As expected, Twitter’s Board of Directors has approved cutting up to 336 employees, or roughly 8 percent of its global workforce. It’s unclear whether this is tactical for the companies wellbeing or due to financial pressures. Other competitors like Instagram are favoured more than Twitter currently, with more opportunity to gain fame through free Instagram followers and more modern for the younger generation.

And Product and Engineering “are going to make the most significant structural changes,” according to an email to employees from Twitter’s CEO, Jack Dorsey, this morning:

“We feel strongly that Engineering will move much faster with a smaller and nimbler team, while remaining the biggest percentage of our workforce. And the rest of the organization will be streamlined in parallel.”

According to the company’s filing with the SEC, the estimated cash cost of the reduction in force will be between $10 million and $20 million, or between $30K and $60K per laid-off employee, “substantially all of which will be severance costs.”

Twitter has directly accounted for around 5 percent of the job growth in San Francisco over the past two years.

Comments from Plugged-In Readers

  1. Posted by two beers

    That $30K severance will buy a few extra months at NEMA, but only if they cut back on Uber, beard trims, and artisanal donuts.

  2. Posted by Sam

    By the way, the workers cut at Twitter will have no trouble at all finding new jobs.

  3. Posted by Wai Yip Tung

    This seems to be reasonably generous severance of around 3-4 months’ pay. The bad news is Twitter stock is near bottom since IPO, leaving the employees much less upside if they have to exercise in the next 3 months.

    • Posted by zig

      I still can’t understand really how Twitter makes money. The ads are nothing

      • Posted by RabbleRouser

        I think the same could be said for most app and social media based tech companies.

      • Posted by Ohlone Californio

        Have you googled how Twitter makes its money? the ads aren’t nothing. They’ve got other revenue streams too but ads is the main way it makes money. Twitter makes plenty of money. It has been spending too much money though.

        • Posted by Ohlone Californio

          I mean, I think it’s pointless personally and I don’t see why people are interested. But Twitter makes money.

          • Posted by Dr. House

            Revenue, yes. not profit.

    • Posted by moto mayhem

      that is not generous at all. Many companies give 6months minimum severance, and director and above generally get 1yr+ severence

      • Posted by nry

        um, most places give you two weeks, and then you’re out. Companies are not obligated to give anything to you as an at will employee.

        • Posted by Anon

          I recently discovered that my company doesn’t guarantee anything.

        • Posted by moto mayhem

          maybe you get 2 wks severance pay from starbucks, but not from a top tier company.

      • Posted by SFRealist

        I want to work where you work! 6 months minimum????

      • Posted by SFrentier

        Umm…we’re not in France.

        • Posted by san FronziScheme

          Think again. France is not that generous. They cannot cut you from the payroll right away except if you f*ed up big time. Otherwise you get up to 2 months notice (depending on how long you were employed there) and still have to be present at your job. You will get severance pay only if this is company policy. Some generous ones will give you one month of severance per year at the company.

  4. Posted by taco

    Yes, 336 people losing their job will run SF’s economy into the ground.

  5. Posted by wsf

    I’m wondering if one of these 336 is the poor soul that is mid-renovation on this iconic Victorian in the Haight and needing to dump it?

    [Editor’s Note: We’ve co-opted this comment for a standalone post.]

  6. Posted by Jake

    Tech tax cut advocates claimed each Twitterish job generates four to five non-tech jobs, though more conservative estimates are ~1.5 multiplier. Wonder how much Twitter’s ~$2 billion in losses to date has inflated SF RE prices.\

    FWIW, had Twitter spent 30% less on these departments last quarter they would have been breakeven. Which implies Dorsey is still betting to grow to profit based on something like a third from cost cuts and two-thirds from revenue growth. If they don’t grow to profit, then they are going to need a bigger layoff.

    • Posted by JR "Bob" Dobbs

      Yeah, these companies that just lose more the bigger they get – Twitter, Salesforce, Box – won’t be able to continue with that business model forever. Cash is finite. Twitter may have gotten that message.

