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One chart shows why Elon Musk axed half of Twitter's workforce

  • Twitter's revenue per employee crashed in the years before Elon Musk's takeover.

  • This measure of efficiency is back in vogue in tech, according to executives and investors.

  • The figure might explain Musk's decision to cut thousands of jobs.

The revenue generated by each employee at Twitter collapsed in the years running up to Elon Musk's $44 billion buyout, shedding light on why the billionaire planned to axe half of staff after taking over.

Twitter's revenue per employee cratered between 2018 and 2022, Insider analysis of the firm's SEC filings found.

Since Twitter went private before releasing its financials for the third quarter of 2022, we used revenue data from the first two quarters to come up with a back-of-the-envelope annualized figure for the year. On that basis, Twitter's revenue per employee fell an estimated 18.2% between 2018 and 2022 — steeper than other major tech firms.

 

Revenue per employee is a simple measure of efficiency that was previously in vogue in the aftermath of the 2008 financial crash. It gives companies a chance to assess how productive each employee at their company is on average by dividing revenue by the size of their payroll. A growing number of influential tech executives and investors say tech firms, bloated by over-hiring, should re-prioritize the metric.

Since 2018, Twitter has seen a drastic fall in the revenue generated per employee. The number fell from $776,112 in 2018 to our annualized figure of $634,666 in 2022, illustrating the firm's continued struggles to turn a profit.

At the same time, Twitter almost doubled its headcount from 3,920 in 2018 to around 7,500.

Since taking over, Musk has laid off thousands of staff and been vocal about focusing on a core of critical engineers, publicly lambasting those whose work appears less than necessary. Insider's Kali Hays reported last month that the billionaire remains highly focused on cost-cutting — sometimes at the expense of Twitter's functionality.

When making Twitter's first round of cuts in November, Musk tweeted that "unfortunately there is no choice when the company is losing over $4M/day." Those who remained were told to expect an "extremely hardcore" working culture.

Revenue pressure is particularly acute at the firm given costly interest repayments on the $13 billion of debt Musk took on to finance his buyout. The company's first payment to lenders was completed by the end of January, per the FT.

Despite mixed success in keeping Twitter running smoothly, Musk and his layoffs have been closely watched and replicated across tech. Meta, Alphabet, Amazon, and others have subsequently axed thousands of roles in the name of efficiency. Over 157,000 workers have lost their jobs since January this year, according to data from tracker site Layoffs.fyi.

In a virtual fireside conversation this month with investment bank Evercore, investor and PayPal Mafia member Keith Rabois said he expected revenue per employee to make a return as companies prioritize profitability.

Rabois and other hawkish execs have lauded layoffs, saying that many of the jobs being cut mostly revolved around "fake work" enabled by companies chasing headcount as a vanity metric.

Correction: April 4 2023 — A previous version of this story misstated Twitter's revenue-per-employee decline. Based on annualized data for 2022, it is an estimated 18.2%, not 60%.

Read the original article on Business Insider

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