Twitter Inc. plans to lay off a few hundred employees, mostly in sales and marketing, and shut down its Vine video app as the social media service strives to produce an annual profit for the first time next year.
Initiatives such as streaming live video of NFL games are helping boost ad sales at Twitter, but not quickly enough to justify what investors and analysts have complained is a bloated workforce out of sync with the company’s prospects. Several other firms, including Salesforce.com Inc. and Walt Disney Co., have considered and then rejected the opportunity to acquire Twitter in recent weeks.
The once fast-growing San Francisco company has produced nine straight quarters of slowing revenue growth compared with the prior-year quarter. And monthly active users, the company’s key usage measurement, has stagnated for the last year.
The cuts to the 3,910-person workforce, announced early Thursday alongside Twitter’s latest quarterly financial results, acknowledge the difficulties.
“Once a company gets to our scale and growth, it’s important to drive toward margins and profitability,” Chief Financial Officer Anthony Noto said during a call with analysts. “It’s an important milestone to reach for investor appeal.”
The belt-tightening targets some departments beyond sales. Hours after the earnings announcement Thursday, Twitter said it would shut down its Vine video app “in the coming months.” Twitter acquired the six-second looping video app months after its founding in 2012. It developed a loyal following, but demand sank as users slowly found more intriguing tools and financial incentives on other social media apps.
Twitter said it would help users preserve existing posts on Vine, but stopping further development could free employees to work on live-video technology.
Since returning a year ago to the helm of the company he co-founded, Chief Executive Jack Dorsey has focused the company on adjusting the user interface in hopes of encouraging more activity. Some of the changes, such as automatically surfacing the most interesting posts users might have missed between visits to the app, have been welcomed by users.
Although 700 million accounts have been active on Twitter over the last year, just 317 million are active each month and a much smaller number each day. Rival gateways to news and entertainment — chiefly Snapchat, Instagram and Facebook — are outpacing it. For example, Facebook has added 319 million monthly users since the end of 2014.
Twitter says the design changes over the last year have made it more attractive to advertisers. And it says restructuring its sales teams to merge those that now separately focus on larger and midsized clients will bring expenses down — after an initial hit of $10 million to $20 million in severance costs. SunTrust Robinson Humphrey analyst Robert Peck estimated layoffs could bring as much as $100 million in annual savings.
Financial analysts remain skeptical about the ad business, saying the 50 percent decline in Twitter’s share price since summer 2015 suggests investors have significantly ratcheted down expectations.
Twitter shares rose 0.6 percent in trading Thursday to close at $17.40, well below the initial issue price of $26 when the company went public nearly three years ago.
“Twitter monetizes its user base at about half the rate of Facebook, and we are not sure it can close the gap entirely,” Mark Mahaney of RBC Capital Markets told clients earlier this week, citing “waning” advertiser interest in the platform.
Debra Aho Williamson, principal analyst at advertising industry research firm EMarketer, said Twitter remains well positioned to net some of the soaring spending on mobile video ads. “Twitter’s embrace of video advertising is smart,” she said.
The company reported third-quarter revenue of $616 million, up 8 percent over the same period last year, and a quarterly loss of $103 million.
“If current trends continue, we think (merging or being acquired) is inevitable, albeit potentially at lower prices and not until 2017,” Peck wrote recently.
Dorsey declined to address the acquisition discussions beyond saying the company’s board of directors is committed to maximizing long-term value.
Salesforce Chief Executive Marc Benioff told an industry conference Wednesday that he abandoned a Twitter bid after shareholders expressed concern about its potential fit in his marketing software company’s strategy.
“We’ve looked at hundreds of companies and done about 40 acquisitions, but we’ve never had a deal leaked before,” Benioff said. “When shareholders (say) stop, I have to stop. It’s a collaborative effort.”
With those discussions in the rearview mirror and budget cuts in progress, questions about Twitter now may shift to the company’s spending on the rights to stream NFL games, political events, news shows and other video.
Twitter executives said they’re trying to make each content deal profitable on its own, but it’s unclear whether that’s achievable as apps fight for exclusive rights to prized programming and drive up prices. Still, Twitter is touting the young audience it can deliver to media company partners — 70 percent of viewers of U.S. presidential debate and NFL streams it hosted were younger than 35.
Noto described live video as integral to the future, noting there was record usage during the three days Twitter streamed election debates. Videos also have been Twitter’s largest and fastest-growing ad-revenue generator in recent months.
The company didn’t offer any guidance about revenue for the current quarter, citing the difficulty in judging the short-term effect of the layoffs.
“We would need to have debate every day on Twitter to have it be a meaningful impact across a quarter, and that’s where we are headed,” Noto said. “Our live strategy has to be more fully rolled out.”
Additional tweaks to the service are coming. Dorsey said November would bring updates to the way Twitter handles concerns about harassment, bullying and other unwanted interaction between users. He didn’t go into detail about those changes or about expected experimentation with the app’s posting process.
“We will make tweeting easier and more meaningful by providing more context and letting people not only broadcast to the world but also have deeper, open conversations about the topics they care about,” the company said in a statement.
Although Twitter has not enacted the revolutionary changes some technology analysts have called for, the company’s adjusted profit margins have shown improvement through the spate of smaller refinements.
“We’re focused on building the largest, most comprehensive news network on the planet,” Dorsey said. And it’s “building small changes that will compound in more usage, and it’s working.”