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Twilio (TWLO) to Slash Operating Costs, Reduce Staff by 11%

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Twilio (TWLO - Free Report) recently announced to lay off approximately 11% of its total global workforce as part of its mega “Restructuring Plan” to help the company improve its profitability.

In a Sep 12 filing with the Securities and Exchange Commission (“SEC”), the company revealed that the Restructuring Plan has been “designed to reduce operating costs, improve operating margins, and shift the Company’s selling capacity to accelerate software sales.”

Notably, Internet software companies like Twilio were among the strong beneficiaries of the pandemic-induced demand boom for cloud-based services from businesses looking to operate amid lockdowns. Twilio hired aggressively in the last two years to capitalize on the opportunity.

However, with the reopening of economies, the demand for such services has started to moderate, thereby slowing the growth rate of Twilio. Additionally, growing global slowdown concerns amid the current macroeconomic challenges and geopolitical tensions have led the enterprise to push back its IT spending plans.

Twilio Inc. Price and Consensus

Twilio Inc. Price and Consensus

Twilio Inc. price-consensus-chart | Twilio Inc. Quote

We believe that the aforementioned issues might have triggered such a move by Twilio to focus more on margins.

Twilio’s current restructuring plan will include cash expenditures for employee transition, notice period and severance payments, employee benefits, and related facilitation costs as well as non-cash expenditures related to the vesting of share-based awards. This San Francisco-based company projects around $70-$90 million in charges for its restructuring plan, which it expects to complete by the end of fourth-quarter 2022.

The cloud communications service provider expects the majority of the charges to be incurred in the third quarter of 2022 and the whole process to be closed by the end of the year. However, the estimated period might get extended due to different local laws and consultation requirements in various jurisdictions in which Twilio operates.

In the second quarter of 2022, Twilio’s non-GAAP loss from operations was $7.3 million against $9.5 million of non-GAAP income from operations in second-quarter 2020. In the quarter to be reported, the company expects non-GAAP loss from operations to escalate and reach $60-$70 million.

Further, second-quarter revenues came in at $943.4 million, which was the lowest since fourth-quarter 2017. Revenues however surged 41% year over year. An aggressive sales strategy drove the top line at the cost of its profitability as gross margins contracted 300 basis points in second-quarter 2022 to 51%. As of Jun 30, 2022, the company’s employee count was 8,510 compared to 6,334 as of Jun 30, 2021.

In the post-pandemic era, tech giants such as Twitter , Netflix (NFLX - Free Report) and Uber Technologies (UBER - Free Report) have also sacked staff, witnessing a slump in demand for their products.

In July, Twitter declared the layoff of 30% of workers from its human resource department to cut costs. This restructuring of the talent acquisition workforce was in response to the shifting business requirements of the company.

In June, Netflix sacked 300 employees in the second round of job cuts after losing subscribers for the first time in more than a decade. The reduction was about 4% of the streaming giant’s workforce and mostly affected US employees. This came after the company cut 150 jobs in May.

Before that, in May, Uber reportedly reduced its spending and slowed down hiring due to a “seismic shift” in investor sentiment, through a reduction in staff. In order to serve its shareholders and their long-term interests better, the company aimed to make its business model leaner by cutting down expenses on marketing and incentive.

Currently, Netflix and Uber carry a Zacks Rank #3 (Hold) while Twilio and Twitter carry a Zacks Rank #4 (Sell). Shares of TWLO, TWTR, NFLX and UBER have plunged 77.2%, 32.2%, 61.5% and 14.1%, respectively, in the past year.

You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

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