Has TWTR Stock Bottomed?
Twitter Inc (NYSE:TWTR) stock is trading at just below $17.00. It’s not a great price, considering the stock was trading comfortably above $48.00 a year ago. But Twitter stock has also suffered from the pressure of losing talent among its management.
In January, four top executives, all of them vice presidents, left Twitter faster than if it had been the Titanic. Twitter had nothing to announce in response; it found no replacements at the time. CEO Jack Dorsey simply said that COO Adam Bain and CTO Adam Messinger would take on the responsibilities of the roles that four people left vacant. Ordinarily, companies announce an executive departure with his/her replacement.
In more nitty-gritty terms, Twitter has to increase the level of incentives—insert money and your favorite options here—to the valuable managers who do stay. It also has to improve compensation packages to attract new talent. (Source: “Twitter Bets on Payouts to Rein in Talent Flight,” The Wall Street Journal, March 10, 2016.)
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 and 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 ran 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 four high-profile departures were announced, Twitter stock has shown a modest recovery.
But Twitter still has one essential feature that fuels optimism over the company surviving through this difficult period: advertising.
In the most recent quarter, advertising revenue accounted for more than 90% of the company’s total revenue. (Source: “Twitter Q4 and Fiscal Year 2015 Shareholder Letter,” Twitter Inc, February 10, 2016.)
As an advertising platform, Twitter is winning both advertisers and consumers, improving monetization. In its most recent quarter, advertising revenue surged 48% year-over-year to $641 million. (Source: “Twitter’s Ad Revenues Surge despite Flat User Growth,” Market Realist, February 12, 2016.)
Twitter’s larger problem, especially if it wants revenue to keep growing, is its user growth.
By the end of 2015, Twitter had 320 million monthly active users (MAUs). Facebook Inc (NASDAQ:FB), on the other hand, is nearly five-times bigger on this metric—it has 1.59 billion MAUs. (Source: “Facebook Reports Fourth Quarter and Full Year 2015 Results,” Facebook Inc, January 27, 2016.)
As Twitter celebrates its tenth anniversary, problems and all, CEO Jack Dorsey appears more determined in his leadership. In a sense, the managers’ departures from last January have left him freer to act as captain, so he can take decisions that are nothing short of existential for Twitter. Starting with the 140-character limit that Twitter imposed for 10 years: it “will stay” promises Jack Dorsey. (Source: “Jack Dorsey on Twitter’s 140-Character Limit: ‘It’s Staying’,” Inverse, March 18, 2016.)
This ends speculation and, frankly, maintains Twitter’s unique brand/identity as a micro-blogging site. The restriction actually encourages creativity and user growth more than the higher-limit alternative.
Perhaps Twitter had lost its way—and Twitter stock, its value—because the company was chasing Facebook instead of building its own brand. Conceptually, Twitter has found itself again and the months of speculation and doubt can help it reaffirm the very point of the 140 characters. It inspires creativity, as Dorsey hinted. (Source: Ibid.)
In other words, Twitter is an art and treating it as such will help to grow the userbase and the value of TWTR stock. Twitter’s CEO is certainly under pressure, but he also has a clear path ahead and a strong mandate.