Twitter Workers Prepare for Layoffs

Although Elon Musk, the richest man in the world and head of both Tesla and SpaceX, will try to walk away from his plan to quit a deal to own Twitter, he leaves behind an M&A battle that batters the social media company worse off than when the drama began. Twitter Inc. (NYSE: TWTR) was already in trouble. The exhaustion of the buyout, which turned out not to be a buyout, will hobble Twitter further.

Musk offered $44 billion to take Twitter private. As he walks away, the market cap shrinks to $25 billion. The company may get a $1 billion breakup fee, although Musk will fight the payment in court for months or longer. The amount will make little difference to Twitter’s future.

Musk says he was misled by Twitter’s management about how much of its traffic is created by bots and not real people. Twitter says the number is about 5%. Musk says the figure is much larger, which in turn erodes the value of Twitter for advertisers. He is calling Twitter management liars, and nothing less.

Musk’s plan to buy the company already has caused layoffs and an exodus of some of Twitter’s workers. Many wondered if he would cut staff to improve profits. Rookie CEO Parag Agrawal has never run a large company, let alone one that has been so badly wounded. He also has to deal with the fact that his predecessor and Twitter co-founder Jack Dorsey seems to have supported Musk’s plan. Dorsey left Twitter’s board in May, finally walking out on the business he helped found.

The worst part of Twitter’s most recent financial report was that the number of monthly active users, the key to Twitter’s revenue, are barely growing. On an operating basis, Twitter lost $127 million last quarter, compared to a profit of $52 million the year before.

Musk stated publicly that he would cut Twitter’s staff. His barely veiled reason is that the employee count is swollen for a company that has such poor financial results. Many analysts believe this is true, particularly if the Musk debacle has undermined employee morale and the normal daily activity of staff. Agrawal will begin to use the Musk playbook to keep Twitter’s margins reasonable, which will need to happen if Twitter’s stock can ever recover.

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