It's now conventional wisdom that Twitter Inc. is badly in need of repair. Yet the company on Thursday turned in a not-bad earnings report card for the third quarter, with revenue that topped its own forecast and an announcement of layoffs with a goal of turning a profit next year. A turbulent stock price rose about 4 percent in premarket trading.
But the conventional wisdom remains correct. Few new people are using Twitter. Once-healthy advertising sales have nearly come to a halt, with a 6 percent increase in the third quarter compared with a 60 percent jump at the same point in 2015. And the company said a planned restructuring of its ad sales organization makes it impossible to predict fourth-quarter revenue. Oh, and potential buyers all ran off.
Twitter hardly needs more advice. But I am nevertheless giving it some. It's time for Jack Dorsey to pick one of his two CEO jobs, either Twitter or Square. Or for Twitter's board to make the decision for him.
Dorsey paring back to one public company CEO post won't necessarily put Twitter on the right path. But the company is in serious need of a spark, a ray of sunshine, a new reason to believe. A something. Dorsey quitting one of his jobs might help change Twitter's perception with the public, investors and employees, and it would buy the company some time for a reboot.
Two relatively significant Twitter shareholders have also urged Dorsey to pick a lane. Steve Ballmer, the former Microsoft CEO who owns a reported 4 percent of Twitter's stock, called it a "weird deal" for Dorsey to have two CEO posts. "With the right time, with the right leader," Ballmer said in a CNBC interview last week, Twitter "could be really made into something great." That is hardly a glowing endorsement of Dorsey from Twitter's sixth-largest stockholder.
Longtime investor Bill Miller called it "insane" for Dorsey to be leading two companies at once. Intriguingly, he also seemed to issue a veiled threat to Twitter's board to get a CEO with just one job -- presumably either Dorsey or someone else. And he sounded as if he was canvassing for a cage-rattling activist stockholder to press the issue with Twitter directors. "Somebody like Carl Icahn I think could make a difference there," he said.
It's worth noting that there isn't a clear fix-it blueprint for Twitter, neither for existing management nor for outside shareholders. Miller mentioned the idea of charging Twitter users for the service or to see tweets from certain accounts. He also said Twitter could charge the large number of companies that do customer service by tweets. Other companies, including onetime Twitter suitor Salesforce, do make money selling software that companies can use to manage their customer questions or complaints on Twitter. Twitter itself does not.
Those aren't bad ideas, but they tackle Twitter's revenue problem rather than its inability to persuade more people to try Twitter and stick with it. And that is the company's fundamental issue. Twitter's monthly active users inched up 3 percent in the third quarter, although the company said existing Twitter users are spending more time on the service.
There are other things Twitter can do, at least to put the company on sounder financial footing -- with or without a push from activists. As investor John Hempton pointed out recently, before Facebook reached Twitter's current level of revenue, it had $1 billion of operating income. Twitter has never recorded positive operating income. Losses narrowed this year, but the operating loss reached $224 million in the last nine months.
In Twitter's defense, its revenue has been increasing faster than operating costs. That's still not good enough for a company that isn't growing and, more important, doesn't seem to be doing anything new to justify its spending. Twitter seemed to acknowledge this with its plan to lay off roughly 9 percent of its workforce.
Strangely, Twitter is showing cost discipline in perhaps the wrong places. Research and development spending fell for the third consecutive quarter, while general and administrative expenses climbed 17 percent. The planned restructuring of the ad sales and marketing organization seems sensible to tackle as Twitter's largest expense line, but it also has uncertain effects on revenue. Salespeople are the ones paying Twitter's bills, after all.
Whatever the company does, it should move with alacrity. And Twitter should do it with Dorsey either as the full-time CEO or out of the corner office entirely.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Miller's LMM Investments reported owning 1.9 million Twitter shares as of June 30 -- less than half a percent of total shares outstanding -- and held call options to buy 3.6 million more. CNBC said Miller's firm recently sold half of its call options in Twitter.
This is not a prediction, but non-tech activist Nelson Peltz said something intriguing at a Wall Street Journal conference this week in a sea of tech executives: "You all will grow up .... Then you probably will have to deal with the likes of me at some point in time."
The company promised "more experimentation" soon in technology to let Twitter users "have deeper, open conversations about the topics they care about." And Twitter said for approximately the 1,000th time that it will soon share "meaningful updates" to tackle well known problems of harassment that have been a significant source of embarrassment, and perhaps turned away potential buyers for the company.
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