Can Slashing Jobs Revive Twitter (TWTR) Stock?

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twtr - Can Slashing Jobs Revive Twitter (TWTR) Stock?

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Last week, we got a better idea about what sort of executive the newly crowned CEO Jack Dorsey would be for Twitter Inc (TWTR).

Can Slashing Jobs Revive Twitter (TWTR) Stock?Not only did the co-founder push out a new feature for the social network dubbed “Moments,” but investors learned late in the week that Dorsey was likely axing a number of employees in an effort to boost the bottom line and revive the TWTR stock price.

Dorsey’s mere presence has been enough to drive Twitter’s stock higher recently, pushing TWTR up 17% last week (though TWTR stock has since taken a 5% shave as of Monday morning trading).

But is coming into the executive suite and immediately slashing the headcount a viable or even intelligent strategy for the company?

Twitter’s “Bloated” Engineering Team

Frankly, cutting costs and jobs are “Turnaround 101” techniques, and we shouldn’t be surprised to see Dorsey pursue them aggressively.

A CEO’s primary responsibility, after all, is to increase shareholder value, and with TWTR stock down 42% in the past year alone, it’s not a bad time for Dorsey to pull some tricks out of his sleeve.

The layoffs could begin as early as this week, and will come as a result of disappointing user growth despite a two-year hiring binge that has doubled the company’s headcount. User growth at TWTR is only up around 50% in that period.

Twitter’s efficiency problem is made all the more clear when compared to its rival Facebook (FB), which has a user base about five times that of TWTR. Despite its relative girth, Facebook still manages to squeeze far more out of each employee than Twitter does.

Twitter’s revenue per employee sits at $488,913, while Facebook clocks in at $1.59 million.

I highlighted Twitter’s growth issues last week when I took a critical look at “Project Lightning,” the company’s internal nickname for the inconsequential debut of Moments:

“Despite having more than four times as many users, FB was still able to grow MAUs from 1.44 billion to 1.49 billion in Q2, a quarter-over-quarter growth rate of 3.4% — five times the 0.7% growth seen by TWTR in the same period.”

In short, Dorsey’s move to trim Twitter’s workforce would appear to make a lot of sense. Since Alphabet Inc (GOOG, GOOGL) won’t be acquiring the social network anytime soon (read: ever), Twitter will just have to do things the old fashioned way, relying on organic growth to increase the TWTR stock price instead of speculative fodder.

Still, as with Twitter Moments, this is a temporary fix, not a long-term solution.

I’d stay away from the stock until the company can prove its ability to generate consistent profits and grow its user base a bit more quickly.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/twtr-twtr-stock-twitter-job-cuts/.

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