August 27, 2021
Social-networking service Twitter is a truly iconic brand and product that’s the nervous system of the information age…
It’s also been an epic disappointment on many levels.
It has been a terrible investment… has left tens, if not hundreds, of billions on the table… is run by the worst kind of part-time CEO… and has shown few signs of figuring out what’s wrong.
Why hasn’t Twitter made it? And will it ever?
Twitter is the heartbeat of the worlds of entertainment, media, and news, available to anyone with a phone… all over the world, with 206 million users globally (18% of whom are in the U.S.).
It’s a technological, cultural, political, and communication juggernaut, with reach and influence that’s rivaled only by a handful of other companies (like Facebook and Google). Twitter is one of history’s few brands that are sufficiently ubiquitous and dominant to become a word (and a verb, no less) – in the company of google, xerox, and taser.
It allows users direct and unfiltered access to the firsthand insights and thoughts of celebrities, politicians, and boldface folks who – just a decade ago – were available only through the filter of the media. For four years, Twitter was the primary platform that an American president used to communicate to his followers, the media, the country, and the world… a high-tech policy platform and soapbox and megaphone, all wrapped into one.
If you’re considering buying a new phone, this shocking tale could change your mind. Get the full story now.
Just how big is Twitter?… The number of times the Financial Times used the word “tweet” in the past year: 1,088. (And the likelihood that a material number of these were referring to the sound that a bird makes? Approaching zero.)
Yet the number of mentions of the name of one of the biggest threats to geopolitical peace in the world (Iran) over the same period? 798. And mentions of the finance world’s hottest investment theme (ESG, or environmental, social, and corporate governance)? 881.
Tweets win, hands down.
Twitter is an extraordinary, transformational product – in a market where the rewards for just minor tweaks of tech innovation come with nine zeros.
And despite all this… Twitter is a disappointment of Hindenburg-ian dimensions.
An Epically Bad Investment
It’s silly to assess an individual’s worth to society based on his net worth. For people, money is just one dimension of the how-am-I-doing scoreboard of life.
But it’s not at all nonsensical to gauge the success of a company based on how much wealth it delivers to shareholders. After share price returns, anything else (bringing value to customers, beating the competition, providing opportunities to employees, keeping the staff lounge stocked with peanuts, etc.) is secondary – and a pathway – to one share price appreciation, which benefits small shareholders like you and me. (Profits are nice… but not a necessary or sufficient condition to make money for shareholders.)
And on this, Twitter has been a big failure…
Investing at or around the IPO (initial public offering – that is, when a company first sells shares to the public) of tech companies that have turned out to be revolutionary usually is a great way to get rich… with the important exception of Twitter.
Shares of Alphabet (formerly Google) are up nearly 5,000% since the company went public in 2004 (that’s around 12 times the S&P 500 Index’s return over that period). Facebook is up around eightfold since 2012, and today is valued at 20 times the market capitalization of Twitter’s $50 billion.
Since its IPO in 1997, Amazon shares are up nearly 2,000 times (enough to turn $10,000 into $20 million). Microsoft – up nearly 3,000 times since 1986 – is valued at more than 40 times Twitter.
But Twitter – which punches in the same weight class as these companies in terms of impact, reach, influence – isn’t even in the same universe in terms of returns. Since Twitter sold shares to the public in late 2013, its shares have risen 49%… If you’d bought shares of a boring old S&P 500 ETF then, you’d be up three times as much.
That’s assuming that you bought TWTR shares after the first-day share-price pop – and were not one of the lucky few institutional investor insiders who bought at the actual offering price. If you were able to buy at the actual IPO price of $26/share (compared with $62 today) and suffered through dips and valleys – Twitter shares have fallen by more than 50% within a year several times – you’d be up 138% (vs. around 150% for the S&P).
In other words… Twitter shares rose more on the first day of trading than they’ve risen since the closing price on the day of the IPO through now. Let that sink in…
Now, sure, lots of companies underperform the S&P 500. Lots of investors do, too. But few companies are so bad at filling the space that they occupy… and leaving so much cash lying in the corner, untouched.
