Twitter announced layoffs yesterday, and CNBC’s Jim Cramer expects the stock to go higher after this. On Tuesday, the stock closed up 1.08% at $29.06.
Will Twitter stock to go up?
Speaking on Squawk on the Street, Cramer said, “I don’t like job cuts, don’t get me wrong … but I think Twitter was bloated,” adding that this is the first instance suggesting that the micro-blogging firm has accepted “that you can’t just be part of some sort of club where it doesn’t matter how you do.”
On Tuesday, Twitter announced a job cut of 8% from its global headcount. The recent move from Twitter suggests that the company was run “haphazardly” until now, but now “it’s being run laser-focused.” Cramer added, “I would not rule out this stock going higher from here.”
Apart from the layoffs, Twitter also said that it expects its third quarter revenue and adjusted earnings to come in at or above the high end of the earlier guided range. The micro-blogging firm has been able to grow its revenue but has been lacking when it comes to adding users.
Lack of confidence
Many believe that a cost-cutting mode reflects a lack of confidence among management to turn around the user trend. Twitter is supposed to be a growth company, and such companies invest heavily in their growth to hit profitability later.
A more optimistic view will be that the newly appointed CEO Jack Dorsey wants to signal that he is very serious about taking the company in a new direction. But from an investor’s point of view, Dorsey need to show a clear plan that could get the company back on the growth track.
Convincing Wall Street will be tough for the CEO as the market’s expectations are already pretty low for Twitter. Twitter’s undiluted market capitalization is around six times its 2016 sales compared to 11 times for Facebook. Last year, the firm traded at an undiluted multiple of forward sales of about 14.5 times, which was almost the same as that of Facebook. This suggests that the market is not very optimistic that the firm can grow its size, according to The Wall Street Journal.
Still, Twitter has been making efforts and recently introduced Moments, a tool that curates the most relevant tweets around live events. But we will have to wait for some time before the results of the new features and recent announcements are evident.
