Twitter | Fundamental Analysis | Must Read | Long Setup 🔔

9 de dez. de 2021

On November 29, the Twitter stock made investors quite nervous following CEO Jack Dorsey`s abrupt announcement of his resignation. Dorsey's successor will be Parag Agrawal. Shares of the social network initially soared 11% after Dorsey's announcement but fell nearly 3% by the end of the day.

Both supporters and opponents seem to be passionately divided over Dorsey's resignation, and Twitter is likely to remain one of the most debated stocks for the predictable future. Let's take a look back at Dorsey's achievements at Twitter and the grounds for his departure, and consider whether the change in leadership will help or hurt the company.

Jack Dorsey co-founded Twitter in 2006 and was the company's CEO until his ouster in 2008. Dorsey was reportedly fired because of concerns about his leadership skills and tendency to be distracted by extraneous hobbies. The following year, Dorsey co-founded Square and remains CEO of that fintech company to this day. At Twitter, Dorsey was replaced by co-founder Evan Williams, who handed over the reins to Dick Costolo, in 2010 before its initial public offering in 2013.

Nevertheless, Costolo toiled to keep up with Twitter's growth in users and revenue after its public debut. He left his post in 2015, and Dorsey came back as Twitter's CEO but did not relinquish his role as Square's CEO.

When Dorsey took over, Twitter was trying to increase its monthly active users (MAUs). At the time of the IPO, Costolo desired Twitter to increase its MAUs from 185 million at the end of 2012 to 400 million by the end of 2013. Nonetheless, the company ended 2013 with 241 million MAUs, and by the end of 2015, that number had grown to 317 million. Since Dorsey's return, Twitter's MAU count has grown only slightly, to 319 million in 2016 and 330 million in 2017.

Since the end of fiscal 2018, Twitter doesn`t disclose MAU user numbers and instead began reporting monetizable daily active users (mDAUs). The new numbers exclude fake, spammy, and bot accounts that inflated the number of MAUs. Twitter ended 2018 with 126 million mDAUs. That number increased to 152 million at the end of 2019, 192 million at the end of 2020, and 211 million in the third quarter of 2021. Twitter attributes this growth to its expanded international operations, increased use as a platform to talk about current events and the introduction of new advertising formats with more targeted targeting techniques.

Dorsey's emphasis on enhancing engagement rates among a smaller audience of more active users - rather than aggressive growth in MAU users - has stabilized Twitter's earnings increase over the past four years.

Twitter's business remained strong during the pandemic, even as companies bought fewer ads. At an investor day in March, the company also set bold three-year growth goals and said it could grow mDAUs "at least" to 315 million users by the end of 2023 and more than double annual revenue from $3.7 billion in 2020 to "over $7.5 billion" in 2023.

Twitter claimed that the growth would come from new products. Still, Twitter's recent product launches look like disorganized attempts to emulate other social media platforms. These innovations include short-lived "Fleets," organized "themes" for tweets, a new tip feature that now supports bitcoin, and subscriptions for top accounts.

That's why Dorsey's resignation, which came less than a year after Twitter set ambitious growth goals for 2023, is somewhat discouraging. In his tweet, Dorsey said that Twitter's status as a founder-led company was not a strength, but rather "severely limiting and a single point of failure." The company needs to "separate itself from its founders and founders" to grow. Twitter's board unanimously approved the appointment of Parag Agrawal as CEO, which Dorsey praised, saying Agrawal has previously been "behind every major decision that has helped turn this company around."

Dorsey didn't mention Square, but his departure from Twitter should give him more time to expand the growing fintech company. Dorsey owns more Square stock than Twitter, and the company is actively extending its ecosystem to be in line with competitors like PayPal and Adyen. Dorsey is also leaving at a time when Twitter and other social media platforms are facing tighter controls on free speech restrictions, the spread of hate speech, and fake news.

The co-founder has often glorified Twitter as a platform for free speech, but Agrawal previously told MIT Technology Review that Twitter's role is to "not be bound by the First Amendment." This statement indicates that Twitter may introduce stricter standards of censorship shortly.

Twitter's latest quarterly results discontented shareholders as the company's costs rose sharply due to the introduction of new products. At this point, investors should have stayed away from Twitter after the drop following the release of its financial results report, as the company's valuation still seems too high and its goals too enterprising. Dorsey's resignation creates new uncertainty for the business and its management, so it's best to stay away for now.