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Twitter (TWTR) Layoffs Could Indicate a Disastrous Quarter is Coming

October 12, 2015 12:37 PM EDT

Investors are reacting negatively to Twitter’s (NYSE: TWTR) expected layoffs and who can blame them. When a growth company isn’t executing on its opportunity, it’s one thing to fire your CEO but another thing to fire line workers. Relieving the CEO of his post shows a willingness to change strategic direction and should be welcomed. However, hiring high-quality technology engineers is a difficult task. It is very competitive causing enemies to make alliances such as the famous Apple/Google non-compete. Just how mismatched is the company’s cost structure compared with its market opportunity and what does that mean for earnings?

Twitter is expected to report earnings on October 27th and consensus is for a loss of $0.25, an improvement over last year’s $0.27 loss. It seems widely understood that this is a transition quarter but a mass layoff, days before an earnings announcement implies something drastic is about to happen. It seems that the stock could test its recent low of $21 before the earnings announcement, if two things occur: 1) Re/code is correct and we are about to see a widespread headcount reduction and 2) the cuts are deep rather than shallow.

Shares of Twitter last traded down 6.8% to $28.75.



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