Shares in Twitter Inc. (NYSE:TWTR) took another dive this week as another senior executive fled the company, leaving the firm’s upper management in disarray. The stock has fallen by over 40% in the last six months, reflecting investor concerns over a lack of leadership and vision.
Odd as it sounds, Twitter doesn’t have a CEO. When Dick Costolo left the top spot a few months back, the company was thrown into limbo. Jack Dorsey, one of the original cofounders stepped in as interim CEO while the company searched for a permanent replacement, but they’ve had no luck yet.
The board of governors met last week, and still no decision has emerged.
Now Twitter’s head of strategic investments, Mike Gupta, is leaving the company to join a startup. Gupta has previously served as the company’s Chief Financial Officer, making him a crucial figure in the company’s lore. His departure is yet another blow to TWTR’s stock. (Source: TechCrunch, September 8, 2015.)
Shares fell 3.6% on Tuesday September 8th when the news broke.
Twitter Continues Hunt for New CEO
Costolo’s departure could have marked the beginning of a shake-up at Twitter; an infusion of new personnel that could energize the firm. But when firms find success as quickly and easily as Twitter did, stagnation often follows.
Timidity can set in, preventing the company from taking bold action. And that’s what investors fear has happened to Twitter, because they deliberately chose a familiar face over a fresh one. Dorsey was there at Twitter’s inception.
Don’t get me wrong, I’m a big believer in the wisdom of founders. Building a company from the ground up means you understand how all the moving parts of a business fit together. That level of understanding is tougher to achieve when entering a mature business.
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But there are bounds of reason. Dorsey can’t devote his full attention to Twitter, because he’s also CEO of a digital payments company called Square. The spilt in loyalty became clear at the earliest possible moment. Just take a look at a snippet from TWTR’s press release announcing Dorsey’s return to Twitter:
“I am grateful for the talented team at Square, which I will continue to lead,” said Dorsey. “We have built a very strong company from top to bottom, and I am as committed as ever to its continued success.”
Sorry, but multitasking doesn’t work. Scientific study shows that multitasking increases the likelihood of mistakes by diluting your focus. The human brain has a finite capacity for processing information, and Dorsey may be brilliant, but he’s still bound by that rule. (Source: Vox, August 14, 2015.)
Why Twitter Needs to Act Quickly
Costolo departed on the tail end of a bad quarter, when poor subscriber growth already weighed on the company’s stock price. Sure enough, revenue and earnings increased in the second quarter, but the market was looking for growth in underlying fundamentals.
Twitter had 316 million active users per month in the second quarter, a 15% increase from the same period last year. However, the increases in MAUs were decelerating, causing investors to suddenly turn bearish on the stock. It’s not the end of the world, but investors weave their own narrative when there’s no one else to spin them a tale. (Source: SEC 10-Q Filing, August 7, 2015.)
Twitter needs someone who can effectively communicate with investors. These kinds of minor fires should be put out by a competent CEO. Handling market expectations is part and parcel of running a public company, but the power vacuum at TWTR’s highest levels is destroying the firm.
Twitter needs to act quickly. If they hire a CEO soon, there is hope.
Once TWTR earns leeway from the market, its share price will stop gyrating and it can get onto the important business of finding new revenue streams.