According to a filing with the Securities and Exchange Commission published on Wednesday, Twilio will lay off 11% of its workforce as part of a major restructuring plan.
As of December 31, 2021, Twilio had a workforce of 7,867 employees.
In order to achieve profitability in 2023, the cloud communications software builder has been striving to reduce operating costs, improve operating margins, as well as create a better selling capacity through restructuring.
The company’s CEO Jeff Lawson has written a letter to employees saying that the company has decided to lay off staff in order to run more efficiently and to align the company’s investments with its priorities in order to be more effective.
As much as he said the decision was “extremely difficult,” he said it was also “wise and necessary.”
In the last couple of years, Twilio has grown at an astonishing rate over a short period of time.
In his letter, Lawson said that the company was moving too fast and without enough focus on the most important company priorities.
“I take full responsibility for all of those decisions, as well as for the difficult decision to lay off these employees.”
According to Lawson, the employees impacted by this decision work in areas of the company that can be operated more efficiently and in which customers will be able to succeed without as much human intervention as possible.
In connection with the reorganization plan, Twilio said it expects to incur between $70 million and $90 million in charges.
Twilio’s shares closed higher by 10% on Wednesday, which was a good day for the company.
The shares of Twilio (TWLO 10.02%) were up today on the news that the cloud-based communications software company was going to lay off 11% of its workforce in order to rightsize the company and improve profitability.
Why does it matter?
In a regulatory filing, management announced that it had approved a restructuring plan aimed at reducing costs, improving operating margins, and increasing sales of software products.
In terms of cost-cutting measures, the company is taking the principal measure of reducing its workforce by 11%.
Despite the fact that Twilio did not provide a cost-saving number associated with the layoffs, the company has said the layoffs will result in a charge of $70 million to $90 million, primarily in the third quarter.
Moreover, the company reaffirmed its guidance, stating that in the third quarter the company expects to generate between $965 million and $975 million in revenue, a 30% to 32% increase.
Twilio shares have fallen sharply over the last year, much like a number of other cloud stocks as market sentiment has turned away from high-priced, unprofitable growth stocks like Twilio in recent years.
It’s noteworthy that Twilio’s stock is down roughly 80% from its peak last year, and it disappointed the market again in its second-quarter earnings report in August by predicting wide losses in its guidance for the third quarter.
Cloud software investors are clearly placing a premium on profitability, and are rejecting the growth-at-any-cost model that has been common in the sector in the past. In the past few months, Twilio had made little progress in moving towards profitability, but with the layoffs that it announced today, that is expected to change.
It should be evident to Twilio’s management that the market’s reaction, sending the stock up double digits, is a clear indication that the best way to recoup the loss in the stock is to show cost discipline and get the bottom line out of the red.
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