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Takeaway: The problem with TWTR is the business model and expectations. Dorsey likely can't fix the former; managing the latter won't be much easier.


  1. COSTOLO STEPS DOWN: This was more a question of when, not if, although we are surprised that it happened so quickly into the year.  The street had been calling for Costello’s head on and off since its prior blow-up on the 3Q14 release.  TWTR is now conducting a search both externally and internally for its new CEO; there is no timetable set for when it will fill the role.
  2. DORSEY DOESN’T HAVE THE ANSWER: Interim CEO/co-founder Jack Dorsey suggested that there will no change in the company’s direction/strategy; likely because there is no easy fix.  The problem with TWTR is its business model and street expectations.  The Street demands perpetual upside in both revenues and MAUs, but those two factors that have historically been working against each other (see note below for more detail).  Ultimately, that is a recipe for disappointment; we doubt Dorsey can manage that dynamic any better than Costolo has.
  3. ASSESSING THE SETUP: The switch from Costolo to Dorsey has no bearing on our thesis.  However, we have been mulling the short since the 1Q15 release; largely because TWTR has rebased expectations with both the guidance cut and cautious 2Q MAU growth comments.  However, 2016 is around the corner, and the +50% advertising revenue growth that the street is expecting will be a tall order without a fundamental shift in its monetization strategy.  In short, we see one quarter of potential upside ahead of another potential blow-up 1-2 quarters later.  

TWTR: No Easy Fix - TWTR   2Q13 Supply Shock w detail

TWTR: No Easy Fix - TWTR   Ad vs. MAU 1Q15

TWTR: No Easy Fix - TWTR   Consensus Ad 2Q15

For more detail, see note below.  Let us know if you have any questions or would like to discuss.

TWTR: Rock and a Hard Place (1Q15)

04/29/15 08:15 AM EDT

[click here]

Hesham Shaaban, CFA