Twitter (TWTR) is facing serious financial challenges amid harsh economic conditions that are affecting its core advertising business. The New York Times (NYT) reports that the company has warned employees they will receive only half of their typical annual bonuses. The potential bonus cut is due to deteriorating financial performance. In Q2 2022, Twitter reported a decline in revenue for the first time since 2020.
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Challenges Affecting Twitter’s Performance
Advertisers who account for the biggest share of Twitter’s revenue have reduced spending owing to economic fears. In addition, the New York Times reports that the stalemate over the protracted $44 billion takeover by Elon Musk has generated some uncertainty. Musk is trying to pull out of the deal while Twitter has sued to force an acquisition.
Twitter’s Chief Financial Officer (CFO), Ned Segal, says the challenges look set to affect annual bonuses. The bonus pool has already shrunk to 50% of what it could be if the company met its financial targets. The figure is expected to fluctuate even further throughout the year, depending on the company’s earnings.
Twitter is not the first company to cut costs in response to harsh economic times. The Wall Street Journal (WSJ) reports that Snap (SNAP) will reduce its hiring pace after posting the weakest-ever quarterly sales growth. The company’s Chief Executive Officer (CEO) Evan Spiegel has already said they would halt the development of the drone project Pixy. Facebook’s parent, Meta Platforms (META), also posted its first-ever decline in revenue.
Companies that rely heavily on digital advertising for sales have been particularly hard hit by the economic downturn. Twitter has sought to adjust to the deteriorating business conditions by also pausing hiring. It reduced spending on contractors and consultants. It also laid off a third of its talent acquisition team in July.
Is Twitter Stock Expected to Rise?
According to TipRanks’ analyst rating consensus, Twitter is a Hold based on two Buys and 16 Holds. The average Twitter stock price prediction is $41.46. Twitter stock price is not expected to rise. Analysts’ sentiments are still bearish with almost 5.8% downside potential to TWTR’s current stock price.
Final Thoughts
Reduced spending on digital advertising is a big problem for Twitter as it threatens its key revenue stream. The company’s slashing of bonuses could be a result of deteriorating financial strength. The standoff over Musk’s proposed $44 billion adds to the wave of uncertainty.
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