We have mixed thoughts on the “new” Twitter.
At $ 30 today, we were right in calling the bottom just days ago.
A peculiar mix of a CEO working two jobs, combined with company-wide layoffs for a growth company, leave us with a cautious bewilderment.
By Scott Tzu
We have mixed thoughts on the new Twitter (NYSE:TWTR). At $ 30, we were right in calling the bottom just days ago and now we are looking to further our thesis as to whether or not we think Twitter is going to be a good hold for the long term here. Despite us being correct about calling the bottom in the stock (at least of recent), the moves Twitter has undertaken in the last two weeks leave us with a sense of bewilderment, as opposed to a renewed confidence heading into the future.
First off, on the operations front, Twitter introduced “Moments” which is a great way to meld together content that’s exclusive to Twitter with breaking news. It’s Twitter’s solution to all of the news stories that break nowadays that include embedded Tweets from whomever is closest to, or making the news. As described in Twitter’s blog,
When you open Twitter today you’ll see something new: Moments, the best of what’s happening on Twitter in an instant.
Every day, people share hundreds of millions of Tweets. Among them are things you can’t experience anywhere but on Twitter: conversations between world leaders and celebrities, citizens reporting events as they happen, cultural memes, live commentary on the night’s big game, and many more. We know finding these only-on-Twitter moments can be a challenge, especially if you haven’t followed certain accounts. But it doesn’t have to be.
Moments helps you find the best of Twitter as easily as tapping an icon – regardless of who you follow. Just visit the new tab called Moments, where you will discover stories unfolding on Twitter.
This is definitely a step in the right direction for the company, as we know many people that use the company not just for social media, but also as a real-time newsfeed. The ease of finding the story and the associated video clips from directly within Twitter or the Twitter app is a great way to streamline the best parts of the service.
This tab seems to be doing a good job of leveraging both of the company strengths, and we definitely see this as progress for the company. We think this will help to port over MAUs to Twitter eventually. Whether or not this catches on with the already existing user base is a different question. We are anxiously awaiting data that gives us an idea of how much traction this project is getting.
Twitter also has Periscope, which we still believe to be one of the company’s greatest assets. As Periscope continues to develop and continues to move further into the mainstream, that it will be a fantastic opportunity for monetization for the company.
From an operational standpoint, the company is making progress. From a management standpoint, we would be lying if we said that we were ecstatic about having Jack Dorsey as CEO. We are glad the search is over, and we are glad that it’s no longer a topic for debate or a burden on the stock price, but the notion of having a CEO who is working as CEO of an entirely different company does not seem to reconcile with what we thought Twitter needed heading into this crisis. We are glad, however that Dick Costolo has resigned his seat on the board of directors.
The above chart shows the market reaction to the Dorsey news in the beginning of October. From there, the stock appeared to have tested a double bottom and held up. We think part of the reason the market had such a negative perception to Dorsey staying was because they were expecting to get more of the same that they got with the Costolo as CEO.
News broke Friday that the company was expected to make it a large round of layoffs in accordance with tightening up the ship to potentially start to save costs. re/code reported,
Twitter is planning company-wide layoffs next week, according to multiple sources. It’s unclear how much of the staff will be culled, but insiders say it will likely affect most, if not all, departments.
While we understand the timing of this event, and why it’s happening now that Dorsey has been confirmed as CEO, it’s alarming to see a company that is supposed to still be in parts of its significant growth stages making these types of layoffs. When a company like Freeport-McMoran (NYSE:FCX) comes out and makes massive layoffs after oil crashes and after the company has been around for 100 years, that’s understandable. When a start up that supposed to still be in its growth stages comes out and makes these types of layoffs, it paints an odd picture.
Further news that helped along the stock this week was that Saudi Arabian billionaire Price Alwaleed Bin Talal, one of the company’s largest shareholders, upped his stake while the company’s stock was in the $ 20 range. Bloomberg reported,
Saudi Arabian billionaire Prince Alwaleed Bin Talal and his investment company Kingdom Holding Co. have built their combined stake in Twitter Inc. to more than five percent, according to a disclosure made in the week the micro-blogging site named Jack Dorsey chief executive officer.
What does this mean for the investment case? We are watching this all play out and remain cautiously optimistic.
It’s for reasons like the layoffs and Dorsey holding two CEO positions that we are watching very closely how Twitter performs. We did call the bottom at about $ 25 in our last couple of articles. As part of our original argument, we believed the company was probably a buyout candidate.
However, it looks by the company’s actions (appointing Dorsey, layoffs) as though the company does not seem to be entertaining any offers, and they may have a “kitchen sink” style quarter coming up that could be far uglier than most imagine. From there, It’ll be a question of how the company can move forward.
Dorsey and the layoffs give us pause, but for now, we remain cautiously bullish on Twitter. We’re anxious to see what’s next.
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