Twitter (TWTR, Financial) announced a reduction of its workforce during its third quarter earnings report before the market opened Thursday.
In its report, Twitter announced it will be restructuring and reducing its force, affecting approximately 9% of Twitter’s workforce globally.
The workforce reduction is the result of slowing revenue growth and the company’s failure to be taken over. Salesforce.com (CRM, Financial), Disney (DIS, Financial) and Alphabet (GOOG, Financial) submitted acquisition offers but ended up walking away earlier this month.
Total revenue in the third quarter reached $616 million, up 8% year over year. This exceeded the company’s target of $590 million to $610 million. Revenue from advertising totaled $545 million, which was an increase of 6% year over year. Of the total advertising revenue, 90% was obtained from mobile advertising.
The social media company attributed the growth to product improvements and organic growth, with marketing initiatives providing additional support.
The company reported third quarter generally accepted accounting principles (GAAP) net loss of $103 million and non-GAAP income of $92 million. The company’s GAAP diluted earnings per share was 15 cents and non-GAAP diluted EPS was 13 cents.
The company ended the quarter with $3.7 billion in cash, cash equivalents and marketable securities. GAAP net cash from operating activities was $189 million for the quarter. Adjusted free cash flow was approximately $80 million, as compared to $19 million last year.
Twitter reported an increase in monthly average users for the third quarter in a row. For the third quarter, the number of monthly users in the U.S. was 317 million, up from 313 million in the second quarter. Internationally, the average monthly users count was 250 million, up 4% from the previous year. Of its monthly average users, 83% were represented in mobile usage.
The company highlighted three areas it is focusing on to improve value: audience, content and revenue. It believes these areas will be crucial for positive impact on audience growth, engagement and monetization.
The company reported that refining its core services and improving safety are its top priorities in growing its audience. Twitter reported accelerating rates of growth for daily active usage, Tweet impressions and time spent on the platform. The company has taken several initiatives in expanding its appeal. In order to drive daily active usage, the company refined its services in four areas: onboarding, the home timeline, notifications and Tweeting.
Recently, Twitter entered deals with multiple organizations with the intent to live stream events. The company provided a live stream of the presidential debates through Bloomberg Politics and has begun streaming the NFL Thursday Night Football games. Twitter reported that the three most recent Thursday night games reached more than 3 million viewers, an increase from the inaugural game’s 2.4 million viewers.
In regard to the presidential debates, the second and third debates reached an average of 3.3 million unique visitors, a 30% increase from the first debate. In total, the debates generated almost 3 billion Tweet impressions.
The company believes that as growth in audience and engagement accelerates, revenue through advertising will grow.
The company said the restructuring initiative is intended to create efficiency as it moves toward its goal of GAAP profitability in 2017. The restructuring will focus on reorganizing sales, partnerships and marketing efforts. As a result of the restructuring, Twitter expects to incur $10 million to $20 million of cash expenditures and $5 million to $10 million of noncash expenditures.
The company did not provide revenue guidance for the fourth quarter or for the year due to the aforementioned restructuring. They did provide adjusted EBITDA and adjusted EBITDA margin guidance. Twitter is expecting full-year adjusted EBITDA to range between $700 million and $750 million. The adjusted EBITDA margin on GAAP revenue is expected to be 27.5% to 28%. Capital expenditures are not expected to exceed $360 million.
For the fourth quarter, Twitter expects stock-based compensation expenses to range between $150 million and $160 million. The GAAP share count is expected to be in the range of 715 million to 720 million shares while the non-GAAP share count is expected to range from 725 million to 735 million shares.
Jim Simons (Trades, Portfolio) is Twitter’s largest shareholder among the gurus. He holds 0.45% of outstanding shares, which is 0.1% of his total assets managed. Steven Cohen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Ron Baron (Trades, Portfolio), John Burbank (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), First Eagle Investment (Trades, Portfolio) and RS Investment Management (Trades, Portfolio) also hold positions in Twitter.
The DCF Calculator gives the stock a fair value of $-6.42; it was trading at $17.36 on Thursday.
Disclosure: I do not own stock in any companies mentioned in the article.
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