Twitter's Chance to Steady Investors With Layoffs

Twitter Inc. (NYSE: TWTR) has about 3,800 employees to go with its 310 million monthly active users, spiraling stock price and awful financials. As LinkedIn Corp. (NYSE: LNKD) gets sold to Microsoft Corp. (NASDAQ: MSFT), the markets have been hopeful Twitter will find a buyer as well. If not, it needs to show Wall Street that it is serious about its bottom line and restructure.

A hurdle to any buyout deal is Twitter’s market cap of $10.6 billion. Even with a modest premium, the purchase price would be $13 billion to $14 billion, as much as half of what Microsoft paid for LinkedIn. With three sources of revenue, LinkedIn has a sustainable business model. Many experts think Twitter does not.

Twitter continues to make stabs at new models. It put $70 million into SoundCloud, a troubled online music service that hopes to build a new subscription business. It is like one drowning man asking another drowning man for advice on how to swim.

In its most recent quarterly report, Twitter announced its user count had barely budged compared to the prior quarter. It posted revenue of $595 million, which was at the bottom end of its own expectations. Twitter management said revenue for the current quarter could be as low as $590 million. That would lead to another net loss of tens of millions of dollars. Twitter is growing at about the same rate as General Motors Inc. (NYSE: GM), which at least makes money.

Very few investors believe Twitter’s ad-based model will ever be successful. It has been rejected by marketers, no matter what changes Twitter has made to its service.

One rule of thumb about slow-growing companies in a fast-growing sector is that it does not take a lot of employees to stop growing. At least job cuts improve margins, if only temporarily.