Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

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. 

Sales Sag
Twitter's revenue had been growing far faster than its internet peers. Not anymore.
Source: Bloomberg
Note: Figures are for gross revenue, except for LinkedIn which only reports net revenue.

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.

Not Top Flight
Twitter generates less than half as much revenue per employee as Facebook
Source: Company filings
Note: Calculations based on gross revenue for the trailing 12 months and employee counts as of June 30. Yahoo employee number includes 700 contractors.

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. 

Costly Rewards
Twitter spends a much larger share of its revenue to pay employees with stock than other larger internet companies
Source: Company filings

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. 

Losing Altitude
Two years ago, Twitter shares were trading at an outlandish 18.5 times the company's estimated annual revenue. Now the valuation has cratered to about 6 times.
Source: Bloomberg
Note: Valuation is through Friday's market close.

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.

  1. The company is also considering changes that could include more layoffs, the New York Times reported on Friday. 

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net