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Twitter Stock Rises, Elliott Management Plans to Oust Dorsey

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Twitter (NYSE:TWTR) stock has risen over 7% as of 10:36 AM ET during today’s trading session. Notably, Elliott Management wants to replace Twitter CEO Jack Dorsey. The stock also rose more than 7% in the pre-market session today.

Elliott Management brought a significant stake in Twitter, as reported by Bloomberg on February 28. The exact investment in the social media company isn’t clear. According to a MarketWatch report, Elliott Management has invested roughly $1 billion in the company. The firm has also nominated four new individuals to Twitter’s board of directors. Elliott Management’s team plans to replace Dorsey.

Last year, Elliott Management and Starboard pressured eBay to sell its assets.

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Twitter CEO Jack Dorsey

Paul Singer, Elliott Management’s founder, wants to remove Dorsey as Twitter’s CEO, according to CNBC. He’s concerned that Dorsey’s attention is divided between Twitter and Square. Singer is concerned that Dorsey is running two companies simultaneously. As a result, he can’t focus on Twitter enough. While Dorsey became Twitter’s CEO in 2015, he’s also Square’s (NYSE:SQ) CEO. In addition, Dorsey plans to move to Africa for 3–6 months in 2020, as reported by CNBC. The news raised more concerns for Elliott Management.

Let’s analyze how Twitter and Square have performed under Dorsey’s leadership.

Twitter’s past performance

Twitter stock only rose by 11.5% in 2019. In comparison, Facebook (NASDAQ:FB) and Snap have returned 56.5% and 196.4% in the past year. Twitter stock is also trading at a discount of 27.6% from its 52-week high of $45.86. The stock is trading at about a 16% premium from its 52-week low of $28.63. The company’s market capitalization is roughly $25.9 billion. In comparison, Facebook and Snap’s market caps are $548.6 billion and $20.1 billion, respectively, as of February 28.

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Twitter has also lagged its rivals in terms of daily users, which is a critical revenue driver for the company. In 2019, Twitter had around 152 million daily active users on its platform. Snap’s Snapchat ended 2019 with 218 million daily users. Meanwhile, Facebook grabbed roughly 2.3 billion daily users across its family of social apps including Instagram, WhatsApp, and Messenger.

For 2020, Twitter expects higher expenses amid growth in daily users. The company will build a new data center and increase its workforce by 20%. Twitter expects to still face issues related to its MAP (Mobile Application Promotion) product in 2020. The company’s MAP product had a negative impact on its advertising business for the last two quarters. Meanwhile, Twitter is on track to release its next-generation version of MAP this year.

Recently, Twitter acquired Chroma Labs, which will provide photo and video editing tools for the social media platform. The addition should help the company compete with Instagram and Snapchat.

Square’s performance in 2019

Square stock also underperformed most of its peers in 2019. The stock only rose by 11.5% last year. In comparison, PayPal (NASDAQ:PYPL) and Shopify (NYSE:SHOP) returned 28.6% and 187.2% in the past year. Square stock is also trading at a discount of 4.5% from its 52-week high of $87.25. The stock is trading at about 53.2% premium from its 52-week low of $54.41. Square’s market capitalization is roughly $36.2 billion as of February 28.

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Square has been generating revenues from a higher GPV (gross payments volume) and its peer-to-peer payment app called “Cash App.” The company’s GPVs grew around 25% YoY in the fourth quarter, as reported last week. Square’s Cash App ended with approximately 24 million monthly active customers in December 2019—60% higher than the previous year. Cash App also offers bitcoin trading to its users, which added around $177.6 million to the revenues.

My view of the situation

I noted that Twitter and Square both lag their peers. However, they have taken initiatives to generated higher revenues and returns. For Twitter, we’ll have to wait and see. Elliott Management has plans for major managerial restructuring within the company. Investors reacted positively to the news about Twitter possibly getting a new CEO. The stock rose over 7% in after-market trading on February 28 after the news broke. The stock is also riding high in today’s trading session.

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