What happened
Twilio (TWLO 1.47%) is cutting about 17% of its workforce, its second round of layoffs since September, as part of a broader restructuring of the cloud communications software maker. It is a tough day for Twilio workers, but investors appear to believe the changes were necessary, sending Twilio shares up as much as 7% on Monday trading.
So what
After years of growth, big tech has been focused on cuts of late, with a range of companies including Amazon, Alphabet, and Microsoft announcing layoffs in recent weeks. Rising rates have changed the calculus on a "growth at all costs" strategy, and a range of one-time fast growers are seeking to pare back operations to adjust to the new operating environment.
On Monday, Twilio announced an overhaul that includes about 1,500 job cuts as well as the formation of two business units in an effort to "strategically realign the business to promote efficient and accelerated growth." The company will permanently close office locations and is eliminating certain perks, including its book and wellness allowances.
In a letter to employees, CEO Jeff Lawson said the changes "hurt" but are necessary. "A company optimizes for its environment," Lawson wrote. "For the last 15 years, we ran Twilio for growth, building a tremendous customer base, product set, and revenue base. But environments change -- and so must we. Now we have to prioritize profit far more than before."
Twilio also named Aidan Viggiano as chief financial officer, effective March 1.
Now what
Layoffs are never a cause for celebration, but at times they can be a necessary bitter pill for a business to swallow. Investors seem to believe that is the case here, with Twilio shares initially jumping as much as 7% before falling back to up about 3% as of 1 p.m. on Monday.
The split into two divisions, Twilio Data and Twilio Communications, makes sense as a way to focus the company's resources on its core offerings and to try to accelerate growth in its data unit. Investors have certainly been calling for change, with the stock down more than 80% from its January 2021 high.
Lawson said he believes the actions "will put us on the right path for executing our strategy and creating an even stronger, more efficient, and more effective Twilio." Based on the share reaction, investors appear to be bought in to the CEO's revised vision for the company.
