On TwitterMarch 13, 2020
It feels like a lifetime ago, but on Monday, private equity firm Silver Lake announced a $1 billion investment in Twitter, and Twitter agreed to 3 new board seats. To distract myself from coronavirus, I think about the valuation dynamics and corporate governance of social platforms. I posted a series of tweets as a response to the announcement, included below. In sum: I think analysts and the media are getting this wrong.
This is a great day for Twitter shareholders and the commonwealth. “Twitter, Inc. Announces Partnership With Silver Lake and Elliott Management.” Ok, let’s break down this announcement from Twitter.
Sycophants and stenographers (CNBC) gathered at 10 Downing to report that Prime Minister Dorsey has secured “Peace for Our Time.” Striking how badly the media have misread what happened here. This “partnership” means total and near-unconditional surrender by Twitter. I challenge anybody to find an activist campaign levied against a $10B+ company that has resulted in 3 board seats in 5 business days.
What does this mean and what happened?
Jack/board cancelling trip to Africa because of corona and “everything happening in the world.” Heavy lift for “everything happening” (part-time CEO, no self-awareness, negligent board, poor returns, etc.). Part-time CEO in Namibia, half as bad as half-CEO at HQ. You. Can’t. Make. This. Sh*t. Up.
Twitter’s board called their largest shareholders, asked for their support (We’re making progress, Jack is a great guy), and shareholders unequivocally responded, We’re with the guys in the white hats (Elliott/Silver Lake). Elliott’s dialogue with shareholders was a series of head nods — violent agreement. Not a dialogue but IQ test (part-time CEO, weak returns). By midweek, this was no longer a battle (Twitter’s board and Jack had lost), but an attempt to achieve “peace with honor.”
From Twitter’s press release: “To continue to ensure strong governance, we are pleased to create a temporary board committee that will build on our regular evaluation of Twitter’s leadership structure.”
The board now must either convince Elliott and Silver Lake that Jack is Jesus Christ (not subject to the time-space continuum like every other CEO) or hire a recruiter in the next 180 days. This agreement gives now-neutered Lead Director Patrick Pichette and Chair Omid Kordestani the opportunity to roll off the board in the next 12 months, and have Jack’s resignation be his own idea.
Imagine the Twitter board now, 3 new directors who secured seats — in record time — as a function of one claim: The CEO needs to be replaced. #awkward. I trust they’ll have board meetings in the morning, when Jack is at Twitter vs. Square.
So Jack is given a stay of execution, but he is walking the green mile as CEO. A brilliant entrepreneur and product guy, maybe chairman? Pichette and Kordestani should be assigned Trump family status, and not be allowed to serve on boards. See above: negligent.
Remember this letter, sent 12/9? I never heard back — the bad news. The good news: Elliott/Silver Lake signed it, two weeks ago, with a $3 billion pen.
A floor has been set on Twitter stock, as Silver Lake will make a bid to take the firm private if the price declines. Silver Lake does not buy shares in tech firms — it takes them private. This was the first step toward that end.
The coronavirus/oil plunge will be to Twitter what the First Gulf War was to CNN, a game changer. A new chapter for Twitter — on a path to commanding the space it occupies. Any platform with the reach, influence, and addictive attributes of Twitter trades at 10–25x the valuation.
In December I purchased shares at $30 and sold them 3 weeks ago at $39. When I saw Elliott’s letter, I bought back in. The focus can now be product innovation: verification based on citizenship on the platform, elimination of bots, a higher bar for reportable tweets, consistent/enforced TOS, and paid niche products.
Predictions: Twitter hits $40+ by EOW (3/13/2020), and all-time high by EOY. I have 40 stocks on my Stocks app, only one is green today, markets love this. This is a great day for Twitter shareholders and the commonwealth.
So my prediction didn’t age well … much like its author. Granted, it’s been the worst markets week since 1987.
