Twitter is in a quandary of Wall Streets making

Author

James Titcomb

August 11, 2015

Many of the problems the social network is facing are a product of investors’ lofty expectations

On November 7 2013, the sky blue Twitter emblem replaced the American flag that is usually draped over the neoclassical columns of the New York Stock Exchange.

It was the biggest day in the social network’s history: as it followed Facebook onto the public markets, the company’s value skyrocketed from an initial $14bn to $24bn, a 73pc increase.

No wonder its chief executive Dick Costolo, joined by Twitter’s trio of founders Jack Dorsey, Evan Williams and Biz Stone for a rare group photo on Wall Street, was beaming.

In the 16 months since, Twitter has had more bad days than good. While Facebook now boasts a billion and a half users – half the world’s internet population – Twitter appears to have ground to a near-halt at just over 300 million.

Shares have lost a quarter of their value in the last two weeks, and are 60pc off their 2014 peak. The company itself is also in turmoil: Costolo resigned in June, with Dorsey replacing him on an interim basis; he would be favourite to take charge full-time were it not for his commitments to Square, a rapidly-growing mobile payments company he founded and continues to run.

A series of high-profile executives have also flown the nest in recent weeks, and there are, unsurprisingly, whispers that staff morale is sapping, a potentially-toxic problem in Silicon Valley, where competition for talent is furious.

The irony is that Twitter the service, as opposed to Twitter the corporate entity, is making great strides. More than ever, public figures and companies use it to interact with fans and customers, or make announcements.

Taylor Swift, possibly the world’s biggest popstar, took to Twitter to announce that a corporate dispute with Apple had been resolved, allowing her songs to feature on the company’s new music service. Carl Icahn, an outspoken activist investor, regularly announces market-moving investment decisions on the service.

The company is adding features relentlessly: Vine, which lets users share six-second video clips, and Periscope, which allows anyone with a smartphone to broadcast live footage, have been successes. Twitter is also making changes to its core product, gradually introducing features that filter the relentless tide of tweets that often baffles users when they come to the service for the first time.

In short, Twitter is a critical success but in a corporate quandary. One could argue that the problem is not, in fact, with the company, but with Wall Street. A sugar rush as Twitter prepared to float drove it to up its IPO price by 30pc, and the ensuing fear of missing out (or “FOMO”) among investors drove it to an eye-watering $45bn market cap in early 2014. This for a company that had just made an annual loss of $645m.

It is this conflict with Wall Street that eventually forced Costolo out. “You always want to keep focused on the long-term vision, yet when you go public you’re on a 90-day cadence and there’s a very public voting machine of the stock price that accelerates that short-term thinking,” he said in a recent interview .

The response to Twitter’s most recent set of results – in which shares slumped despite a 61pc increase in revenue that beat expectations, because user growth disappointed – shows how disconnected investors became from the company’s financial reality. Some are still comparing the company to fast-growing and vastly profitable Facebook, which anyone familiar with the experience of using the two services can see is flawed.

If this is the welcome that fast-growing technology companies receive on the public markets, then it’s no wonder that “unicorn” startups – the likes of Uber, Airbnb and Dropbox – whose valuations stretch into the tens of billions – are choosing to stay private, raising huge amounts of venture capital cash rather than risk the rollercoaster of the public markets.

A purported resolution for Twitter, which is increasingly being suggested as the stock drops, is being taken over. Google is seen as the most popular candidate: it is frequently linked with Twitter, has failed in its own efforts to create an engaging social network, and would be capable of shelling out $30bn or so, if it really wanted to.

If you think a deal makes sense, Paddy Power is offering odds of 5/2, but don’t hold your breath. For one thing, such a deal would be the biggest in tech history by quite a margin, easily outstripping the $19bn Facebook paid to buy WhatsApp last year . Regulatory scrutiny, something that Google tries to avoid as much as possible, would also get in the way.

But most significantly, it’s hard to see why Google would want to buy Twitter: The search giant already has access to data from the 500 million tweets users send per day, after inking a deal earlier this year. Any acquisition talk is probably in the realms of fantasy M&A, possibly pumped up by the odd disgruntled Twitter investor.

So what next for Twitter, which will most likely carry on as an independent public company? Perhaps Dorsey will make a Steve Jobs-esque full-time return, attract millions of new users and get on the right side of investors. More realistically, Wall Street may have to adjust its lofty expectations.

This article was written by James Titcomb from The Daily Telegraph and was legally licensed through the NewsCred publisher network.


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