Following a workforce reduction announcement, Twilio (NYSE:TWLO) saw its shares incur a muted price action. Notably, management cited underperformance in a business unit that activist investors targeted for divesture. As well, the latest round of Twilio layoffs represents the third such cut in a little over a year. While TWLO stock is up this year, it fell dramatically from its 2021 peak.
According to a CNBC report, the reorganization will impact around 300 employees or roughly 5% of its workforce. Further, the company expects to absorb a restructuring charge ranging from $25 million to $35 million. In a letter from Twilio CEO Jeff Lawson, the reduction in force represents a component of a wider initiative to streamline Twilio’s offerings. In addition, the company is sunsetting its Programmable Video product.
Conspicuously, the Twilio layoffs concentrate most deeply in the software technology firm’s Data and Applications business unit. That’s the same unit that activist investors at Legion Partners and Anson Funds have pushed Lawson to divest.
With this latest round of Twilio layoffs, the company has now executed three series of cuts in slightly more than a year. Back in September of last year, management announced a workforce reduction of 11% as it aimed for profitability in 2023. In February, the tech firm announced a cut of around 17% of its headcount.
Twilio Layoffs May Only Be Delaying for Time
Per an earlier InvestorPlace article of the activist efforts to influence Twilio, TWLO stock appears outside of context as a strong performer. Since the beginning of this year, shares gained about 33% of equity value. However, the sector benchmark iShares Expanded Tech-Software Sector ETF (BATS:IGV) is up over 52% during the same period.
In theory, then, the Twilio layoffs should appease the activists based on the underlying message of strong intent. However, the move may only be buying a little bit of time before the heavy hitters demand even bigger changes. CNBC stated that a person familiar with Legion Partners’ position stated that the investment firm believes Twilio can go further.
Indeed, Anson and Legion both amassed individual stakes of around $50 million, based on insider information and regulatory filings. Since the activists are also reportedly pushing for a management shift, the pressure is on for the tech specialist to deliver substantive results.
One wrinkle beyond the Twilio layoffs stems from Fintel’s options flow screener, which exclusively filters for big block transactions likely made by institutions. Around the middle of last month, major entities sold call options with strike prices of $60 and $65 expiring on Feb. 16, 2024.
With TWLO stock trading around $67, short covering could be a possibility if shares rise significantly higher from here.
Why It Matters
In the third quarter, Twilio posted earnings per share of 58 cents, beating the 37-cent consensus target. Additionally, revenue of $1.03 billion beat the consensus view of $989.94 million. Management reaffirmed its Q4 guidance, which calls for adjusted EPS of 53 cents to 57 cents. Also, revenue may land between $1.03 billion and $1.04 billion.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
