TWTR Stock: Jack Dorsey Revealed the #1 Reason to Be Bullish on Twitter

Twitter StockTwitter Inc (NYSE:TWTR) is trading at $17.10, but Twitter stock has dropped more than 24% since the start of 2016. It is hardly a consolation to investors that TWTR stock was trading over $50.00 per share just last May in a year when the U.S. tech sector was one of the best performers. Within six months, Twitter stock has lost more than 60% of its value.

Since a few months ago, Twitter co-founder Jack Dorsey resumed the post of CEO with the intent to steer the company in the right direction, starting with the round of high-profile executive departures announced on January 24. (Source: “Top Twitter executives to leave company in reshuffle,” The Star Online, January 26, 2016.)

This should be seen in that context, rather than as a sign that the company has run out of ideas. In other words, Twitter stock will benefit from these departures in the end, because they leave Dorsey freer to pursue his vision for growth. Indeed, since the five high-profile departures were announced, Twitter stock has shown a modest recovery.

The five departing executives include the human resources manager, the head of communications, two vice-presidents, and Vine head Jason Toff, who tweeted that he is going back to Google to work on virtual reality. There is no doubt that these are Twitter’s pillars and their names, Alex Roetter, Skip Schipper, Katie Stanton, and Kevin Weil—as well as Toff—are significant losses for the company.

CEO Jack Dorsey, who replaced Dick Costolo last June, admitted as much in a tweet to silence any rumors. He said the resigning managers “will take a well-deserved break.” (Source: “CEO announces major shakeup at Twitter,” The Daily Mail, January 25, 2016.)

It is more likely that they were more Costolo loyalists and disagreed more or less openly with Dorsey’s vision. If anything, the departures should help TWTR stock regain its investors’ confidence and the flight away from historic lows in the week that ended January 22 warrants optimism.

The Wall Street Journal reported that Jack Dorsey had asked, as a condition for his return to Twitter’s helm, for the replacement of the company’s entire board of directors, which includes co-founder Evan Williams, one of Twitter’s largest individual shareholders, (Source: “Jack Dorsey overhauling Twitter’s executive ranks,” MarketWatch, January 25, 2016.) Jack Dorsey had entrusted these executives with the task of reviving the company and dismissing concerns about its allegedly unfavorable growth prospects.

Evidently, Dorsey saw that the number of users did not take off and quarterly increases were insufficient: the company, in late September, had 320 million people tweeting worldwide, but that was only four million more than three months earlier. (Source: “Twitter adds just 4 million new monthly active users in third quarter,” The Verge, October 27, 2015.)

Dorsey’s goal is simple: he needs to simplify the service in order to attract a wider audience.

The idea that offering the option to use more characters that the previous maximum of 140 is not enough to repopulate Twitter. Now, Dorsey will entrust greater responsibility to Adam Bail, the current chief operating officer, who will head product development and human resources in the meanwhile. Adam Messinger, Twitter’s current chief technology officer, will take over engineering, product design, and research.

Jack Dorsey Now Freer to Steer Twitter on a New Course

Twitter has updated its offerings to gain more users, adding “Moments,” a selection of tweets about the day’s events, to users’ newsfeeds. It has also pursued integration with Periscope (an application for live streaming) and the transformation of the old favorite symbol (a star) to a heart shape.

Nevertheless, you know the world of Internet and technology runs fast and companies must always try to innovate. However, around the corner, there are competitors, hungry for new active users and new market share.

Some users like the idea of being able to use as many as 10,000 characters, which will help establish a veritable blog-like setting. Users see huge potential even if some purists have complained that the practice would overturn the very essence of tweeting. As for TWTR stock, surely investors seem to be concerned about the sustainability of the business and the growth of new users.

Yet detractors have been unfair. Twitter can still count on 320 million active users and such major investors as Saudi Prince Al-Waleed bin Talal, who owns about five percent of TWTR stock, and Steve Ballmer, the former CEO of Microsoft, who owns four percent.

Plus, despite the so-called “disappointing” growth, monthly active users, one of Twitter’s biggest and most essential assets, grew globally by 11% year-over-year.

Ultimately, the departure of key executives can be seen in two ways: a positive and a negative. The negative is the most convenient view to consider, but it is also a trap. It’s all too easy to take the departures as evidence of a sinking ship, leaving the CEO in charge like the captain of the Titanic, who held his command post, knowing he would go down with the ship.

The harder and more thoughtful consideration, rather, is that Dorsey is now free to pursue his vision and to put people who are sufficiently invested in the strategy for growth in charge to make that growth happen.

Before the Twitter-Titanic comparisons get out of hand, TWTR investors should allow a grace period to observe Dorsey’s transformation based on his new vision. Twitter stock’s CEO is certainly under pressure, but he also has a clear path ahead and a strong mandate for Twitter Inc.