Money Left on the Table, Case No. 1
Twitter has been world-class at uncovering (or stumbling into) the next big thing, and then putting a dagger to the throat of its golden goose… just before someone takes a very similar idea, tweaks it a bit, and then goes on to create enough wealth with it to make King Solomon feel like his gold mines are lacking.
First… in March 2015, Twitter bought Periscope, which was one of the first companies to get a handle on livestreaming (which – as your grandkids could tell you – is online streaming media content that’s like personal TV, in that it’s recorded and broadcast at the same time, in real time). It was the popular new kid in town, for a while.
Then Facebook – with around five times more users than Twitter at the time – got into livestreaming and sucked some of the air out of the room for Periscope.
And meanwhile, gaming live-broadcast startup Twitch ate the rest of Periscope’s lunch. Twitch allows gamers to stream their screens so that others can watch them play video games (yes, that’s an actual thing). Amazon bought Twitch in 2014 for nearly $1 billion.
Most of Periscope’s livestreaming functionality was migrated to the main Twitter platform in 2016, and Periscope as a standalone app was closed down in March 2021. But have you ever heard anyone ever talk about livestreaming on Twitter? Me neither… and that’s the ashes of Periscope.
Twitch, though, now has 27 million daily visitors and 6 million creators – aka gamers – who stream every month (including my son, who swears by it). According to CNBC, today Twitch has an estimated standalone valuation of $15 billion. That’s equivalent to around 30% of Twitter’s current valuation.
If Twitter had had a CEO with his eye on the ball, perhaps today my son would be streaming his Fortnite exploits on Twitter instead of Twitch. Twitter would have a foothold in the $180 billion gaming industry (that’s more than movies and sports combined).
It would also have an entrée into a youthful audience that’s more interesting than the demographic that hangs around Twitter, which my 17-year-old daughter – who is fluent in Snapchat and uses “Insta” when necessary – calls “that kind of social media thing that old people use.”
Money Left on the Table, Case No. 2
The Periscope experience is Little League, though, compared to the Vine episode, which belongs in the Hall of Fame of Missed Opportunities…
Founded in June 2012, social media app Vine was purchased by Twitter four months later for a reported $30 million. With Vine, users could create and share six-second video clips – kind of like the video analog to the short-form text posts of Twitter (140 characters, increased to 280 in 2017).
But Twitter proved (again) to be a poor steward of a great idea. As tech news website The Verge explained in October 2016, “Twitter’s mounting core business problems this year [have] all but ensured it [will] eventually be sold off or shuttered.” Vine was closed down for good in January 2017.
In form, style, and product, Vine is very similar to TikTok, the video-sharing social-networking service owned by China’s ByteDance. TikTok, which initially allowed for 15-second videos (increased to 60 seconds last year… and then to three minutes last month), was launched in China in September 2016.
TikTok went global a year later. Today, it has more than 1 billion active monthly users (including 130 million in the U.S., or almost 40% of the population). That’s around five times the number of current Twitter users.
How much money did Twitter, with TikTok-before-TikTok Vine, leave on the table? In early August, the Financial Times reported that ByteDance is hoping to go public in Hong Kong later this year or in early 2022 (the crackdown on tech in China notwithstanding). The company will likely be valued upwards of $180 billion – which was its valuation when it raised capital in December 2020.
That’s more than three times the total market capitalization of Twitter.
Perhaps Vine was the one that got away – or maybe it was a bullet dodged. Maybe in a parallel universe where two-left-feet, can’t-walk-and-chew-gum-at-the-same-time Twitter didn’t get its grubby, value-destroying hands on Vine, the app would have failed anyway… and would still have been receiving its last rites, just when TikTok was in the cradle. Or perhaps Vine wouldn’t have been able to come up with an approximation of TikTok’s magic algorithm that makes the app so addictive and successful.
And to be fair to Twitter, it’s not unusual for the guy who comes up with a fantastic, world-changing idea worth a herd of unicorns (“unicorn” is the venture-capital term used to describe a startup company that’s valued at more than $1 billion) to lose out on the garage full of Lambos.
