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.
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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.
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