Twitter Stock: Dorsey Unleashes the Ugly Truth

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Twitter (TWTR) stock, which began Tuesday’s after-hours trading on a rapid ascent, has fallen into a tailspin courtesy of none other than its own interim CEO, Jack Dorsey.

Twitter CEO Unleashes the Ugly Truth (TWTR)In my earnings preview, I said that I hoped Twitter management would stop sugar-coating us with revenue growth.

What I was not expecting was the CEO delivering the bitter pill himself.

Wall Street, We Have a Problem

Right after Twitter announced its numbers, which included a beat on revenues, Twitter stock started flying to safety. However, shares quickly turned when Dorsey began to speak about the company’s other issues.

Jack Dorsey apparently decided that taking the high road was going to be the best way to win over investors’ confidence … and while it’s been said that the truth shall set you free, it also can send worried shareholders into a panic.

See, there’s truth, and then there’s truth. Dorsey delivered the latter, emphasizing a host of issues.

For one, Dorsey said that user engagement wasn’t high enough and user growth was slow, and that was unacceptable. He also said Twitter should focus on making its product more engaging, and how new features hadn’t translated into big bucks. Finally, he said, TWTR has to better communicate its value, to figure out where Twitter is weak.

That’s what Dorsey said.

What investors heard was, “Twitter has no idea what to do next.”

Twitter Stock: More Short-Term Pain

Of course, Twitter’s CEO, while refreshingly (albeit painfully) honest, failed to convince investors that there is actual value to be unlocked in TWTR. Instead, he suggested that Twitter’s lack of experience in communicating could be rectified to provide some reassurance for the future.

What Dorsey failed to realize is that there’s a big difference between recognizing the problem and solving it.

How can you convince users to like and adopt Twitter more, now that they know the deal? A hard question, indeed, and no wonder that Twitter stock is crashing and burning today.

Perhaps the only positive takeaway is that the interim CEO seems ready to cut the flesh and reduce costs. That’s exactly what TWTR shareholders have been hoping for — an end to the company’s reckless spending.

The problem? In the very same breath, Dorsey also said that company needs to refocus its product and improve its service. For me, that sounds like a great recipe for more spending. It’s hard to cut your way to profits if you’re also trying to refocus in the short term.

Lastly, remember that this is all coming from Interim CEO Jack Dorsey. Dorsey likely won’t be sitting in the permanent spot, considering he still has Square to take care of, and the role very well could fall to “Mr. Nice Guy” Adam Bain, head of global revenue and partnerships.

Maybe Bain deserves some credit, but if you ask me, if you’re deal with a company that’s bleeding cash and lacking direction, and whose stock is in a tailspin, a guy who actually is known for his nice tweets is the last person I’d want at the helm.

Bottom Line

Admitting you have a problem is always the necessary first step, but we’ve heard little from Twitter that would show the company knows how to fix its problems.

And with Dorsey still part-timing it in Twitter’s C-suite, this writer expects those problems to linger and continue to weigh on Twitter stock.

As of this writing, Lior Alkalay was short TWTR.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/twitter-ceo-twtr-twitter-stock-truth/.

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