Often, it’s the people who improve upon the great idea – and learn from the mistakes of the guy who first came up with it – who become string-of-private-islands rich… in this case, TikTok. (Apple is renowned for applying its superior technology, design, distribution, and customer service to others’ ideas – say, the smartphone – and blowing it out of the water… and less famous for coming up with its own big ideas.
Twitter’s Social Failure
Social media has the scope to create goodness and promote empathy by bringing together people with common interests – whether it’s in Far Side comic strips, recipes for spicy peanut butter, what’s going on in the neighborhood, or political inclinations. And it has tremendous scope to widen (and poison) the cleavages that divide people.
Twitter has failed hard in moderating its platform to eradicate – or at least effectively limit – the toxicity that imbues so much of social media. As marketing professor, entrepreneur, and gadfly Twitter shareholder Scott Galloway wrote in a public letter to the board of Twitter…
The outrage that unchecked social media imposes on our psyches is pulling at the fabric of our republic and threatens the foundations of our social order. Democracy relies on mutual understanding and respect. In addition to handling urgent political crises, Twitter’s CEO needs to scale back “mutual animosity” and help heal public discourse in the U.S…
Former President Donald Trump had a black belt in using Twitter to spread lies and sow division. Normal users would have been banned years ago for breaking Twitter’s rules like Trump did – but the company allowed him to remain on the platform, “citing the public interest (over which [Twitter] has assumed a guardian role),” the New York Times wryly observed in mid-July.
That was days after Trump’s Twitter account was finally suspended, after his tweets that are said to have incited violence following the siege of the Capitol on January 6. And the suspension – not only after the horse had left the barn, but after he’d gone into town, met a nice mare, and sired a few mini-me horses – was due in part to hundreds of Twitter employees signing a letter urging the company’s CEO to ban the president… and not after Twitter finally realized that it had been violating its own rules of conduct, egregiously and repeatedly, and decided to do the right thing.
The Why: A Failure of Leadership
Twitter CEO Jack Dorsey co-founded Twitter in 2006 and has been heading it up – after a first stint as the head of the company ended in 2008 – since 2015. In 2009, Dorsey – who, for his considerable shortcomings as a leader of people and organizations, is a brilliant technologist – co-founded small-business digital-payments company Square, where he’s also CEO.
That company went public in 2015… and now is valued at more than double Twitter.
Being the CEO of one public company is a big job, and heading up two is (at least) twice the work. Dorsey needs to fit it in between his other pursuits… like his regular ice baths and habit of fasting for 22 hours of the day.
When you have a net worth of around $15 billion, you can afford to not give many hoots if people think you’re weird (in July, Business Insider delicately labeled him “unusual”). The problem, though – for Twitter shareholders, at least – is that Square is a lot more important to Dorsey’s personal bottom line than Twitter.
He owns (as of March) 13% of Square, which is worth around $17 billion. Meanwhile, the 2% of Twitter that Dorsey controls is valued at about $1 billion. Which company would you spend more time on?
(The $2.9 million Dorsey made by selling his first-ever tweet as an NFT wouldn’t have even been enough to amount to a rounding error for Dorsey’s net worth. He gave that money, significant shareholdings in Square, and other assets to charity.)
Twitter’s CEO is part-time and not as focused on, or invested in, the company as he is with his other interests. It’s tough to get senior management – or anyone else – to work hard, come up with brilliant ideas, and push Twitter to new heights when the boss only pops in during the morning. (In late November 2019, Dorsey announced that he planned to live in Africa for part of the next year – which he abandoned in the face of COVID-19 restrictions and heavy criticism. It’s bad enough to be a part-time CEO… and it’s far worse if you’re eight or so time zones away from the company you’re ostensibly managing.)
That’s Drowning… Not Waving
Some change has been afoot at Twitter. In March 2020, boldface tech investment firm Silver Lake announced that it was putting $1 billion (at the time, equal to around a 4% stake) into Twitter. It also said that it was linking up with activist investment company Elliott Management, which at the time also held a 4% stake in Twitter, in part to take some seats on the company’s board.
