While there's no guarantee that ousting Jack Dorsey would put Twitter (TWTR) on better footing, markets have their reasons for applauding activist Elliott Management's push for a new Twitter chief.
To recap: Elliott, which has a very long track record of carrying out successful activist campaigns against tech companies, has reportedly taken a 4%-plus stake in Twitter, has nominated four directors to its 8-person board and is seeking to oust Dorsey, who co-founded Twitter and has been its CEO since 2015.
According to sources, Elliott doesn't like the fact that Dorsey has been serving as both Twitter and Square's (SQ) CEO, nor that he plans to live in Africa for 3-to-6 months this year. And it's also reportedly displeased with Twitter's executive turnover and product missteps.
Following the news, Twitter rose nearly 8% on Monday amid a 4.5% gain for the Nasdaq. The stock has more than doubled from its mid-2017 lows, but is roughly flat (amid a near-80% Nasdaq gain) since Dorsey replaced Dick Costolo as Twitter's CEO in June 2015. And it's still about 50% below its late-2013, post-IPO high.
It's probably not fair to put all the blame for this on Dorsey and other Twitter execs. In the age of the smartphone camera, a text-centric social platform such as Twitter might have been destined to be less popular than a photo and video-centric platform such as Instagram. But considering all of the ways in which Twitter still arguably fails and alienates regular users, some blame feels warranted.
I've written on a number of occasions over the last few years about these failings. On a big-picture level, they include:
- Subpar tools for discovering accounts and content that might interest a user.
- A lack of tools for sharing thoughts that can't fit inside of a tweet, and which could provide valuable nuance and context to a discussion (Twitter explored providing this back in 2015, but never moved forward).
- A frequent lack of success at making regular Twitter users (unlike regular Facebook, Instagram or Snapchat users) feel like anyone is paying attention to what they share.
- The enabling (and at times, incentivizing) of a variety of bad behavior that both drives away and hurts Twitter's standing among regular users. This behavior runs the gamut from the spread of misinformation via viral tweets, to the frequent hurling of abuse and vitriol towards those one disagrees with, to the general fostering of cliques and echo chambers.
Such shortcomings help explain why Twitter has long dealt with very high levels of churn. They also help explain why 39% of respondents to a recent U.S. survey said they had an unfavorable opinion of Twitter's brand -- for comparison, Facebook came in at 29%, Instagram at 28%, Apple (AAPL) at 19%, Google (GOOGL) and YouTube at 10% and Amazon.com (AMZN) at 9%.
In addition, Twitter's management also deserves some blame for not pursuing non-advertising means of generating revenue from a loyal core user base that views it as a one-of-a-kind news and opinion utility (a subscription service for power users was tested back in 2017, but never launched). And unlike Instagram or YouTube, Twitter has also failed to make it easy for users who have built up large followings to monetize their accounts.
Dorsey's risk-averse approach to modifying Twitter's services likely has something to do with many of these shortcomings. This is, after all, someone who insisted on keeping Twitter's character limit at 140 until late 2017, and -- though Facebook and Instagram have long given users the ability to edit posts, while also letting users see how the posts have been edited -- still refuses to sign off on providing an edit button for tweets.
And it probably also hasn't helped that Dorsey has been splitting his time between Twitter and Square. At least some of Twitter's product shortcomings look like the kinds of things that a CEO taking a more hands-on approach might not take long to fix.
Elliott seems to understand this. And from the looks of things, a lot of other investors do as well.