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 Oct. 28 to work out details of the proposed $44 billion deal. Otherwise, there will be a trial in November.
Shares of Twitter dropped more than 4% in premarket trading.
Elsewhere in the sector, Snap Inc.’ stock slid more than 28% after the company behind Snapchat gave a lackluster 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 JPMorgan 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 & 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 being used as the mid-term elections near. 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 then-President Donald Trump’s lies about the election he lost to Joe Biden helped fuel an insurrection at the U.S. Capitol.
Shares of Meta Platforms Inc., parent company of Facebook, declined 4.4% before the opening bell.
The flurry of news weighed on others in the sector as well, including Google parent Alphabet Inc., off 2%, and Pinterest Inc., down 8%.