“This is a great day for Twitter shareholders and the commonwealth,” Galloway wrote about the deal, predicting that the stock would hit all-time highs by the end of the year. (He was off by two months, as the shares more than tripled from March 2020 lows to hit highs in February 2021.)
And recently the company has posted solid results. Second-quarter revenue was up 74% to $1.19 billion. (It’s not a fair comparison… but during the same period, Facebook posted net income – not revenue – that was eight times bigger than Twitter’s revenue.) As a nice change of pace, it actually made money, with a 6% net margin. (That means that for every $1 in revenue, the company made a profit of 6 cents.) Facebook, by comparison, had a 36% net margin.
Despite its uptick in financial and share price performance, it’s clear that Twitter is the guy at sea who’s drowning – not waving for help.
Its second-quarter shareholder letter reads like a company that’s focused on doing the same thing: selling advertising. It’s squeezing the advertising lemon and making a few more drops of lemonade. But there’s no new thought or innovation about how such a powerful platform can dominate its space – rather than shrink into a small corner of it, as it’s doing now.
“If Twitter has any sense of its future, it seems to lie in doubling down on targeted advertising and copying features from competitors,” New Republic wrote in February. What’s more – maybe most important for the company’s long-term survival – it hasn’t come up with a plan to address harassment and content moderation on the platform.
How Can Twitter Save Itself?
- Get rid of the CEO.
Get a full-time manager/visionary who is incentivized to make Twitter something much, much bigger. Don’t let Dorsey’s empty virtue signaling (quarantine beard, showy 10-day retreats to Myanmar, black turtlenecks… yes, all part of the schtick) distract you. And then – once Twitter has some time to get over its inferiority complex, and its employees no longer feel like they can duck out early since, hey, the boss does it every day – maybe it can focus on the matter at hand: making something big.
- Extract value from the platform.
Value is created on [Twitter] every second. Influencers build followings, businesses find customers, ideas are generated and shaped. But Twitter, in a misguided posture of neutrality, lets all this economic activity flow across its platform and neither cultivates nor harvests it.
How? It should be possible to easily sell goods on Twitter – and for Twitter to collect revenue from those sales (the company has been working on this). People with large followings – from which they can make a mountain of money – could be charged a type of follower subscription fee. Lots of other platforms (see: Instagram… Facebook… LinkedIn…) have figured out how to make money from having a lot of people buying and talking and learning on their platforms. Twitter has to try things… fail… and succeed. So far, it has done little, if any of those.
- Create and curate content.
In January, Twitter acquired Revue, a service that makes it easy to start and publish newsletters. It may have noted the success of Substack, a similar product that launched in late 2017 and already has half a million paying subscribers – that is, unique users who pay for a subscription newsletter. In recent years, businesses that deliver subscriptions – whether it’s to Netflix or the bacon-of-the-month club – that auto-renew to provide a steady and recurring revenue stream have been increasingly viewed positively by investors.
But in the second-quarter shareholder letter, there was no mention of Twitter’s new toy or business. And in any case, Twitter should be trying a number of approaches to get users to pull out their wallets for content… ideally, user-generated (remember TikTok?).
Barring that, though, Twitter could create its own content. It could sprinkle some of the $873 million (not a typo) it spent in 2020 on research and development on making stuff that people want to watch or read… and charge them for it. Hey, it could work.
- Try stuff and break glass and don’t be afraid to fail.
Twitter has held snowflakes in its hand – Periscope and Vine – and let them melt. The company is still small enough – with revenues of just $3.7 billion in 2020 – that a few good ideas could change the conversation entirely… from a boring, has-been social media app to a player that’s finally filling out its uniform and making a difference. But to get there, it needs to get going.
Twitter is the big airport that sees just a few planes come in every day… the dusty ’69 Corvette under the tarp that needs a new gearbox and some love… the teenage track star who fell out of shape but still has the muscle memory to be a champion. It’s a platform with potential but still needs some work.
Will Twitter get there? Given the recent run-up in Twitter’s share price, some investors think that it will – or that it’s at least going to try. While its record isn’t promising, Twitter could still surprise.
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August 27, 2021