given that Twitter's revenue per employee (RPE) was roughly double that of well-run companies like Oracle or SAP and in the ballpark of EA and Adobe. This metric is a red herring currently being used to trim workforces. Which, that's the game and this is where we are in the cycle. But the ratio of revenue:employee doesn't tell the story here.
Granted cost structures and business models are different across these firms, and Twitter likely could have cut some staff (they all likely will in coming months now that it is timely to do so). But that's exactly the point here: the Twitter ratio between employees and revenue works fine at other companies, and has done so for a long time. Expedia has built a sustainable business with a lower RPE than Twitter, and it is similarly a pure-play Internet company. From a strictly financial perspective, it's equally likely that there were other levers that could have equally been tuned to fix Twitter's persistent problems.
IMHO the bigger problem was they are tooled as a high-growth company, but they were not growing fast. Even a modest bit of consistent growth, say 15% y/o/y, sustained for years, would likely have ameliorated their problems. Perhaps they have a large fixed cost to running Twitter, and they simply have not scaled the business enough to make it worthwhile yet -- could they double their business from the pre-acquisition base while only increasing staff 25%? That would be a good business! But I would guess the fundamental issue was that they are tooled for hypergrowth that is likely not on the radar.
Big staff cuts, modest (but smaller) revenue drops, then aiming to grow at a slower, sustainable pace is pretty stock PE stuff (although they typically try to pay at or below market instead of much higher than market). Can only assume people who see this as genius have never observed PE work.