Being frank not enough, Twitter needs to broaden portfolio

29 Jul 2015 | Author: | No comments yet »

After Killing Twitter Stock Gain, Dorsey Wins Praise.

SAN FRANCISCO — Twitter shares plunged 10% at the open Wednesday after interim CEO Jack Dorsey said during the company’s earnings call on Tuesday that user growth was sluggish and that a turnaround will take time.With the stock up on Twitter Inc.’s second-quarter revenue exceeding expectations, the interim chief executive officer didn’t self-congratulate or dwell on past successes but talked bluntly about Twitter’s shortcomings.

Twitter’s share price dipped more than 11 per cent after hours on Tuesday despite the social media company releasing results that far outstripped its own and analysts’ expectations. Twitter’s central challenge is the same one it has struggled with for years: It must overhaul the service that many find too complicated and clunky to make it far more appealing to the mainstream. After the numbers hit the wires, shares of Twitter soared in post market trading higher by as much as 6-7% in addition to the 5%+ they were already up in regular trade.

Until it does, Twitter says not to expect too much. “We don’t expect to see sustained, meaningful growth…until we reach the mass market,” Noto said. “We expect it to take a considerable period of time.” Twitter executives placed the blame for Twitter’s predicament on problems with the product itself and with how it’s marketed. On a live-stream via the Twitter-owned Periscope app, Dorsey began by expressing frustration with the company he co-founded, saying product announcements “have not yet had meaningful impact on growing our audience,” which he called “unacceptable.” He also said Twitter hasn’t “done a great job at aligning the entire company” around its strategy. Twitter’s average monthly active users were 316 million for the second quarter, up 15 per cent year-on-year. “We are not satisfied with our growth in audience,” Dorsey said. He added that in order to realise Twitter’s full potential, the company must simplify its service to deliver Twitter’s value faster and better communicate that value to shareholders.

His comments may have led to traders and the flash money buys to head for the hills but if one is a shareholder or is considering a longer term investment in the company, it should be music to one’s ears. Twitter is about one-fifth the size of rival Facebook, which has nearly 1.5 billion users. “Twitter’s leadership is going to have to answer once and for all the question of whether it’s going to be stuck at 300 million users or so forever, or whether they really can get back to growth,” said Jan Dawson, chief analyst at Jackdaw Research. “Twitter is getting increasingly good at monetizing the users they have, which is a very good thing since they seem to be increasingly struggling to add users,” Dawson said. “The number of users they added was by far the lowest they’ve ever reported, and the trend is downward.” Wall Street had expected Twitter TWTR to report $481.3 million in revenue. If he stays in the top job at Square, he could soon regularly be speaking to Wall Street: The mobile-payments company, which he also co-founded, has filed a confidential registration to go public, sources familiar with the matter have said. For some, he vastly improved his grade. “He provided one of the most cohesive explanations of Twitter’s mission as well as challenges we’ve heard in a long time,” said James Cakmak, with Monness Crespi Hardt & Co.

Below $30 Twitter is a no-brainer investment opportunity and even at these levels in the post/pre market given the harsh, knee-jerk sell-off Twitter might present a profitable opportunity. For his part, Dorsey said afterward in an interview that he enjoyed his debut. “I relish any opportunity to tell our story,” he said. “I think we are communicating where we are presently, that we understand our challenges ahead.” One of his recent television appearances, on CNBC in June after the announcement of his return to Twitter, got one-star reviews — and not only because he sported a full mountain-man beard, which even his mother disapproved of, with a post on Twitter. He came off as unenthusiastic on CNBC, his critics said, and came out as supportive of sticking with Twitter’s strategy, which is not what investors wanted to hear about a company under pressure to improve its results. “He took that interview a little too lightly,” said Robert Peck, an analyst at SunTrust Robinson Humphrey.

We don’t have clues on what to look for with Dorsey.” Since its November 2013 initial public offering, Twitter has taken different paths to try to boost its credibility with Wall Street as its results lagged. In the interview, he dodged questions about whether he wants to head Twitter or stick around at Square, saying, “I’m going to do what I think is best for both companies.” When asked in June if he would become the permanent CEO if asked, he said on CNBC: “My focus right now is to make sure our product cadence and momentum of execution continues within the company.” That’s a tweet-ful of gibberish worthy of an unfollow. Todd Jackson, who has been director of content and discovery since Twitter bought his mobile app startup, Cover, in 2014 said he was joining Dropbox as head of product.

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