As an academic I like to think my students learn skills that help them provide economic security for themselves and their families. I’d also like to believe that academics serve an important role provoking, challenging the status quo, and catalyzing a conversation that shapes better ideas, actions, and solutions. If this sounds like a hella excuse for how wrong I get things, and how often, trust your instincts.
Anyway, about Twitter, we thought it would be interesting to get a counterpoint. Today’s is from Richard Kramer, founder of Arete Research, a London-based equity research firm. Richard has over 20 years of experience covering tech and media.
Richard Kramer on Twitter
Sorry, Scott, but Elliott and Silver Lake involvement changes … nothing. The board, with four ex-Google execs, ensures Google sees Twitter data but doesn’t threaten its business. Google adds more in quarterly incremental ad sales than Twitter has in annual total sales. Twitter lacks the ad formats and data on its (often anonymous) users that advertisers most want to see. It may work for you, but advertisers want a wider audience than journalists and professors.
Elliott’s “activism” mostly agitates for cash returns. It has no experience in fixing businesses (see EBAY, NLSN, SAP, AT&T, etc). This should surprise no one: investing is a very different skill from operational management of tech firms. There is no bench of C-level execs at Twitter, and the cult of personality around Jack ensures huge disruption if he gets fired. There is no relevance in made-up metrics like “monetizable DAUs” — Twitter ad loads keep rising, and pricing keeps falling, as has the share price. Each incremental user is less and less valuable, maybe because many of them are actually bots, not humans.
Twitter has zero interest in a healthy conversation; you do not notice two people chatting amiably. You take note when they scream at each other. It is exactly the kind of bot-ridden, weaponized spreader of disinformation and vitriolic abuse you see in Facebook. Brand advertisers don’t want to touch “Toxic Twitter.” It’s hard to insert ads into the natural disaster news Twitter thrives on. It “apologized” three times last year for taking user data it collected for “security reasons” and using it for ad targeting. When it stopped, sales growth plunged. The nail in the 2020 coffin will be cancellations of big events (NBA, Olympics) around which Twitter gets audience, but a tiny share of “time spent.”
You are also confusing a marketing story with the many financial or operational issues. You are also confusing “absolute” value (market cap) and valuation multiples: Twitter trades at an unjustified 50% premium to better-run, data-rich digital ad rivals, and is looking at declining growth and margins in 2020.
A new board would need to look to 2021 and beyond to make real changes. Recruiters take months to find the right candidates and get them in place, and then have them figure out what to do. Oh, and about my stock calls, please don’t quit your day job!
So much has happened this week around coronavirus. Our president continues to downplay the pandemic while thinking immigration is somehow a contributor, but not travel from countries where he has resorts. His Thursday address needed three policy corrections. (No, he didn’t mean what he said, he meant something else.) A health emergency on this scale is proving to be a physical and psychological burden we weren’t prepared for, both personally and as organizations. I’m mindful this week of restaurants, small businesses, gig workers that will be particularly hit.
I’m also feeling the collective stress about the elderly. The oldest members of our family are the light of the life of my 9- and 12-year-old sons — Babcia and Dziadzio (Polish for “Grandma and Grandpa”). Btw: helpful info on what to do if you have symptoms. As a rabbi said this week, “Every hand that we don’t shake must become a phone call that we place. Every embrace that we avoid must become a verbal expression of warmth and concern.”
I say this often: the world is what we make of it. Instead of distantly trailing other countries in testing, we need leadership that shifts from their heels to their toes. This virus is a meaningful moment in history. What is profound is the earlier virus that took hold of the nation in January 2017: incompetence and complacency. We have incompetent leaders who look out the window and see themselves, not their mandate. We took cold comfort in the Dow’s rise, which wallpapered over the weakening of our institutions (Trump cut the CDC’s pandemic response budget by 80%). The contempt for allies and the deep state (i.e., federal employees) has rendered our government impotent in the face of crisis.
