Twitter announces it will lay off 8 percent of its workforce

Twitter Chief Executive Jack Dorsey may have spoken too soon back in June when he described the company’s direction as “extremely strong and beautiful.”

The San Francisco microblogging site will cut 336 employees, or 8 percent of its global workforce, as part of a restructuring plan. Twitter began notifying affected employees on Tuesday, while its shares rose nearly 6 percent, to $30.44, in morning trading on Wall Street.

“The restructuring is part of an overall plan to organize around the company’s top product priorities and drive efficiencies throughout the company,” Twitter said in a securities filing. “The company intends to reinvest savings in its most important priorities to drive growth.”

Some analysts cheered the move, saying the long-term cost savings would catch Twitter up to other tech companies. Twitter reported adjusted earnings per employee of $83,000 in 2014, compared to $900,000 at Facebook and $479,000 at Google, said Blake Harper, Internet industry analyst at Topeka Capital Markets.

“The company stated it is going to reinvest the savings into driving growth, which could inhibit near term margin improvement, but should improve the workforce and expense structure,” Harper said in a note to investors Tuesday.

Victor Anthony, an analyst at Axiom Capital Management, called Twitter a “work in progress” in a report on Tuesday.

“Much work is ahead to drive up engagement and user growth,” he said. “A more streamlined and more nimble organization could help with those efforts.”

Twitter estimated layoffs would cost up to $20 million, nearly all in severance costs.

In a letter to employees titled “A More Focused Twitter,” Dorsey said the company “made an extremely tough decision.”

He said the product and engineering teams would make the most significant structural changes, adding that “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.”

“The world needs a strong Twitter, and this is another step to get there,” he said.

News of possible layoffs first emerged in early October when news site ReCode reported via unnamed sources that the company planned to slim down its workforce in an effort to reduce costs. A Twitter spokeswoman had declined at the time to comment on “rumor and speculation.”

The story sent Twitter’s stock down 6.81 percent on Monday, closing at $28.75.

Dorsey was named Twitter’s interim chief executive in June after then-CEO Dick Costolo resigned amid the company’s struggles to attract new users and introduce products and features that kept existing users interested. Dorsey was Twitter’s first chief executive and stepped down in 2008.

Dorsey held this role while remaining the chief executive of electronic payments firm Square, of which he is the founder. He was named Twitter’s permanent CEO in September and said he would continue to lead both companies.

Harper said a co-founder pulling the trigger on layoffs could be more digestible for remaining employees than had an outsider been hired as CEO.

“While it is still to be determined what impact the move will have, we view it positively that Mr. Dorsey has acted decisively early in his tenure,” the analyst said.

Twitter appeared to find its second wind under Dorsey’s leadership, with the company posting a 61 percent revenue increase in its second quarter this year and launching new features such as Moments and Product Pages.

Despite the product launches and revenue increase, the company remained dogged by slow user growth and poor engagement. Twitter’s average monthly active users, a key growth metric, totaled 304 million core users in the second quarter, up only 2 million from the first quarter.

“Headcount cuts are a good thing, but the stock isn’t a growth story unless users are growing,” said Michael Pachter, an analyst at Wedbush Securities.

Company Chief Financial Officer Anthony Noto said the product remains too difficult for many to use, and Dorsey said the results were “unacceptable and we’re not happy about it.”