October 13, 2015 / 12:45 PM / in 2 years

Twitter announces layoffs as CEO Dorsey looks to revive growth

An employee adjusts a screen that displays the Twitter logo ahead of the company's IPO on the floor of the New York Stock Exchange, in this file picture taken November 6, 2013.Brendan McDermid/Files

(Reuters) - Twitter Inc (TWTR.N) will lay off up to 336 employees, or about 8 percent of its workforce, as co-founder Jack Dorsey readies to revive growth in the microblogging service provider's user base in his second stint as chief executive.

The layoffs, primarily in the company's engineering and product functions, come a week after Dorsey took over as permanent CEO. (1.usa.gov/1Gbb31A)

Shares of Twitter, which had about 4,100 employees globally as of June 30, rose as much as 6.7 percent to $30.68 on Tuesday.

"We feel strongly that engineering will move much faster with a smaller and nimbler team, while remaining the biggest percentage of our workforce," Dorsey said in a letter to employees. "And the rest of the organization will be streamlined in parallel."

FBN Securities analyst Shebly Seyrafi, however, said the company needed to focus also on "rationalizing sales" along with engineering to achieve its margin targets.

Dorsey, who was appointed Twitter's interim CEO in July after Dick Costolo resigned, has been candid about the company's problems.

Twitter's second-quarter growth in average monthly users was the slowest since the company went public on Nov. 7, 2013. Its stock nearly tripled to a record high of $74.73 in December 2013, but has fallen about 60 percent since.

"The general thinking is that Twitter has a product problem, which is why they picked Jack to come in. You would normally not be cutting in engineering if you have a product problem. So I scratched my head a little bit on that," Seyrafi told Reuters.

Since Dorsey took over as interim CEO, Twitter has rolled out a "buy now" button that allows users to make purchases and a feature that highlights the best tweets and content.

Cuts in the engineering department could hurt the company's "ability to continue growing at a robust pace," RBC Capital Markets analyst Mark Mahaney wrote in a note.

Twitter said it expected about $10 million-$20 million in severance costs and $5 million-$15 million in restructuring charges. Twitter expects to record most of these pretax restructuring charges in the fourth quarter.

Technology news website Re/code first reported the planned layoffs on Oct. 9.

Twitter said it expected its third-quarter revenue and adjusted EBITDA to meet or top the higher end of its forecasts.

The company, which will report its third-quarter results on Oct. 27, has forecast revenue of $545 million-$560 million and adjusted EBITDA of $110 million-$115 million.

Reporting by Lehar Maan and Abhirup Roy in Bengaluru; additional reporting by Devika Krishna Kumar; Editing by Kirti Pandey

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