Shares of Twitter Inc (TWTR) are off about 78% from their all-time high. An employee who joined the company in December of 2013, just a month after the company’s IPO, has seen the restricted shares of Twitter stock he received as part of his compensation plan become considerably less valuable.
And Twitter pays out a lot of its compensation in stock. Last year, TWTR paid out $682 million in stock-based compensation, 31% of revenue. As a percentage of revenue, Twitter pays out nearly twice as much as Facebook Inc (FB) and more than four times as much as Alphabet Inc (GOOG, GOOGL).
In order to keep its top talent from leaving, CEO Jack Dorsey has upped the ante. He’s offered additional stock to employees companywide as well as cash bonuses ranging from $50,000 to $200,000. After several top executives left at the beginning of the year, Dorsey is doing everything he can to stop the brain drain at Twitter.
Losing Talent Is a Major Risk to Twitter Stock
In TWTR’s 10-K filing with the SEC, the company lists an inability to hire, retain and motivate employees as a risk factor. Specifically, the company says, “If we are not able to effectively attract and retain employees, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.”
As mentioned, several top executives already left this year. TWTR also says, “If our senior management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed.”
Losing talented employees is more about losing time than losing progress. It’s worth it for Twitter to spend another $50,000 and add a few more shares of Twitter stock to an engineer’s compensation package if it means the company won’t have to spend months finding a replacement and bringing her up to speed.
Twitter’s industry is highly competitive, and lost time is a lost opportunity. With both Facebook and Google breathing down TWTR’s neck, the company can’t afford any more speed bumps than it’s already facing.
Will TWTR Stock Be Enough to Keep Employees Around?
TWTR stock has certainly seen better days. Twitter employees may not be swayed as strongly by shares of Twitter stock today as they were two years ago, and with good reason.
Twitter’s stock value two years ago came from the significant potential for revenue growth, especially as its user base expanded. Today, that potential revenue growth has decreased substantially, and its user base isn’t growing at all.
This year, analysts expect Twitter to grow revenue 33.5%, after growing 59% last year and 111% the year before. Comparatively, Facebook revenue is expected to grow revenue 42% off a much larger base.
In other words, there are much more attractive stocks out there for investors compared to TWTR stock, and possibly even better opportunities for venture capitalists and quality engineers in Silicon Valley.
While it’s hard to look a gift horse in the mouth, and a bird in the hand is worth two in the bush, and other various metaphors make great arguments to take what TWTR is offering … some employees may decide to part ways anyway.
If Twitter loses a significant number of employees, its progress will be slowed and it risks falling further behind the competition. That will have a negative impact on its stock price.
Considering the amount of stock-based compensation it offers will have a further impact on its ability to attract new talent and retain its existing employees, creating a vicious cycle.
As of this writing, Adam Levy held no positions in any of the companies mentioned.