If this feels partisan, it’s not. Vice President Pence, other than the excruciating preamble to all his addresses (“Thanks to the decisive leadership of President Trump”), has been a steady voice given the hand he was dealt. It’s not partisan to observe idiocy. And Donald Trump is an idiot. Search your feelings. You know this to be true.
Rep. Katie Porter gave me hope this week. Leaders like Rep. Porter accomplish in six minutes what entire administrations can’t in six months. Let’s find them and elect them.
Life is so rich,
P.S. My weekly pod premieres Thursday, 3/19. I’ll be interviewing smart people and taking your questions about business and life. Hope to have some good conversations. Subscribe on Spotify, Apple, or anywhere else you get your podcasts.
I was working at AthenaHealth while Elliot was taking it over, and that CEO was devoted to his job full time (and then some). Paul Singer spends every waking minute of his life thinking about how to squeeze money from underperforming companies and countries. By the time he started looking at Twitter it was already too late for Dorsey to catch up.
Scott: Who does your artwork? Can you have them make a meme of you that’s captioned, “Love me… Don’t judge me.” ?
Spot on with Twitter. A little loosey goosey at the hen house. Time to Give Jack the Bird.
Another great article Scott. Also, great choice inviting Richard Kramer. Very Smart guy and he had lots of interesting insights. e.g. the Google Board and revenue thing and this gem: “Elliott’s “activism” mostly agitates for cash returns. It has no experience in fixing businesses (see EBAY, NLSN, SAP, AT&T, etc)” Mr. Kramer if youa re reading this you have a new fan!
News from Italy. Government closed last week stores, restaurants, museum and so on. Only main shops are open. Amazon still working. Drivers are exposed to high risk of infection delivering unnecessary stuffs that enriched Bezos in detriment of stores that have been closed by the Govn. This is not fair competition. Amazon and others merchant should announce on website that the deliveries will be available after the peak and after the situation will be better. Amazon is speculating on Covid-19. It is a shame.
I wouldn’t worry too much about Twitter down 17%. With this new infusion of cash, though from Vultures, it can withstand this pullback providing we still have a market in 2 months; maybe $XAvg a little. My greatest concern today is where COVID-19 may take us due to lack of Proper Leadership. Being a father of two girls, this will be a Helluva test for most of us whose power has been stripped and left at the Mercy of an ignorant Narcissist.
This was the week the markets and Mother Nature collectively gave Trump and the GOP the big fat FU and a vote of no confidence.
I’m afraid Trump is just the symptom. The problem is that too big a chunk of US citizens likes Trump.
Mmm, time will tell in Tweet World…I’m inclined to your angle. And as for Rep Katie Price, that woman just changed the future of America. Formidable
Refreshing as usual with a perspective that goes right to the bone of matters. I’m sick and tired of all the glossy BS.
I worked at two tech companies that were up ended by vulture capitalist Elliot. These people are the slime of the earth. A fine company making fine products loses its “darling” status among speculators and people like Elliot lose a little money. They get pissed and play a rigged game to try to get their money back by rape and pillage. That investors decide a company isn’t sexy any longer is no reason to screw it up when except for stock price it’s doing well and making fine products. I suspect these are the same people (men) who dump their wives when the sheen wears off.
Thanks Prof G, that was an awesome sign off, “weekly pod premieres Thursday, 3/19.” Looking forward!
I’m always apprehensive to take stabs into politics and my beliefs in my blog. I say things like “stay in my lane.” But when the big dawg Prof G puts together pieces like this, it makes me feel like my voice matters more. Thanks as always big dawg.
Katie is my new political hero. She badgered that starched shirt relentlessly, to the point that he was browbeaten into doing his job. Tremendous. She totally ambushed the guy with truth and hard facts, which are anathema to everything Trump.
too hard on yourself, not hard enough on Trump. I get that it becomes wearying but suck it up Prof G.