Shares of social media companies are tumbling before the market open on Friday after a slew of news in the sector that concerned investors, including a report that Elon Musk may cut almost 75% of Twitter’s workforce, and Snap’s muted fourth-quarter outlook.
Musk has told prospective investors in his Twitter purchase that he plans to cut nearly 75% of Twitter’s employee base of 7,500 workers, leaving the company with a skeleton crew, according to a Thursday report by The Washington Post.
Wedbush’s Dan Ives said in a client note that Twitter Inc. is due for some job cuts, but that the reported figure may not be the best approach.
“Musk cannot cut his way to growth with Twitter, and a number in the 75% zip code would be way too aggressive in our opinion out of the gates,” he wrote.
A Delaware judge has given Musk and Twitter until October 28 to work out the details of the proposed $44 billion deal. Otherwise, there will be a trial in November.
Tesla CEO Elon Musk
Shares of Twitter dropped over 4% in pre-market trading.
Elsewhere in the sector, Snap Inc.’s stock slid more than 28% after the company behind Snapchat gave a lacklustre forecast for the fourth quarter, and its third-quarter revenue missed Wall Street’s view.
Snap reported third-quarter revenue of $1.13 billion, below the $1.15 billion that analysts polled by Zacks Investment Research expected.
While the Santa Monica, California-based company said in a letter to investors that it wasn’t giving a formal fourth-quarter outlook, it did say that it’s highly likely that year-over-year revenue growth will slow during the period.
Snap said its internal forecasts are for year-over-year revenue growth to be about flat.
A JP Morgan analyst note said that Snap is experiencing weaker demand due to macro pressures, platform policy changes, and competition.
“We appreciate management’s efforts to control what they can—cutting costs and doubling down on more resilient performance-based ads, but trends remain choppy, and the macro backdrop is likely even tougher into 2023,” the note said.
Adding to the mix are concerns about the way social media platforms are used as the mid-term election nears.
While platforms like Twitter, TikTok, Facebook, and YouTube say they’ve expanded their work to detect and stop harmful claims that could suppress the vote or even lead to violent confrontations, a review of some of the sites shows they’re still playing catchup with 2020 when former President Donald Trump’s lies about the election he lost to Joe Biden helped fuel an insurrection at the US Capitol.
Shares of Meta Platforms Inc., the parent company of Facebook, declined 4.4% before the opening bell.
Besides, the flurry of news weighed on others in the sector, including Google parent Alphabet Inc., off 2%, and Pinterest Inc., down 8%.