In Kayvon We Trust
Investors Should Stop Obsessing Over Jack Dorsey
Investors, analysts and the FinTwit community are obsessed with Jack Dorsey. His idiosyncrasies and his non-traditional approach drive analysts and investors crazy as does the fact that he is the CEO of two public companies Twitter (NASDAQ: TWTR) and Square (NYSE: SQ). I never really cared as a Twitter user but started to when I became an investor. Last year I wrote a deep dive research report that Twitter was a Value Stock. Here is a snippet:
A historically distracted management, a disappointing advertising technology engine and a baffling strategy that ignores its “power users” has caused Twitter to dramatically under-monetize the value of its network.
However, now there are two new high-profile investors involved: Jesse Cohn from Elliott & Associates, an aggressive activist firm and Egon Durban from the stellar private equity firm Silver Lake. Both have recently joined the board and Twitter management will either have to start executing on its core advertising technology and implementing a new strategy around monetization or they will be replaced. Either way the stock should move dramatically higher.
The core Twitter network gets more valuable to its users every day and with change afoot, the stock should soon start reflecting that value.
I too started focusing a little too much on Dorsey and on what appears to be an unfocused and undisciplined management team. There seems to be a perennial lack of execution and the pace of innovation and product development has been bizarrely slow.
I’ve now come to believe that I was wrong and frankly I should have known better. As you may know, I founded and ran a single-family home rental company starting in 2009 and built it to be a company with over 100 employees and 2,500 single-family homes. In 2013, we hit a wall operationally; we were buying too many homes and our operations were not keeping up. We ended 2012 with 2000 homes owned, 500 under contract and only 500 rented. This is not a recipe for profits.
We came to a complete halt and realized that we had to re-do our processes, bring in new people and fix everything starting at square one. It took a painful 18 months to get the ship righted so that you could see it in the numbers. Investors got frustrated by the delays and problems and by the time we were ready to resume growth, we found that instead investors wanted to cash out. Despite all this, we ended up successfully selling the company to a public REIT in 2015.
That turnaround of my company is one of the things I’m most proud of, even though I will get no awards or accolades (it was my fault we grew too fast!). Twitter is a turnaround, and turnarounds take time, even for small companies. Beset with massive technical debt, an advertising technology that was woeful (and still needs work), a rotating executive team and a poor internal culture, change has not come overnight.
The mistake investors are making is focusing on near term earnings and not focusing on product development, execution and innovation. Twitter blew investors away during their analyst day in February with a bold vision and a focus on product development, speed and execution that has been sorely lacking. The company addressed head-on the criticism of past slow development and execution.
And that is why investors need to stop focusing on Jack Dorsey and instead follow Twitter’s head of Product, Kayvon Beykpour. Twitter is a great investment opportunity because its passionate 200 million strong user base (which is more educated and wealthy than any other social media platform) is massively under-monetized. This will only change with new products and services such as subscriptions and tapping into the insatiable desire by its users for more functionality that they would gladly pay for.
You can take away any service or app including Netflix, Spotify or Bloomberg, but don’t you dare take away my Twitter. Like many hard-core Twitter users, I constantly wonder how it is free.
I don’t care what the estimates or “whisper numbers” were for this quarter (this is not how I invest). My disappointment came from the bland earnings release, the lack of any mention about Spaces or any of the other products they were developing.
That’s why I was very excited when it turned out that Twitter Spaces is now available for anyone over 600 followers, which includes me! But I was even more jazzed when in response to a Twitter user questioning whether Twitter and the team has any fire in their belly, Kayvon responded with this Tweet.
But are these just words? No, the company has demonstrably improved in terms of new product and service launches, with none being so big or important as their first major new product in a long time, Twitter Spaces. The upside is amazing for Twitter Spaces, which is kind of like in-person talk radio. The applications for sports, politics, finance, video games and more communities to engage in real time in-person audio is huge and no service can capitalize on this more than Twitter. I highly recommend you try Twitter Spaces if you haven’t.
And Twitter has told us that more is coming and it is coming faster. Tipping, Superfollows, subscriptions and more. I believe the next 12 months will be rich in new product offerings from Twitter.
Twitter is not Facebook (NYSE: FB) and never will be, nor will it be Google(NASDAQ: GOOGL) or Amazon (NASDAQ: AMZN). Twitter is a unique beast with an obsessive passionate community that is now nearly 200 million strong. And that user base continues to grow on its way to 300 million and more. If the company can keep iterating and start tapping into the monetization opportunities in front of it, the current market cap is simply too low. I continue to believe that Twitter is the most important and influential social network around, and as today’s reaction shows, the market continues to think the company will underperform.
And that will be determined not by Jack Dorsey, but by Kayvon and his product team. They will dictate the success of Twitter. Consider this an investor love letter to the Kayvon.
In Kayvon we trust.