Twitter Stock Is Becoming Jack Dorsey’s Second Problem Child

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Three months ago investors tossed Square (NYSE:SQ) — led by CEO Jack Dorsey — into the dumper. On Oct. 24 they tossed Twitter (NYSE:TWTR), the other company Dorsey runs, into the same dumper.

The Presidential Election Is a Twitter Stock Tailwind

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Twitter shares plunged almost 20% when the market opened Oct. 24 and kept falling after the company missed estimates for its third quarter and cut guidance for the fourth. Shares opened Oct. 25 at $30.87.

That’s 22% below where Twitter stock opened in December 2013, adding some finality to the plunge. Goldman Sachs dropped its one-year price target to $34, indicating Wall Street has given up.

Twitter’s problems make those at Square look small, but both fall at the feet of the same man. Can he handle it?

What Hath Jack Wrought?

Dorsey initially left his position as Twitter’s CEO in 2008 and co-founded Square two years later. He became Twitter CEO for a second time in October 2015, a day after filing Square’s IPO. In 2017 he was named one of the worst CEOs in America. Since he returned to the CEO chair, Twitter is down 8%.

Twitter has had a decent financial run under Dorsey. Revenue rose 45% between 2015 and 2018. There have also been profits, just not enough to suit Wall Street. Its latest plunge means Twitter stock opened for trade Oct. 25 at a trailing price-to-earnings ratio of just 9.9 and it’s selling for less than 6 times its annual revenue.

Dorsey blamed the bad quarter — featuring net income of $36.5 million, or 5 cents per share, and revenue of $824 million — on bugs in its mobile app that reduced its ability to target ads and share user data.

CFO Ned Segal insisted the company is still on “the right course” but said Twitter will face “headwinds” in the fourth quarter. He estimated revenue for the December quarter will be between $940 million and $1 billion. Analysts had been predicting revenue of $1.1 billion.

The bugs and outlook overshadowed user growth of 17% year-over-year. Twitter said 145 million people now use the platform daily.

What Can Jack Do?

The bad quarter could increase pressure on Dorsey to sell the company.

Twitter has benefitted hugely from the fact that President Donald Trump uses it as his primary method of outreach. It’s unlikely the next president will do so. Political comments represented just 13% of Twitter traffic according to a recent Pew Research Center survey. But they represent a big proportion of the “free media” Twitter generates from news coverage.

Vox looked for a Twitter buyer back in 2016, coming up with a “who’s who” among big cloud companies, big media and big telecom. InvestorPlace’s Ian Bezek suggested last year that Facebook (NASDAQ:FB) might buy Twitter, but given the recent political pushback that seems unlikely.

Since speculation on a buyout died down, Twitter has begun reporting profits consistently, although the level of profit has been inconsistent. If a private equity group is convinced Twitter has its problems under control, it might find a purchase intriguing.

The Bottom Line on Twitter Stock

Twitter should be a bargain for a larger company, but social media is in bad odor on Wall Street, so few think a buyout will happen.

But it’s when a stock or industry is in the doldrums that vultures tend to strike. Dorsey’s personal net worth is now $4 billion. In the future, if he sees a promising opportunity for Twitter, he could lead a group to take it private.

If he does, wish good luck to him. If I were still in the stock now, I’d wait a quarter before selling, hoping the software problems get fixed. I’m glad I’m not in it.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/twitter-stock-jack-dorseys-other-problem-child/.

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