      • Posted by EBGuy

        “Burn rate” coming back into fashion? Who coulda guessed? All eyes on Square…

        • Posted by two beers

          Unlike most startups, at least Square provides an actual service. It might be one of the few to survive.

          • Posted by Serge

            @two beers: Agree, Dorsey should stick with Square since that’s actually a company providing a useful service to small businesses. It’s almost as if everyone else is trying to catch up to them (PayPal, Venmo, and even banks).

          • Posted by EBGuy

            That is some serious brand cache if two beers is for ya! That said, Square did break the princess phone monopoly that the credit card processors had on their leased card readers. Still, by most accounts, Square collects 3% of the charge and passes two percent on to the card companies. That leaves them one percent to try and make a go at it. I imagine this business will be negative to even (but rising) when they file for the IPO. Their new small business loansharking gig will be the “growth opportunity”. YMMV…

          • Posted by EBGuy

            I might remind you that WebVan also provided a service — in fact, their users loved them and many bought their stock. We all know how that turned out.

            And this just in. Square has already lost $77.6 million in the first half of the year. Don’t worry they’ve got the GS credit line to help them weather the storm. Now who’s handling their IPO again?

        • Posted by Jake

          Square to IPO tomorrow at less than half previous valuation and even below 2012 valuation. Looks like only the first ~$46 million invested will get big returns and the last ~$370 million invested is below water. The previous round investors insisted on a 20% return minimum, so this IPO valuation will cost the company to make up the difference.

          [Editor’s Note: Square Prices Shares At 42 Percent Below Last Private Round.]

      • Posted by Brian M

        Has Amazon ever earned a profit?

    • Posted by nry

      “Wonder how much Twitter’s ~$2 billion in losses to date has inflated SF RE prices.”

      Probably very little. Has more to do with San Francisco’s dysfunctional rent control and anti-development policies.

      • Posted by JR "Bob" Dobbs

        Well, those policies were in place four years ago, yet housing prices were about 40% lower then.

        • Posted by nry

          This housing crisis was more than 4 years in the making. Try 30+ years of dysfunction.

          • Posted by JR "Bob" Dobbs

            And in those 30+ years, we’ve had boom periods when prices were high, and bust periods when prices were low. So perhaps other factors have a greater influence on SF home prices, such as the economy, unemployment, salaries, VC funds . . .

          • Posted by SFrentier

            Y’alls both right- tech, economy, etc. give the main booms and busts, and stoopid RC laws and anti development everything are a nice constant in the background to juice the upward returns and mitigate the busts.

      • Posted by SocketSite

        Those same policies were also in place from 2006-2009 when home values in San Francisco proper dropped an average of 20 percent.

      • Posted by Wai Yip Tung

        Probably none. The losses are mainly into operation and marketing, not to employees’ paycheck.

        • Posted by Freeloader

          You mean engineering.

    • Posted by SFRealist

      “Wonder how much Twitter’s ~$2 billion in losses to date has inflated SF RE prices.”

      Zero. Google/Apple/Facebook/Salesforce, on the other hand……

  7. Posted by anon2.5

    I imagine a majority of the brogrammers who will be cut were simply not cutting it at Twitter and the resulting smaller leaner engineering team will put out the same or a better product. This is probably a good thing for Twitter at the end of the day. Twitter will remain a phenomenon even if not a money making phenomenon for a few more years, and continue to employ a significant workforce.

  8. Posted by incline jj

    In regards to Amazon: Surprise! Amazon posts a profit, shares jump 18%.

    [Editor’s Note: Two key sentences: “Sales jumped 20% and the company earned $92 million” with sales of Amazon Web Services growing 81% to $1.8 billion and its contribution to profit “skyrocket[ing] 408% to $391 million.”]

    • Posted by jack

      Editor: do you mean

      (1) there’s only a 22% profit margin for AWS – $0.4b/$1.8b; and

      (2) the non-AWS Amazon is running at a $300m loss ($92m – $391m)

      • Posted by Jake

        @Jack, that is an old story from July on the Q2 financials. Amazon’s financials are a public record. You can just look it up if you want.

