Twitter Is Once Again Leading the National Debate. Jack Dorsey Says He’s Ready This Time.
Twitter went public in 2013 with a bold mission statement to investors. It pledged to enable “any voice to echo around the world instantly and unfiltered.” Unlike many tech start-ups, Twitter lived up to its hype. But over time, its “unfiltered” promise has turned into a political liability.
Last last month, Twitter (ticker: TWTR) angered its most famous user by tagging some of President Donald Trump’s tweets as needing a fact check or glorifying violence. The president dashed off an order aimed at stripping the social platform and its peers of legal protections around hosting content. Legal experts doubt the order will stand up in court, but Trump’s action knocked 9% off Twitter’s stock.
The stock already had challenges aplenty. At a recent $35, Twitter shares have underperformed the broad market and rivals like Facebook (FB) and Snap (SNAP). Over the past 12 months, Twitter is down 3%, versus a 37% gain for Facebook and a 13% rise for the S&P 500 index. But there are signs of a turnaround. For investors able to stomach ongoing political debate, Twitter stock could bring substantial gains in the year ahead.
Most analysts still rate Twitter shares at Hold. In March, two fund managers pushed their way onto Twitter’s board. The lukewarm sentiment, and the arrival of activist investors, convey the investment community’s impatience with co-founder and CEO Jack Dorsey and his ability to grow Twitter’s ad revenue at a pace commensurate with its user growth.
“Some people don’t understand why we haven’t realized our full opportunity,” Dorsey tells Barron’s. “And to that I say, ‘We will.’ ”
Dorsey has no choice. New directors from Silver Lake and Elliott Management have brought a sense of urgency to Twitter’s boardroom, just as the company is once again navigating its role in the world’s raging cultural debates. Twitter does have one thing any executive would like: attention—and loads of it.
Twitter executives tell Barron’s that the company is working hard to roll out overdue innovations for users and advertisers. Covid-19 hit Twitter’s advertising revenue harder than its peers, because so many Twitter ad campaigns are driven by sports events, concerts, and product launches. That’s all on hold. But it also makes the stock a play on the economy’s grand reopening. While that plays out, Twitter’s time in the headlines is boosting user growth.
This past Wednesday, Twitter’s mobile app was downloaded 677,000 times across the world, the company’s best-ever one-day performance, according to app tracker Apptopia. Twitter also set a record for active daily users, Apptopia notes, with 40 million people using the app in the U.S.
For now, analysts expect the company’s “daily active user” count to jump 18% this year, to 179 million. But the latest app data suggest that the growth will be better.
By traditional metrics, Twitter’s stock isn’t cheap. It trades at 80-plus times Wall Street’s per-share earnings estimates for 2020. But performance is depressed by the pandemic. Analysts see revenue sliding 6% this year, before jumping 22% in 2021 to lift earnings by 75%, to 66 cents a share.
But analysts are probably underestimating the impact of Twitter’s growing influence on the world stage.
Left Out of the Party
Twitter shares have struggled to keep up in the past year, even as Facebook hassoared. An ad-industry veteran says Twitter would benefit from adding features thatslow users down so they engage with ads. “Their problem is they have a very highscroll speed among their experienced users,” the ad insider says. “When you have 10or 12 tweets on the screen, you kind of blow by the ads.”.
Twitter went public in 2013 with a bold mission statement to investors. It pledged to enable “any voice to echo around the world instantly and unfiltered.” Unlike many tech start-ups, Twitter lived up to its hype. But over time, its “unfiltered” promise has turned into a political liability.
Last last month, Twitter (ticker: TWTR) angered its most famous user by tagging some of President Donald Trump’s tweets as needing a fact check or glorifying violence. The president dashed off an order aimed at stripping the social platform and its peers of legal protections around hosting content. Legal experts doubt the order will stand up in court, but Trump’s action knocked 9% off Twitter’s stock.
The stock already had challenges aplenty. At a recent $35, Twitter shares have underperformed the broad market and rivals like Facebook (FB) and Snap (SNAP). Over the past 12 months, Twitter is down 3%, versus a 37% gain for Facebook and a 13% rise for the S&P 500 index. But there are signs of a turnaround. For investors able to stomach ongoing political debate, Twitter stock could bring substantial gains in the year ahead.
Most analysts still rate Twitter shares at Hold. In March, two fund managers pushed their way onto Twitter’s board. The lukewarm sentiment, and the arrival of activist investors, convey the investment community’s impatience with co-founder and CEO Jack Dorsey and his ability to grow Twitter’s ad revenue at a pace commensurate with its user growth.
“Some people don’t understand why we haven’t realized our full opportunity,” Dorsey tells Barron’s. “And to that I say, ‘We will.’ ”
Dorsey has no choice. New directors from Silver Lake and Elliott Management have brought a sense of urgency to Twitter’s boardroom, just as the company is once again navigating its role in the world’s raging cultural debates. Twitter does have one thing any executive would like: attention—and loads of it.
Twitter executives tell Barron’s that the company is working hard to roll out overdue innovations for users and advertisers. Covid-19 hit Twitter’s advertising revenue harder than its peers, because so many Twitter ad campaigns are driven by sports events, concerts, and product launches. That’s all on hold. But it also makes the stock a play on the economy’s grand reopening. While that plays out, Twitter’s time in the headlines is boosting user growth.
This past Wednesday, Twitter’s mobile app was downloaded 677,000 times across the world, the company’s best-ever one-day performance, according to app tracker Apptopia. Twitter also set a record for active daily users, Apptopia notes, with 40 million people using the app in the U.S.
For now, analysts expect the company’s “daily active user” count to jump 18% this year, to 179 million. But the latest app data suggest that the growth will be better.
