The departing CEO of Twitter (TWTR), Dick Costolo, failed to impress Wall Street. Shares of the social media company are down 16% since their first day of trading in 2013, roughly the inverse of the S&P‘s positive 20% return over the same period.
While the stock initially jumped on the news that Costolo was stepping down, TWTR stock quickly corrected itself, and, in its second full day of trading since the announcement, Twitter is down 3% on Monday.
To me, the pullback is indicative of something rather fundamental: TWTR is one of the most comically overvalued names in the stock market today. And that’s a problem that only the market itself — not a CEO — can fix in the short-term.
Jack Dorsey is No Steve Jobs, Twitter is No Apple
In one of the most idiotic headlines I’ve ever seen, Bloomberg shamelessly ran a piece entitled “Dorsey gets a Steve Jobs Moment With His Return as Twitter CEO.”
Jack Dorsey, of course, is the co-founder and former CEO of TWTR; he was ousted from his throne once already in 2008. He went on to found the mobile payments company Square in 2009.
And Steve Jobs, of course, was the co-founder and CEO of Apple (AAPL), perhaps the most innovative consumer tech company ever.
Ousted in 1985, he came back as interim AAPL CEO in 1997 as the company was literally on the brink of extinction. He went on to execute one of the greatest corporate turnarounds of all-time, launching the iPod, iPhone, iMac, and iPad along the way.
Steve Jobs had a chip on his shoulder; fiercely competitive, he wanted to show the world what AAPL was capable of becoming when run the right way.
Jack Dorsey, on the other hand, is rather blasé about the whole CEO thing. What do you say, Jack, do you want to be more than just the interim CEO of TWTR?
“It’s really up to the search committee and they’re going to look at internal and external candidates.”
Inspiring stuff, JD.
Of course, it’s tough to get too jazzed about leading Twitter, a company that’s lost a combined $1.2 billion in its last two fiscal years. TWTR stock trades at 51 times forward earnings. Those earnings are non-GAAP of course, meaning that they don’t include expenses like stock compensation; on a GAAP basis the forward P/E would be even more out-of-whack.
Why Twitter stock still commands a higher valuation than Facebook (FB) stock, I have no idea. FB trades at just 30 times forward earnings, despite having a multitude of immediate catalysts that should continue to lead FB higher.
With its recent decision to monetize Instagram, the early-mover advantage it’s gaining in Virtual Reality by teaming with Microsoft (MSFT) on the new Oculus Rift, and a dominant position in mobile, FB trumps TWTR in just about every conceivable way.
Facebook beats Twitter, even when it comes to the CEO position. Or, rather … especially when it comes to the CEO position. Mark Zuckerberg has a fiery, intense desire to connect the entire world under Facebook. Jack Dorsey? It’s not clear he wants to really do much of anything.
Tack on slowing user growth and subpar sales in the most recent quarter, and you’re left with few — if any — redeeming qualities for TWTR stock. And it looks like Wall Street is finally starting to take notice.
As of this writing, John Divine was long shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at email@example.com.
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