How Twitter Knocked it Out of the Park

Twitter (TWTR) shares have really been explosive in the last 5 trading days moving higher in excess of 15%.

Speculation has been coalescing around a new project that is in the works that has Twitter launching a subscription service.

The social media juggernaut posted a job advert for engineers to develop a subscription platform.

“We are building a subscription platform, one that can be reused by other teams in the future,” the listing stated and investors took that cue to buy shares by the bucketful.

The new web engineers will be deployed on the company’s Gryphon team, which collaborates closely with the payroll team and the Twitter.com group.

An employee close to the discussion said the company is exploring “alternative revenue sources.”

The social media firm currently generates about 85% of its revenue from advertising, and it is safe to say they are a one-trick pony like Facebook.  

Therefore, a subscription service would help diversify as businesses rein in their marketing budgets amid ongoing uncertainty.

The aggressiveness on show by Twitter’s CEO Jack Dorsey and his fellow management team is unsurprising.

Don’t forget that it was just in March that vulture fund investor Elliot Management, who owns a good chunk of Twitter, vowed to overthrow Dorsey after he announced plans to run both his creations, Twitter and Square, in Africa.

Running two Silicon Valley firms at the same time from Africa remotely stretched Elliot’s patience a tad thin and they hoped to go in for the kill and remove him cleanly.

Dorsey relented to Elliot’s demand and agreed to sideline his African safari and focus on juicing up its ad business.

Well, push comes to shove and Dorsey has decided on rolling out the time-honored way of tech companies making money – subscription as a service (SAAS).

Simply put, Twitter isn’t profitable enough and the buck stops at Dorsey.

Despite Twitter adding 14 million new users in the first quarter, its revenues rose just 3% from the March 2019 quarter, the smallest increase in over two years.

There is a substantial chance that the firm would be more likely to launch an offering utilizing its data and analytics, rather than moving to paid tiers for Twitter usage.

At the bare minimum, they will bring out some type of high-level tools to give ad buyers a way to pull away from the competition and that is worth paying for.

Twitter quickly changed the language of the job ad to make it look less conspicuous.

This isn’t out of left field.

In 2017, former CFO and COO Anthony Noto (now CEO of online lending start-up SoFi) had discussed the idea of adding premium services to TweetDeck, while acknowledging the separation of Twitter remaining a free-to-use service.

Global ad spending has been damaged due to the pandemic and investors are clamoring for more growth for a company that has several levers at their disposal.

They are finally putting these levers to work, and as global growth starts to slowly make a comeback, Twitter will be even better positioned than before.

Dorsey did agree with Elliot Management that Twitter should achieve a target to grow monetizable daily active users (mDAUs) by 20% in 2020 while accelerating revenue growth.

It is clear that Elliot Management is becoming impatient with Dorsey and will most likely look to make some waves in 2021 and finally replace the co-creator of Twitter.

Elliot Management is ruthless, but I do commend them on their magic in creating shareholder value even if they ruffle some feathers.

They have a track record of raising the profiles of other tech stocks and one that comes to mind is eBay.

Unfortunately for Dorsey, Elliot Management’s time-honored strategy usually comes in the form of wholesale changes in management boding poorly for Dorsey to cling on to his job through 2021.

Twitter is a great tech company, a unique asset in the tech ecosphere and Elliot simply believes Dorsey isn’t pressing the right keys on the piano right now.

This is a way of telling Dorsey that he is on thin ice and he is responding with some last-ditch efforts that could save his job.

However, I would like to point out that tech companies are benefitting from a once-in-a-generation tailwind of the coronavirus accelerating the migration to digital.

This essentially means that mediocre tech firms should have an easy time hitting expected targets even if they are lofty.

Just look at Thursday’s trading and the Dow index fell 360 points while the Nasdaq finished the day up 55 points.

The relative outperformance is just the beginning of tech’s dominance.

Dorsey just isn’t delivering the “growth” that comes to be expected from tech firms of Twitter’s caliber in the stage it’s at.

Hopefully, this will be the final wake up call because he certainly has the capacity to deliver what the vulture investors want, it will boil down to if he can apply the focus needed to acquire those mandated results.