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Analysts Not Impressed by Twitter's (TWTR) Cost Cutting

October 13, 2015 12:24 PM EDT
Get Alerts TWTR Hot Sheet
Price: $53.70 --0%

Rating Summary:
    10 Buy, 47 Hold, 5 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 8 | Down: 5 | New: 36
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Twitter's (NYSE: TWTR) positive preannouncement in conjunction with an 8% headcount reduction implies that management is not taking the opportunity to make this the big kitchen sink quarter. However, since the stock trades on secondary metrics like Monthly Active Users (MAUs), there is no guarantee that the stock won’t fall after earnings when these additional metrics are released.

Today’s headcount cut is a step in the direction of rightsizing the business but without cutting deep into bone. The 8% reduction will cost the company between $10 and $20 million on a cash basis, a nominal amount for a company that raised $1.82 billion in its IPO less than 2 years ago. The wording within the 8-K was curious however as it specifically stated that cash costs were only for severance. Assuming the company spends the maximum amount ($20M) in the range, for the 336 employees affected, it amounts to $60k per employee dismissed. This isn't a large enough number for any meaningful amount of expenses to be embedded in.

Analysts have not been taking a strong position on either side:

Mark Mahaney at RBC Capital is increasingly concerned that the company is not solely focused on growth and that some cuts may be in engineering. He has a Sector Perform on the stock and a $41 PT.

Arvind Bhatia at Sterne Agee CRT is waiting on the sidelines until it begins to see if Moments, a curated feed, can jumpstart revenue leading metrics such as MAU. Sterne AgeeCRT has a Neutral rating on the stock and no price target.



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Analyst Comments, Corporate News

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RBC Capital, Sterne Agee, Twitter, Earnings, IPO, Mark Mahaney