By traditional metrics, Twitter’s stock isn’t cheap. It trades at 80-plus times Wall Street’s per-share earnings estimates for 2020. But performance is depressed by the pandemic. Analysts see revenue sliding 6% this year, before jumping 22% in 2021 to lift earnings by 75%, to 66 cents a share.
But analysts are probably underestimating the impact of Twitter’s growing influence on the world stage.
Left Out of the Party
Twitter shares have struggled to keep up in the past year, even as Facebook hassoared. An ad-industry veteran says Twitter would benefit from adding features thatslow users down so they engage with ads. “Their problem is they have a very highscroll speed among their experienced users,” the ad insider says. “When you have 10or 12 tweets on the screen, you kind of blow by the ads.”.
Matt Nelson, the “dogfather” of @WeRateDogs had just started college in 2015, when he began tweeting funny one-liners with dog photos. Within five days, he had 10,000 followers. Nelson now has more than 12 million, far more than Dorsey, whose @jack has 4.6 million followers. Nelson supports himself by selling WeRateDogs merchandise.
“Most people see Twitter as a news app, and the news is bad,” Nelson says. “I represent a kind of break from the madness.”
Twitter’s user count grew smartly in its first years, and advertisers paid to put their brands in front of that audience. Ad revenue doubled in each of the company’s first five years. By the time of Twitter’s 2013 initial public offering, it had positive operating cash flows and revenue was growing so fast that investors didn’t worry about the net losses after the cost of stock compensation.
User growth, however, slowed sharply in 2015, and so did growth in ad revenue. That year, Dorsey returned to the CEO role, after leaving in 2008 to start payments company Square (SQ). The Twitter turnaround gig was supposed to be an interim position. Five years later, he’s still running both companies, making him the rare dual-company CEO.
Dorsey has arguably been forced into double duty because of Twitter’s long struggle to turn its cultural relevance into dollars. In 2015, Twitter allowed users to add live video to their text postings. It doubled its per-tweet character limit to 280 in 2017. Still, revenue declined that year.
“We were in a really dark place,” recalls Matt Derella, the company’s vice president of content partnerships.
By 2018, there were signs of progress, with ad growth resuming as some of the company’s initiatives took flight. Sports fans could view streaming player interviews and game highlights in near-real time as they watched World Cup soccer games and the National Football League. The associated ads boosted revenue 25% in 2018, giving Twitter its first year of net income. Last year, revenue grew another 14%, to $3.5 billion. Twitter earned $1.9 billion, or $2.37 a share.
Twitter’s daily user count increased some 10% in 2018. That growth rate doubled in 2019. Then, as much of the world sheltered at home in the first quarter of this year, Twitter’s daily users increased 24% year over year, to 166 million. That was the biggest gain of any big platform. But the pandemic hurt ad sales, and March-quarter revenue was flat at $800 million. The sales shortfall reduced Twitter’s bottom line to break-even.
Matt Nelson, the “dogfather” of @WeRateDogs had just started college in 2015, when he began tweeting funny one-liners with dog photos. Within five days, he had 10,000 followers. Nelson now has more than 12 million, far more than Dorsey, whose @jack has 4.6 million followers. Nelson supports himself by selling WeRateDogs merchandise.
“Most people see Twitter as a news app, and the news is bad,” Nelson says. “I represent a kind of break from the madness.”
Twitter’s user count grew smartly in its first years, and advertisers paid to put their brands in front of that audience. Ad revenue doubled in each of the company’s first five years. By the time of Twitter’s 2013 initial public offering, it had positive operating cash flows and revenue was growing so fast that investors didn’t worry about the net losses after the cost of stock compensation.
User growth, however, slowed sharply in 2015, and so did growth in ad revenue. That year, Dorsey returned to the CEO role, after leaving in 2008 to start payments company Square (SQ). The Twitter turnaround gig was supposed to be an interim position. Five years later, he’s still running both companies, making him the rare dual-company CEO.
Dorsey has arguably been forced into double duty because of Twitter’s long struggle to turn its cultural relevance into dollars. In 2015, Twitter allowed users to add live video to their text postings. It doubled its per-tweet character limit to 280 in 2017. Still, revenue declined that year.
“We were in a really dark place,” recalls Matt Derella, the company’s vice president of content partnerships.
By 2018, there were signs of progress, with ad growth resuming as some of the company’s initiatives took flight. Sports fans could view streaming player interviews and game highlights in near-real time as they watched World Cup soccer games and the National Football League. The associated ads boosted revenue 25% in 2018, giving Twitter its first year of net income. Last year, revenue grew another 14%, to $3.5 billion. Twitter earned $1.9 billion, or $2.37 a share.
Twitter’s daily user count increased some 10% in 2018. That growth rate doubled in 2019. Then, as much of the world sheltered at home in the first quarter of this year, Twitter’s daily users increased 24% year over year, to 166 million. That was the biggest gain of any big platform. But the pandemic hurt ad sales, and March-quarter revenue was flat at $800 million. The sales shortfall reduced Twitter’s bottom line to break-even.
But low expectations can lead to the kind of surprises that drive stocks higher. And Twitter executives are under intense pressure to make the new things work. If patience with Dorsey’s team runs out, well, Elliott Management could force a CEO change, or even an acquisition. The activist’s targets often get acquired at a premium, including Mentor Graphics in 2017 and Athenahealth in 2018.
Twitter, meanwhile, has become an excellent play on a post-Covid-19 economic recovery. Most of the events and product launches that drive Twitter’s traditional ads are paused, but not canceled, notes vice president Derella.
“When the world comes back on,” he says, “we will be in a really strong position.”