Betting on a Twitter Revival.
Mobile payments company Square, which is run by Jack Dorsey, Twitter’s co-founder and recently appointed chief executive, has filed documents for an initial public offering (IPO) in New York following years of industry speculation.Eight days after Twitter’s (ticker: TWTR) co-founder was named CEO, he announced up to 336 staffers, or 8% of the workforce, would lose their jobs. “Made some tough but necessary decisions that enable Twitter to move with greater focus and reinvest in our growth,” he tweeted last Tuesday.Earlier this month, Twitter announced that it was bringing back one of its co-founders, Jack Dorsey, as C.E.O., to steady the tilting ship and find a way forward for one of the most beloved, misunderstood, and important social-media platforms of our age.
In less than two years since its post-IPO peak, the stock lost nearly two thirds of its value as user growth stalled and former CEO Dick Costolo took up permanent residence on the ropes as pretty much everyone’s favorite punching bag, including Wall Street, the media, and perhaps most notably, billionaire investor Chris Sacca. The company, which generated revenues of $560.5m (€491.1m) in the six months to the end of June, up from $371m in the same period last year, has grown at an exceptional rate, driven by the booming market for mobile payments.
On his ninth day as CEO, Dorsey tweeted that Omid Kordestani, Google’s 11th employee, who is renowned for his success as its chief business officer, would serve as executive chairman. In a plot out of a Mexican telenovela, Dorsey had been ousted, seven years ago yesterday, and then brought back by a board that included a co-founder, Evan Williams, the man who had removed and replaced him. But in typical hyper fast-paced Silicon Valley style, a lot has changed over the past couple of weeks since news broke that interim CEO and co-founder Jack Dorsey would be named permanent chief.
Adam Bain, Twitter’s newly appointed chief operating officer, tweeted: “Thrilled abt @omidkordestani: has unrivaled experience creating multiple multibillion-dollar biz & does it w grace.” According to Kordestani’s LinkedIn profile, he spent 10 years at Google, then left to advise company founders and CEOs. What made the plot even more twisted was that Dorsey was going to retain the top job at a second enterprise he co-founded, Square, a payments-processing company.
To borrow from financial experts, Dorsey doesn’t just have his hands full: If he were an eight-armed Hindu goddess, he’d have all those hands full, too. “The big challenge is that Jack Dorsey has been interim CEO of Twitter and Square CEO since June,” says Todd Antonelli, managing director of the Berkeley Research Group in Chicago and senior advisor to high-tech Silicon Valley business leaders. “Only someone who’s 30-something could pull this off.” But one thing Dorsey cannot conjure, at least for now, is a sea change in the balance sheet of Square, a digital payments company named for the small plastic device that plugs into the audio jack of smartphones or tablets. Also like Jobs, he plans to do it while remaining CEO of the other company he created in the meantime: movie studio Pixar in Jobs’ case, payments firm Square in Dorsey’s.
In August 2014, he returned to Google to help manage senior leadership changes and transition to Alphabet, Google’s public holding company. “Excited to work with @jack, the Twitter Board, @adambain, @anthonynoto and the rest of the team to grow @twitter’s impact and business,” Kordestani tweeted. According to its SEC S-1 filing, Square reported a net loss of more than $77 million for the first six months of 2015, putting it on pace to match its 2014 total losses of $154 million.
What that means for investors, at best, is to proceed with caution and not throw all the eggs in a Square basket. “This is a high-risk investment with a potential high reward and perhaps should be part of a diversified portfolio of recent IPOs,” says David I. It’s a measure of Silicon Valley’s reality-distortion field that many people believe in Dorsey’s ability to pull off this improbable double-act. If that actually happens, even given this tough IPO climate, it would make Dorsey the first notable tech exec to run two public companies since Steve Jobs ran Apple (AAPL) and Pixar prior to Disney’s (DIS) acquisition of the animation studio nearly a decade ago.
Many have questioned whether Dorsey – or anyone else, for that matter – is capable of successfully taking a company public and running it while at the same time executing what some are calling a turnaround at Twitter. Now, with Twitter poised to report third-quarter earnings after the Oct. 27 close, investors should position themselves for Twitter’s stock to advance.
Still, those who set their sights longer term may want to be a bit more adventurous. “It’s not uncommon for technology companies to be losing money when they go public,” says Imran Ahmed, a principal at OCA Ventures. “Box (BOX), Castlight Health (CSLT), Etsy (ETSY) and others have proved that you can go public despite heavy losses. Kevin Systrom’s name arose a few times, without his advocates wondering why the Instagram founder would want to fix a broken property that his own company is beating in the market. However, I think it’s notable that many of these companies have traded down since going public.” Square hopes to list on the New York Stock Exchange under the ticker symbol SQ. It’s more like a company that just never really figured out what it was and achieved mainstream user adoption, as Facebook (FB) and LinkedIn (LNKD) both have.
If Dorsey chooses his words well on the conference call, he could incite a massive short-covering rally that would turn negative investor positioning into a powerful force for Twitter stock. The problem with Twitter is that it’s never lived up to its potential as a breaking news aggregator because its timeline goes by too fast and is too hard to use for that purpose. PayPal might be loathed by some consumers, “but if Square is trying to beat the PayPal fee, around 2.5 percent, they are not doing it yet because Square charges 2.7 percent,” Ma says. “And their margin after paying the credit card companies is so small – less than 20 to 30 basis points – which is why they are still at a loss.” But could a pivot in payment methods benefit Square? The company calls Moments “the best of what’s happening on Twitter in an instant,” but it’s really a curated assembly of news and tweets on the hot events of the moment.