        FWIW, AMZN has ~$100 billion per year in revenue and they run the company as close to breakeven as they can. Some years they make a few hundred million (2013), some years they lose a few hundred million (2014). Usually, the profit or loss is less then 1% of revenue.

        Emerging profits get plowed back into growth, spent not retained. That’s their plan and has been since day one. Not new, not news. From a more detailed analysis (namelink):

        “Amazon has perhaps 1% of the US retail market by value. Should it stop entering new categories and markets and instead take profit, and by extension leave those segments and markets for other companies? Or should it keep investing to sweep them into the platform? Jeff Bezos’s view is pretty clear: keep investing, because to take profit out of the business would be to waste the opportunity. He seems very happy to keep seizing new opportunities, creating new businesses, and using every last penny to do it.”

  9. Posted by Jake

    Twitter’s cost to operate the service appear reasonable and enough revenue/tweet for a healthy gross margin for a cloud service. They could never trim the service costs enough to be profitable just from that. They need more usage. FWIW, if they could double the usage at the same COGS and without adding overhead staff, then they would be nicely profitable with a modest P/E. If only they could double usage.

    Their R&D and G&A costs are way too high for the usage and have been for a long time. The R&D costs looked high in the IPO filing and the G&A caught up, as it will when you open offices around the world for a service you could run from an office building in Pleasanton. IIRC, they’ve always had generous payouts via stock options to the R&D staff. Among the things I most admire about Twitter has been their efficient conversion of investor cash into programmer’s bank accounts.

    FTR, Amazon turned a profit years ago, back in the days when they didn’t pay any state sales tax. Their net margins have always been single digit percentage or negative. Though they have so much cashflow and momentum they could squeeze billions out anytime they want to favor profit over growth.

    • Posted by jaguar

      Didn’t want to go off topic but thought this was related and important.

      “Apple Inc could be facing up to $862 million in damages after a U.S. jury on Tuesday found the iPhone maker used technology owned by the University of Wisconsin-Madison’s licensing arm without permission in chips found in many of its most popular devices.

      The jury in Madison, Wisconsin also said the patent, which improves processor efficiency, was valid. The trial will now move on to determine how much Apple owes in damages.

      Last month, WARF launched a second lawsuit against Apple, this time targeting the company’s newest chips, the A9 and A9X, used in the just-released iPhone 6S and 6S Plus, as well as the iPad Pro.

      The case is Wisconsin Alumni Research Foundation v. Apple Inc in the U.S. District Court for the Western District of Wisconsin, No. 14-cv-62.”

      [Editor’s Note: Keep in mind that Apple has around $200B of “cash” on hand.]

      • Posted by JR "Bob" Dobbs

        If Apple gets hit with the worst possible result in this matter, it can simply write a check, and the amount won’t even be considered material on its financials. This is really not an issue for Apple. It would be great for the plaintiff (and, especially, their lawyers) but Apple has so much cash they will just shrug it off.

        • Posted by jaguar

          I know, but there are a series of lawsuits, Apple may have to pay retroactive royalties, punitive damages for fraud, treble damages… I would think it would be rare for anybody to actually win an intellectual property lawsuit against Apple. Carl Icahn thinks Apple is worth $1.4 trillion.

          • Posted by shza

            This is pure noise. Big tech companies like Apple and Samsung are sued all the time; they always face a series of lawsuits. And punitive damages aren’t available for patent infringement; and treble damages are available (in theory) only where there is willful infringement — though even there, the typical award is closer to an additional 50% of compensatory damages.

            More importantly, this result is an outlier rather than a signal of things to come. Given recent changes in the law (both substantive and procedural) it is *much* harder for an IT patentee to win anything (or even escape the suit without having its patents invalidated) than it was 3-5 years ago. Software patents have taken a bloodbath and damages for infringement of minor improvements to small aspects of multifunction devices have dropped through the floor.

  10. Posted by SocketSite

    Twitter, which remains unprofitable while sales growth slows, is planning to cut another 300 jobs as early as this week.

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