Good luck, potential Twitter buyers.
As the company weighs whether to sell itself, Twitter's challenges are under a spotlight like never before. Nothing may come of the takeover considerations, but it's useful to be aware of Twitter's troubles. In four charts, here is a snapshot of Twitter's business problems, some of which might be inherited by a potential new owner:
1) Revenue growth has flown the coop: For a long stretch, Twitter's advertising sales department was the machine that kept a dysfunctional company humming. Revenue growth stayed a bright spot even when Twitter stopped being able to lure more people to use the product. That has changed.
Twitter's rate of revenue growth has declined for eight straight quarters, and the pace is now pretty middling for an internet company. Google parent company Alphabet -- which has 33 times the annual revenue of Twitter -- posted faster growth than Twitter's 19.8 percent pace in the most recent quarter. And Twitter expects sales gains to slow to as little as 4 percent in the third quarter.
2) The company is woefully inefficient: Investors in tech and other fields keep watch on companies' average revenue per employee. It's a measure of how efficiently -- or inefficiently -- a business is run. Even after significant job cuts a year ago, Twitter is middling when it comes to the size of sales for each of its 3,900 workers.
3) Stock compensation costs are a major drag: Technology companies typically pay their employees richly with their own stock. The equity compensation splurges are fine when a company is growing, but less so when hard times hit as they have at Twitter.
The company's stock compensation expenses work out to about 26 percent of its revenue in the last 12 months. That's not just high among its peers. It's the highest share of stock compensation expense as a percentage of revenue among U.S. tech companies with at least $1 billion in annual revenue, according to Bloomberg data. As Twitter's stock price has dropped, the company in some cases has doled out even more stock pay to employees to keep them from jumping ship.
4) Investors have stopped being willing to pay up to own Twitter stock. Nearly three years ago, Twitter held a successful IPO, and hopes among investors and company insiders were high. The company's stock traded as high as 40 times Twitter's estimated annual revenue. Now the company's stock is stuck below the $26 IPO price, and Twitter's valuation -- even after a spike Friday amid fresh reports of a possible sale -- has cratered to about 6 times projected revenue.
Twitter's financial sickness doesn't mean the company isn't valuable. The company could be considered a prize for Google or Salesforce, each of which is at least kicking the tires on a Twitter purchase. But like any would-be home owner, potential buyers of Twitter better make sure they inspect the foundation on this fixer-upper.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
The company is also considering changes that could include more layoffs, the New York Times reported on Friday.
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