Ahmed thinks so: “One feature of the U.S. payments landscape that may help Square break into larger merchant accounts is the shift to EMV credit cards,” he says. “That’s forcing many merchants to re-evaluate their legacy point-of-sale devices. Still, the challenges are immense: in response to a question about the role of a founder, Facebook’s Mark Zuckerberg has said, “The social capital and moral authority that comes from being the founder and having built many of the company’s key products means that, on balance, people trust you more and give you the benefit of the doubt.” But, he added, “these are clear advantages that founders may have, but they don’t guarantee success.” Twitter has many self-inflicted wounds. Anil Dash, a well-known technologist and essayist, rightfully believes that things started to go awry in 2010, when its focus shifted from working closely with third-party developers to competing with them. What’s more, Dorsey may be able to ease investor worries about the overextended bandwidth of a double CEO. “A role of many CEOs is to serve as a broad strategic planners, as suppliers of vision,” says Paulo Prochno, a clinical professor of management at the Smith School. “That’s not necessarily time-intensive: It’s based more on your experience in the industry and your insights. My only real critique is that the event categories – News, Sports, Entertainment, and Fun – lack the two areas that interest me: Business and Technology.
The company focussed on celebrities and cool people, displaying a distinct lack of caring for developers, whose trust it gradually lost. (Interestingly, Twitter retains a reputation for being less developer-friendly than Facebook, even though Facebook has not been shy at all about destroying the dreams of those who have helped to built its platform.) To understand why developers and a company’s platform approach are important, let me outline a simple scenario. Now, with Dorsey leading Twitter, he and his team seem to be evolving to ensure that the company can get out of its own way, tell a strategic story, and execute. Since development on the product formerly known as Project Lightning began under Costolo, he deserves kudos that will most likely be misattributed to Dorsey. Also unfortunate for Costolo is that he resigned – not just from his job but from the board, as well – soon after acquiring live streaming video app Periscope. If Dorsey and his leadership team embrace their inner LBJ, and allow their intellectual intensity to emerge, the fog that has distracted so many people from understanding Twitter will burn away.
Last week, Ben Thompson, a prominent technology analyst and consultant, lauded Twitter’s Moments feature, which the company recently launched, on his blog, Stratechery. I have to admit, this is the first time I’ve felt optimistic about Twitter in, well, it’s probably the first time I’ve ever felt optimistic about Twitter. But between Moments and Periscope, I think the company has finally hit on a couple of products that mainstream users could love if the company continues to execute on development. For comparison, look at how Facebook profiles, feeds, and pages look very much in sync from a design standpoint, seamlessly shifting from one to another.
The only downside is that there was so much heat on Costolo he probably had no choice but to walk away before seeing his long years of hard work come to fruition. The guy wasn’t perfect but I think he deserved that – and the credit he will likely never get from two products that I think will dramatically change the company’s fortunes.
Steve Tobak is a management consultant, columnist, former senior executive and author of “Real Leaders Don’t Follow: Being Extraordinary in the Age of the Entrepreneur.” Learn more, contact Tobak or follow his new blog at stevetobak.com. For the past few years, I have seen Twitter’s workforce balloon to more than four thousand people, even though the company failed to innovate or raise its total number of monthly users. Sometimes firing is done just for financial reasons, but in this case there seemed to be deeper concerns. “You don’t normally see job cuts at this early stage for growth companies unless there is something materially going wrong with the operations or the strategy,” Mark Mahaney, an Internet analyst at RBC Capital Markets, told the Times. In his memo, Dorsey offered a peek into Twitter’s future—that of an “information news network,” an idea originally floated by the company’s co-founder, Biz Stone, who once described it as the new CNN. Just as CNN was born with the emergence of cable networks, the rise of mobile Internet has allowed the emergence of Twitter as an information network.
This strategy is the simplest way for the company to find focus and highlight its utility to people beyond the core community of users already well-versed in the language of favs, RTs, and subtweets. Making all of this information digestible to the masses is a Herculean task. “Moments,” Dorsey wrote in the memo announcing the layoffs, “is a great beginning, and a bold peek into the future of how people will see what’s going on in the world.” Maybe that’ll be true one day, but right now Moments bears a certain similarity to every other news portal on the Web, and it has a long way to go, both in personalization and usefulness. Dorsey was instrumental in Twitter’s acquisition of Vine, a social network for sharing six-second videos, which has become an impressive video platform in its own right. In wondering if there were a better way, Dorsey pointed out that Square decided to rethink the receipt. “In the early days, we saw the receipt as this amazing, kind of often played-down and often forgotten-about communication channel.
It kind of evolved our thinking: this is not about payments; this is about commerce, and the definition of commerce is the activity between buyers and sellers,” he said. He added, “It’s not just the swipe of the credit card: it’s everything that happens before, it’s everything that happens after, and a big part of what happens after is the receipt.” As I’ve written before, when people talk about design, most focus on what they see.
Instagram has leaped past the service, and is now using the universal language of photography and video to become what Twitter wants to be—an indispensable information network. Facebook, which has had Twitter envy for a while, has managed to build trending-news features that often bring a richer experience to learning about news and other events. In the town of Borja, Spain, an elderly resident decided to retouch the hundred-and-twenty-year-old fresco “Ecce Homo.” Her effort turned the faded visage of Jesus into something the family of the original artist didn’t approve of.