Twitter Cuts 9% Of Workforce In Quest For Profitability

twitterq32016With swirling acquisition rumors sidelined for the moment, Twitter announced during its Q3 earnings call Thursday that it’s cutting 9% of its workforce, ending the quarter with 3,910 employees.

The restructure, which is being made with an eye on eventual profitability, will mostly affect its sales, partnerships and marketing teams. Product and development and R&D will remain fully funded, said Twitter CFO Anthony Noto.

“We are focused on driving toward GAAP profitability in 2017 [and] we are cutting costs that are non-core to our key objectives of driving audience, engagement and monetization growth,” Noto said. “Our engineering and product design team is critical to driving product changes that are resulting in audience engagement.”

As part of the restructuring, Twitter will combine its direct sales organization, which primarily handles larger brand customers, with its mid-market channel, which mostly deals with direct-response customers over the phone. Twitter’s SMB sales channel will stay as is.

“We had a real 80/20 rule in the [mid-market] channel, which is 20% of those customers were driving 80% of the revenue,” said Twitter Chief Operating Officer Adam Bain. “Ultimately, we think that by appropriately resourcing the overall managed customer base, we’re going to give the right level of service to the right advertiser.”

And then it’s heads down again on what’s been Twitter’s plan for some time now: audience growth, audience engagement and audience retention.

For the moment, Twitter’s audience growth is increasing, but at a pace likely still too slow for some investors. Average monthly users for Q3 were up 3% year over year from 313 million to 317 million. Mobile, as usual, accounted for the lion’s share, representing 83% of total MAUs.

In a letter to investors, Twitter attributed the modest but positive growth to product improvements around more relevant and streamlined onboard, notifications and timeline experiences, and pleaded for patience.

“We believe that, with continued disciplined execution, growth in audience and engagement will drive acceleration in revenue growth over time,” the letter noted.

Twitter is also forging ahead with its live streaming vision. The platform has struck deals with a number of parties around live streaming content, including NFL Thursday Night Football, Major League Baseball and Bloomberg.

The second and third presidential debates reached an average of 3.3 million unique viewers, a 30% increase over the first debate. The question is whether users that came for the novelty will stay for future streams.

The average view time among its lightest users for NFL streams has been higher than the time spent among medium and heavy users, which Twitter is hoping translates into higher retention among its new or less accustomed users.

Still on the sidelines, but starting to take shape, is Twitter’s partnership with Google. Bain noted that Twitter sees a $75 million annual run rate of ads being tracked and reported through DoubleClick Campaign Manager, and that it moved to a public beta this quarter for its brand advertisers. The private beta for direct-response and performance-based marketers continues.

“DCM is an important step for us as we’re helping marketers better understand how Twitter ads are impacting their own conversion rates and also the net effect of cross-device conversions overall,” Bain said.

Twitter also started alpha testing its deal with DoubleClick Bid Manager during the first few weeks of Q4, and there are several live campaigns on the platform now from advertisers buying Twitter through DBM.

Total revenue for the third quarter was $616 million, an 8% increase over Q3 2015, with advertising revenue accounting for $545 million, up 6% year over year. Data licensing and other revenue made up the rest at $71 million. Mobile revenue comprised 90% of total ad revenue, and total ad engagement was up 91% YoY.

CEO Jack Dorsey declined to make any comments on the recent acquisition chatter. Youssef Squali, head of internet and media equity research at Cantor Fitzgerald, predicted at AdExchanger’s Programmatic I/O conference Thursday that Alphabet will buy Twitter in 2017.

In other news, Twitter announced Thursday that it decided to pull the plug on Vine, the short-form looping video service it bought for $30 million four years ago. Many creators loved the platform, but brands just weren’t into it and monetization remained elusive. The announcement was not mentioned by Twitter management on the earnings call.

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