It appears we’re at a point where Twitter Inc (NYSE:TWTR) is going to have to go it alone, at least for a while. Twitter stock went from $18 to $25 last September based on M&A hopes, and the speculation continued into December. But Walt Disney Co (NYSE:DIS) said no to a takeover of TWTR. Salesforce.com, Inc. (NYSE:CRM) said no. Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) wasn’t interested. Neither was private equity, or apparently anyone else.
That indifference came despite multiple media leaks that made it clear Twitter CEO Jack Dorsey was willing to sell — for the right price.
As a result, TWTR stock closed 2016 at a five-month low, though shares have risen modestly in the beginning of 2017. The bull case for Twitter stock now seems to be based on a potential turnaround. After all, Twitter can use the notoriety from President-elect Donald Trump’s endless (and influential) use of the platform to boost user growth and engagement. Advertisers will increase spend, and Twitter can then cut costs to drive the profits it needs for someone — anyone — to want to buy the company out.
TWTR Stock Looking Forward
I’m highly skeptical of Twitter’s chances, however.
There are fundamental issues with the company, and with TWTR stock. Twitter executives, including Jack Dorsey, have admitted to pricing pressure on ad rates, notably on the Q2 conference call. There’s the fact that Twitter isn’t profitable. According to the company’s calculation of adjusted EBITDA, Twitter has generated $728 million in adjusted EBITDA over the past twelve months. But that number excludes stock-based compensation.
Over the same period, Twitter has issued $635 million worth of stock and stock options to employees and executives. That means the true pre-tax earnings for Twitter are under $100 million — and yet TWTR stock still is worth over $12 billion, about 130x that figure.
With the company expecting more than $360 million in capital expenditures this year, according to its 10-Q, whatever cash it is generating isn’t coming from its business. It is coming from the issuance of Twitter stock.
The one silver lining for TWTR stock at the moment is that there are fewer executives to receive those shares. Twitter has seen an exodus of managers like no other company in recent memory. CNN writer Seth Fiegerman captured it perfectly (in a Tweet, of course):
So there’s a key problem with hopes that a Twitter turnaround will boost Twitter stock: there are few executives left to lead that turnaround. Many of those who remain, including Jack Dorsey, already are doing double duty (at least).
For a company that needs to be cutting edge and responsive to users and advertisers, that seems an insurmountable problem.
Who’s Gone for Twitter
In the last year, Twitter has seen an incredible number of executive departures. A partial list:
- In January 2016, five executives leave, including the vice presidents of product, engineering, and human resources. In response, COO Adam Bain — promoted just three months earlier — and Chief Technology Officer Adam Messinger are given additional responsibilities.
- In May, Jana Messerschmidt, head of global business development, and Head of Global Media Nathan Hubbard both depart. Their positions are “consolidated,” according to The Wall Street Journal, with a single employee promoted to take both jobs.
- Bain leaves in November. CFO Anthony Noto adds COO to his duties.
- Messinger — like Bain, pulling something close to double duty — follows in December. He is joined by VP Product Josh McFarland, who himself had replaced Kevin Weill, one of the group to resign just eleven months earlier.
- Last week, the exit of Kathy Chen, managing director of Greater China, was disclosed. While Twitter is blocked in China, the company was working on targeting in-country advertisers to spend outside the mainland. Twitter stock falls on the news.
It’s a stunning list, with literally over half of Twitter’s top executives gone within a year. And this isn’t a new problem. BTIG analyst Rich Greenfield Tweeted in January 2016 that eight of 13 presenters at the company’s 2014 Analyst Day had left the company over the following 14 months.
And it raises the question: how is Twitter supposed to manage itself when its managers are either fleeing the company, or overworked by doing the jobs of their departed former peers? And how can TWTR stock appreciate if its executives don’t even have time to plan strategy?
Twitter now lists just six executives on its “leadership team” page — one of whom is Messinger, the now-departed CTO. Its CEO, Jack Dorsey, is also the CEO at Square Inc (NYSE:SQ). That’s an arrangement that simply doesn’t get enough attention. Dorsey is like Bo Jackson — only if he were playing football and baseball at the same time.
But Dorsey also is clearly stretched, and given the attrition in the rest of the team, that seems a concern. Twitter’s problems are more than enough for a full-time CEO, particularly given the workload of the rest of the executive team. Noto is COO and CFO. General Counsel Vijaya Gadde took over corporate communications in 2015, until Natalie Kerris was hired from Apple Inc. (NASDAQ:AAPL) early last year. Kerris lasted six months; after she left, Twitter added PR to the plate of Chief Marketing Officer Leslie Berland.
The consistent revolving door of talent and responsibilities calls into question any possible turnaround for Twitter. That’s bad news for Twitter stock, given that it is severely overpriced on any true earnings measure.
Twitter executives don’t have time to plan strategy, given their workloads (Jack Dorsey included). It’s hard, if not impossible, to implement new products without an actual VP of product who has been at the company for more than a few months. Branding suffers when the chief marketing officer must put out endless PR fires as well.
For TWTR stock to gain, Twitter has to improve its operations, its revenue, and its profits. That isn’t possible if Twitter executives have to do two or three jobs at once.
As of this writing, Vince Martin had no positions in any stocks mentioned.