The customer engagement software-as-a-service (SaaS) company Twilio announced yesterday that it will be reducing its headcount once again. This time, 17% of the firm’s workforce will be laid off as the company keeps making tweaks to turn a profit.
In an e-mail sent to employees by Twilio’s Chief Executive Officer, Jeff Lawson, the head of the tech firm explained that the cuts it made in September last year when it let go of more than 800 employees were “not enough” to get the company “through the next phase”.
Twilio is Undergoing a Full-Blown Restructuring
Two of Twilio’s business units will be directly impacted by yesterday’s decision – Communications and Data & Applications – the CEO of the firm emphasized. According to its latest quarterly report, Twilio employed nearly 9,000 people, meaning that around 1,400 employees may no longer work for the firm once they receive notice of their involuntary departures.
Lawson pointed out that last year’s layoffs were made based on what the company was focusing on at the time, which was reducing its existing organizational structure to a more manageable size.
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However, this next round is being incentivized by the need to restructure how certain business units work so they can function more efficiently. “It is painful to part ways with so many talented people – but it’s necessary to get our two businesses into the right shape to succeed”, the head of the San Francisco-based SaaS company asserted.
Employees in the United States will be eligible to receive up to 12 months of base pay and an additional one week of salary for every year of service at Twilio along with continued health coverage and job placement advisory. In addition, they will still receive the full value of their February vesting program.
Lawson also announced that it will be reducing some of the perks that it previously offered to those who will stay with the company. For example, Twilio will no longer pay for books and wellness programs. Moreover, some physical offices will be closed down due to low utilization”.
Twilio Has an Uphill Battle Ahead If It Wants to Turn a Profit
During the first nine months of 2022, Twilio saw its revenues surge by 40% compared to the same period a year ago with the company bringing in $2.80 billion. However, the company reported net losses of half that amount amid its elevated R&D and marketing expenditures.
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Such huge losses make it difficult for Twilio to demonstrate to investors that its business model is feasible from a financial standpoint. In a challenging macroeconomic environment such as the current one, companies like Twilio may find it more difficult to raise capital if their businesses are not considered sound enough from a fundamental standpoint.
Even though the company’s cash reserves are ample and should suffice to keep it afloat for a few years, Twilio may be preparing for a prolonged period of harsh financing conditions for startups and businesses with weak economics.
Investors’ reluctance to back tech firms with these characteristics in the current macro environment is reflected by the significant drop in Twilio’s share price in the past two years. Back in February 2021, the stock surged to an all-time high of $457.3 per share. Since then, the value of TWLO has dropped to $61.3 apiece – an 87% drop in just 24 months.
Many other tech companies – both large and small – have taken similar actions to reduce their overhead as is the case of Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOG). Data from Layoffs.fyi indicate that the tech sector has already let go of more than 100,000 employees in just the first two months of the year compared to 160,000 people that were laid off in 2022.
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