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Could Elliott Management’s Twitter Move Benefit Square Stock?

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Activist hedge fund Elliott Management has bought a large stake in Twitter (NYSE:TWTR) stock. Now, the hedge fund wants to push for changes. The changes include ousting current Twitter CEO Jack Dorsey. He’s also Square’s (NYSE:SQ) CEO—a financial technology company. While Twitter stock rose nearly 8.0% on the news of Elliott Management’s move, Square stock fell by more than 3.0%.

Still, Square has gained more than Twitter in 2020. The stock has risen about 27% YTD (year-to-date) through Wednesday. In comparison, Twitter stock has risen 12% YTD.

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Dorsey leaving Twitter could benefit Square stock

Dorsey co-founded Twitter and Square. Currently, he runs both companies. Dorsey splits his time between the companies. He’s comfortable running both companies. In fact, Twitter became profitable under his watch. At the same time, Square has continued to grow its sales and improve its profitability.

However, investors like Elliott Management, which has built a stake of about $1.0 billion in Twitter stock, think that Twitter needs a full-time CEO. Dorsey would have to dedicate his time to running Twitter. If Dorsey leaves Twitter, he will focus on Square.

Dorsey has run Twitter and Square well based on their improving financial result. However, I think that the company that secures Dorsey’s full attention could do even better. Since Elliott Management wants to replace Dorsey, Square might benefit.

Square went public in November 2015 with Dorsey as the CEO. The stock has risen more than 510% since the IPO.

Boosting cash reserve, business scope expands

Recently, Square moved to raise more cash. The company wants to raise $1.0 billion through convertible notes maturing in five years. Square closed 2019 with $2.1 billion in cash reserve. The company’s war chest got a boost from the sale of its food delivery business Caviar to DoorDash.

The convertible notes sale should boost Square’s war chest. The company has greater financial flexibility as it expands its business scope. In addition to the core payment processing service, Square also ventured into lending and money transfer services. The company offers a bitcoin trading service and recently added a stock investing service.

Square stock has gained about 3.5% since the company reported its fourth-quarter financial results, which beat the consensus estimates. The stock took a hit last week amid the broad sell-off in global stocks due to coronavirus fears.

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