Even if Musk’s Twitter deal falls through — and there’s little sign it will now — big cuts are expected: Twitter’s current management planned to cut the company’s payroll by about $800 million by the end of next year, a figure that would mean the departure of nearly a quarter of the workforce, according to company documents and interviews with people familiar with the company’s deliberations. The company also planned to make major cuts to its infrastructure, including data centers that keep the site running for more than 200 million users who log on each day.
The scale of the cuts, which have not been previously reported, helps explain why Twitter officials were eager to sell to Musk: Musk’s $44 billion bid, while hostile, is a golden ticket for the struggling company— and can potentially help management avoid painful announcements that would have demoralized staff and possibly crippled the service’s ability to combat misinformation, hate speech and spam.
The impact of such layoffs is likely to be felt immediately by millions of users, said Edwin Chen, a data scientist who was previously in charge of Twitter’s spam and health metrics and now CEO of content moderation startup Surge AI. He said that while he thought Twitter was overstaffed, the cuts Musk proposed were “unthinkable” and would put Twitter’s users at risk of hacking and exposure to offensive material such as child pornography.
“It would be a ripple effect,” he said, “where you would have services going down and people who still don’t have the institutional knowledge to get them back up, becoming completely demoralized and wanting to abandon themselves.”
Twitter and Musk are expected to close the purchase by next Friday. Planning for the exit is moving forward in apparent good faith after months of legal battles, said people familiar with the negotiations who spoke on condition of anonymity to discuss internal deliberations. If the deal closes, Musk will immediately become Twitter’s new owner.
Twitter did not immediately respond to a request for comment.
“The easy part for Musk was buying Twitter, and the hard part is fixing it,” said Dan Ives, a financial analyst at Wedbush Securities. “It will be a big challenge to turn this around.”
Nell Minow, a corporate governance expert who is vice chairman of ValueEdge Advisors, said Musk likely peddled ambitious plans to potential investors but will face challenges implementing his proposals.
“He has to be able to show if he makes these cuts, what happens next?” she said. “What is he going to replace it with, AI?”
Business leaders have repeatedly told employees that there are no immediate layoff plans during town hall meetings. In the one town hall he attended, in June, Musk was pointedly asked a question about layoffs. He replied that he saw no reason why low performers should remain employed.
But the new details, which reflect conversations in recent months, highlight the extreme nature of Musk’s planned transformation of Twitter amid the challenge of making the long-struggling company more profitable. Twitter has never achieved the profit margins or size of other social sites like Meta and Snap. And Musk’s plan to take the company private — freeing it from having to satisfy Wall Street — was a key reason former CEO and co-founder Jack Dorsey got behind Musk’s bid.
Musk and his representatives did not respond to requests for comment.
The months-long roller-coaster saga over Musk’s bid for ownership, coupled with a tense legal battle, has left Twitter battered and bruised. It is facing significant reductions in workers, reduced hiring, stalled projects and a volatile share price.
Recently, Andrea Walne, a general partner at Manhattan Venture Partners, a firm that invested in the deal, told Business Insider that she believes Twitter is worth only $10 billion to $12 billion and that other partners were trying to get out. Musk himself said he and his investors “obviously overpaid” for the site during Tesla’s earnings call on Wednesday. Walne did not respond to requests for comment.
Musk has suggested he wants to loosen content moderation standards and favors restoring former President Donald Trump’s account (on Tuesday, he posted a meme of himself, Kanye West and Trump each holding a sword for the social media company he owns or is in the process of with buying ).
Musk has told investors he plans to double revenue in three years, and will triple the number of daily users who can see ads in the same period, though he has offered few details on how he would achieve those goals.
Twitter estimates that its monetized daily active users (MDAU), defined as the number of users eligible to see ads, is 237.8 million, up 16.6 percent compared to the same quarter last year. But documents that have emerged in Twitter’s legal battle with Musk point to far lower numbers, with Musk’s side claiming, using Twitter’s own data, that fewer than 16 million users see the vast majority of ads.
Also, the time these users spend surfing Twitter fell 10 percent during 2021 and recovered only slightly in the first quarter of 2022, according to the interviews.
Dismantling and then reshaping the workforce through rehiring selected individuals is a big part of Musk’s ambitions, according to interviews and documents. While Musk has previously indicated he would be open to cutting staff — legal filings show he agreed with a friend over text that the company’s headcount wasn’t justified by revenue compared to other tech companies — he hasn’t offered specific numbers public. .
