TWTR: More of the Same?

Takeaway: Dorsey is permanent & Bain may be running the show. This is a non-event till mgmt shows us how it will address the street moving forward

KEY POINTS

  1. PERMANENTLY DISTRACTED? Jack Dorsey, co-founder and interim CEO, has been named as TWTR's permanent CEO.  Dorsey will also remain CEO of Square, which is expected to go public soon.  We're not sure this is the smartest move for a company that doesn't know how to talk to the street.  The first time that TWTR disappoints, Dorsey's split role will likely be the first thing the street points to; especially if Square goes public anytime soon.
  2. BAIN RUNNING THE SHOW? We suspect Dorsey will be more of a figurehead given his split role, suggesting TWTR's new COO and current monetization head, Adam Bain, will be taking the reigns.  While TWTR has experienced considerable revenue growth under his watch, it has been primarily driven by rampant increases in ad load, which has led to a level of user attrition that may be turning into a structural issue (see note below).  That said, more of the same isn't the answer, but that really depends on what the new mgmt team's priorities are into 2016.
  3. MORE OF THE SAME? Collectively, the C-suite shakeup is a non event until we know how management will address street expectations moving forward.  If TWTR guides 2016 revenue inline with the street, it's basically 2015 again. TWTR would be chasing near-term upside at the expense of further longer-term damage to its model (user churn), and will likely disappoint on lofty consensus expectations for 2016 advertising revenue regardless.  If TWTR chooses to rebase expectations early, it would buy mgmt enough breathing room to ease up on the ad load and prioritize MAU growth, which will ultimately define its long-term prospects.

See the note below for our most recent thoughts on TWTR.  Let us know if you have any questions, or would like to discuss in more detail.

Hesham Shaaban, CFA


@HedgeyeInternet  

TWTR: The Crossroads  (User Survey: n=7,500)
08/25/15 07:48 AM EDT
[click here