Will Elon really lay off 75% of Twitter?

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In this issue

Follow-up: Last week's VC forecasts, compared.
Make a forecast: Will Twitter lay off more than half its staff by end of Q1 2023?

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VC still has further to fall

Last week, Nonrival asked: How likely is it that US VC funding in Q4 of 2022 will be higher than Q3?

(You didn't make a prediction this week. Otherwise you'd be seeing your forecast here.)

Readers predict VC will keep falling in Q4. The average forecast gives only a one-in-three chance that US VC funding increases next quarter.

A chart shows most Nonrival readers predict VC funding to fall in Q4.

The average reader forecast was 34%.

Readers' reasoning

I think it's unlikely that VC funding will rebound quickly. I think it's also unlikely it will decline precipitously: there's too much demand. So I expect to see minor decline and then steady state similar to 2019. (0%)

Q4 is already looking like greater market volatility and geopolitical uncertainty than Q3, with inflation holding strong and the Fed expected to continue raising rates. That suggests a worsening outlook for investors. Uncertainty about energy costs and Covid rates going into winter may also make life difficult for startups. (5%)

Correlated with the performance of the stock market, which got worse from Q3. (20%)

Nonrival readers are more pessimistic on this topic than forecasters on Manifold Markets, a play-money prediction market. Nonrival posted the same question there, and as of this writing the current forecast is a 51% chance of Q4 VC funding being higher.

Will Elon Musk lay off half or more of Twitter?

Elon Musk has told investors that he plans to get rid of “nearly 75% of Twitter’s 7,500 workers,” according to a report by The Washington Post. That’s a staggering proposal that would dramatically change one of the major social media platforms in a stroke.

But what are the chances it actually happens? Cuts like that would likely damage Twitter badly, and would go far beyond what would be needed to put the company on par with its competitors.

It's worth acknowledging that this is a sensitive question: Peoples' jobs and income are at stake. But that's also part of why it's a good forecasting question. It really matters whether we think Musk would go through with it or not.

So, this week’s forecast: How likely is it that Twitter lays off 50% of its employees or more by the end of Q1 2023?

Background

Musk will very likely own Twitter by the end of this month, and has made no secret of his disagreements with management—particularly around content moderation.
Twitter has long been accused of mismanagement, and has had a rotating cast of CEOs over the years.
Twitter will take on more debt as part of the deal. About $13 billion of the $44 billion purchase will be through new debt financing, and Twitter’s annual interest burden will skyrocket to about half its current earnings, per the Wall Street Journal.
Twitter was likely facing layoffs anyway, per the Post’s report. “Twitter’s current management planned to pare the company’s payroll by about $800 million by the end of next year, a number that would mean the departure of nearly a quarter of the workforce,” according to the report.

Perspectives

“Musk clearly lacks a fundamental understanding of some serious issues the company faces, some of which could only be resolved by more investment in key areas… It’s also totally plausible that the 75% number is just another trick he pulled out of his hat to impress whoever he was talking to.” —Taylor Hatmaker, TechCrunch

“Sean Edgett, Twitter’s general counsel, said in an email to employees Thursday that rumors or leaked documents may not be correct and that they should wait for facts to come out.” —NBC News

I’ll add a perspective of my own: Musk wants to encourage employees who aren’t on board with his ownership to leave of their own accord. Threatening massive layoffs is one (flawed) strategy for doing that.

Indicators

The knock on Twitter has long been that it’s an under-performing company. For a bit of back-of-the-envelope context, here’s the revenue per employee at Twitter, Snap, and Meta. The latter is far more productive by that measure.

Twitter would have to cut staff by 59% while holding revenue constant to match Meta. It’d only need to cut staff by 6% to match Snap.

But it’s implausible that you can lay off half a company and magically maintain revenue. That’s just not how it works.

To get a sense of how steep 75% layoffs would be, here’s how deep cuts were in 122 instances of layoffs at public tech companies since 2020. (This chart only includes cases where the percentage of staff cut was included on the site Layoffs.fyi.)

A chart shows most layoffs at tech companies were 20% of staff.

For another comparison, a 2019 study found that total employment at publicly listed firms bought by private equity firms shrinks 13% on average over the two years following the deal, relative to employment at comparable firms. Musk's proposal would make PE firms look cuddly.

Forecast

How likely is it that Twitter lays off half of its staff or more by end of Q1 2023?

Deadline: Make a forecast by 9am ET Thursday Oct. 27

Fine print: This question will resolve Yes if Layoffs.fyi has an entry for Twitter that lists layoffs of 50% or more, or of 3,750 employees or more, or multiple entries that sum to that level.

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