In presentations prepared for investors and other interested parties, Musk’s upbeat business forecasts were driven in part by steep job cuts across what was called a “bloated” organization. One potential investor, who spoke on condition of anonymity to candidly describe Musk’s proposal, likened them to geared buyouts, where companies are made profitable through devastating cuts in labor and operations.
But Musk has told associates that he believes a dramatic downsizing of the company is the first step in executing a turnaround strategy that will then involve bringing in more efficient workers and profitable innovations. They include expanding new services that he has argued could generate more revenue, such as a subscription business where people pay to subscribe to exclusive content from powerful figures and influencers. (Twitter is currently experimenting with such a model, called Twitter Blue).
But Twitter’s own data has found that subscriptions may not generate significant new revenue, according to the interviews. That’s because the users who see the most ads—roughly the top 1 percent of users in the U.S.—are also the ones most likely to sign up for a subscription service. If they started paying a monthly subscription and went ad-free, the program could cannibalize the most lucrative part of Twitter’s current advertising business.
Twitter’s headcount budget — about $1.5 billion last year — includes many highly paid ad sellers and several thousand engineers. The company also spends hundreds of millions on contractors that pay people to review reports of hate speech, child pornography and other indecent and illegal content on the Internet. Some of the planned cuts were put on hold pending the sale to Musk, which was announced in April.
The company introduces a performance evaluation system called stack ranking which requires managers must grade employees on a numerical curve so that a certain percentage of workers will always be labeled as low performers, according to one of the company documents obtained by The Post. The move has been protested by employees, but Twitter says other tech companies have the same practice.
Staff at Twitter have told employees they don’t plan to mass layoffs, but documents show that extensive plans to push out employees and cut infrastructure costs were already in place before Musk offered to buy the company. Musk would then have built on those plans by first targeting low-performers — people the company’s human resources system designated as “not on track” or receiving below 3 out of 5 ratings — before moving on to other phases of downsizing.
For weeks before the acquisition announcement, Musk and his lawyer Alex Spiro pitched a who’s who of elite Silicon Valley and Wall Street investors to a deal billed as a chance not only to transform underperforming Twitter, but to partner with the famous . Musk. Not all potential investors received the same details from Musk’s team.
Some of Musk’s biggest partners in the deal, including Oracle co-founder Larry Ellison and Sequoia partner Doug Leone, were also Trump supporters and self-proclaimed believers in the kind of free-speech ideology Musk promised to bring back to the platform. (Leone is no longer a Trump supporter, but is said to have an expansive view of free speech). Hedge fund manager Kenneth Griffin, the second-biggest GOP donor in the current midterm cycle, also committed a smaller amount — less than $20 million compared to Ellison’s $1 billion — to the deal, The Post has learned.
But many potential notable financiers passed.
Private equity giants T. Rowe Price, TPG and Warburg Pincus, which together control more than $1.4 trillion, all decided not to invest after being approached by Musk’s representatives, according to people familiar with the process.
And other prominent Silicon Valley heavyweights also said no. LinkedIn founder Reid Hoffman helped connect Musk with Microsoft CEO Satya Nadella as part of the fundraising process, but decided not to invest himself, according to people familiar with the situation. Hoffman is a major Democratic donor, and Musk at the time was already talking about restoring Trump.
Founders Fund, the Silicon Valley venture firm founded by billionaire Republican donor Peter Thiel, also said no. Thiel first worked with Musk in 2000 when the two merged their companies to form PayPal, and Thiel’s associates have said he is a fan of Musk, who runs Twitter.
It is unclear whether these parties did not buy into Musk’s high estimates, or did not want to be politically involved.
Some defected after the company’s finances and Musk’s own predicament began to look less attractive.
One person who lost interest told The Post he was alarmed after the market downturn and the cost of the deal began to take a toll on Musk’s finances and the crown jewel of his portfolio, Tesla.
It hasn’t helped that Musk relentlessly attacked Twitter and its management after announcing his takeover, driving down its share price. Musk’s latest turn only added to the sense of chaos.
“[It’s] like if you bought a new car, decided you didn’t want it, and then you crashed it,” the person said. “And then you think, ‘I’ll keep it.’