Paging Jesse Cohn, Twitter Investors Are Waiting
The Endgame Has Begun
Twitter (NASDAQ: TWTR) has a special Management Structure Committee, which was established after an agreement was reached between Twitter and activist investor Elliott Management, which was agitating for change earlier this year. Jesse Cohn, a senior portfolio manager and the head of US activist investing campaigns for Elliott, not only joined Twitter’s board, but is also on this special management committee. What exactly does this committee do you ask?
The following are the responsibilities of the Committee:
Evaluate the effectiveness of the Company’s management structure (given that the Company’s chief executive officer has another chief executive officer role);
Considering and recommending to the full Board whether any changes to be Company’s management or management structure are warranted to increase the effectiveness of the management team;
Evaluating the CEO succession plan with the CEO and the Board;
Making recommendations to the Board, taking into account corporate governance best practices, regarding the advisability of, and the manner in which to, eliminate the Company’s classified board of directors; and
Providing recommendations to the Board as to any appropriate changes, and the Board shall publicly report the Management Structure Committee’s conclusions to shareholders by no later than December 31, 2020.
In May of this year, I wrote a report that made the value investor’s case for Twitter. Here is my opening to the report:
Twitter is the most powerful news and curation tool in the world and is more valuable today to its users than ever before, but you wouldn’t know it by looking at its financials or its stock price. Twitter is nearly the same price as its IPO price seven years ago, despite increasing the value of its network exponentially. In the world of politics, journalism, finance, sports and technology, the value of Twitter’s network is unparalleled.
If this is true, why is the value of Twitter’s network not being reflected in the share price or financials? 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.
Since my report, Twitter’s stock has risen approximately 40% (despite today’s decline) as usage and user growth soared. Management was given a free pass during the COVID affected quarter due to reports of the company finally working on a subscription product and the rollout of their new ad technology. The question a lot of investors were asking was whether Q3 could finally be the quarter when the company’s chronic underperformance reversed. I even wrote a follow on to my report asking if Twitter investors could love the stock (Follow on to Twitter report).
The answer was a resounding No. But forget about the disappointing revenue growth of just 14%, which especially paled in comparison to Snapchat (NASDAQ: SNAP), or the operating expense growth which continues to grow unchecked, or the lack of any clear strategic direction of the company. No, this was the line that was the killer:
"We continue to iterate on our revamped Mobile Application Promotion (MAP) offering and have decided to delay general availability until 2021"
Twitter’s inability to deliver or execute on its advertising technology is simply inexcusable. This is on top of July’s hacking incident that revealed the almost non-existent security at the company. And of course this follows a pattern of underperformance, missed deadlines and a general lack of urgency or strategic direction at the company.
Management always seems distracted and engulfed in crisis for no apparent reason. Recent examples are the recent bizarre NY Post censoring fiasco and CEO Jack Dorsey’s claim that Holocaust denial was not misinformation in recent Congressional testimony.
And this is why investors should look past this most recent quarter and instead wait with bated breath for the board committee’s report. Will management want to be publicly humiliated with the release of this report? My guess is that we may see some kind of action before that report gets released because I can’t imagine anyone wanting a public lashing by their own board.
Even if that report fails to bring about any substantive change, remember that Elliott Management agreed to not do anything until late January, or only three months away (Standstill Agreement). So, by the end of January, Elliott is free and clear to buy more shares, launch a proxy fight and possibly add two more board members to the board (two directors end their terms in 2021).
Everyone knows that Twitter remains just as important if not more important than ever before. And now the fireworks will really start to begin. The worst-case scenario was always that the company would produce just good enough results to keep management in place. Well, that didn’t happen. Now the clock is ticking and within the next three months Jesse Cohn and Elliott could be launching some real fireworks that could put Twitter in play. Get ready, because now the endgame has begun.