What Twitter Says, and What Investors Hear.

Disclaimers: 1) My funds and I own a lot of Twitter stock. 2) I am not your financial advisor. Don’t trade based on what I write. 3) I don’t work for Twitter, nor speak on behalf of Twitter, nor do I have any inside information about Twitter.

The last few days have been some of Twitter’s most tumultuous in the nine years since I started advising and investing in the company.

I have hesitated to comment on Twitter’s management changes because of the complexity, the sensitivity, and the political nature of the jockeying around who might fill that role. (To answer a question I have heard from many of you, I don’t want to be CEO, nor do I want to be on Twitter’s board.) I also don’t think there is only one right answer as to who should be CEO.

However, any observer will agree that the CEO transition announcements were sloppy and confusing. Investors were left trying to interpret seemingly conflicting accounts and trying to read the tea leaves about where the company was going. Along the way, specific statements about Twitter’s future crushed investor hopes and turned what could have been a very positive event for the company into a debilitating mess.

Yesterday I spoke to an audience of 100 institutional investors about Twitter and fielded their questions for close to an hour and a half. That combined with conversations with analysts and reporters has highlighted for me there there is a major disconnect in what Twitter is saying, what investors are hearing, and what Twitter thinks it is saying. As a person who translates between Silicon Valley and Wall Street for a living, here is what I see.

What Dick and Jack said:

We don’t anticipate any change in that strategy or the product direction.

Dick Costolo and Jack Dorsey held a conference call following the announcement of Dick’s resignation. The next morning, they also went on CNBC to do a live interview. During both of those conversations they made statements to the effect of “We are not changing our product strategy.” These were not well-received.

What Wall Street heard:

Despite slowing user growth and missed revenue projections last quarter we are not admitting there is anything wrong with our business and thus we are not making any changes in the approach to fixing our struggling business.

As a result, the stock got hammered. Investors assumed the leadership team was in denial about reality. Ever since, the stock has continued to lag the overall market and investor sentiment has remained exasperated.

What I believe Dick and Jack were trying to say:

We are nearly ready to launch the products that we are confident will re-accelerate our user growth. We have been working on this stuff for months, ever since Kevin Weil took the product helm. You have seen that our current team has been launching new products at a dramatically faster pace than ever before. These releases, and those to come very shortly, are all part of a comprehensive strategy that we know will attract and retain hundreds of millions of new users. Why would we change that strategy now?

The Twitter team has the benefit of seeing what the rest of us outside the company don’t get to see: the long list of forthcoming products. A strong example of that was today’s announcement of Lightning, a major overhaul of the Twitter experience that will undoubtedly make Twitter more appealing for casual users and enrich the logged-out experience making it much easier to capture and monetize that massive audience. Any of us seeing that product would probably be equally confident about Twitter’s future.

Let’s consider another example of the breakdown in communication between Twitter and investors.

What Twitter says:

Dick is staying on the board of directors and will continue to help the company.

What Wall Street hears:

We are going to have a board that is 1/3 guys who have run this company at some point and that is going to be a distraction for the new team. We need new ideas, not stale ones. How is Twitter supposed to radically change direction if all the old CEOs are still lurking around?

What I believe Twitter is trying to say:

From the time Dick Costolo joined as COO until today, the company’s value has grown by 20x. He oversaw the creation, from scratch, of an ad business currently achieving a +$2 billion run rate and growing 74% year over year. He grew the company by thousands of employees, maintained a very high rating for culture and leadership on Glassdoor, and, following some missteps, finally nailed hiring and promoting the right leadership team for the company. The seeds for the product renaissance that is coming were planted on Dick’s watch.

Product Launches as a Lagging Indicator.

If you have spent time building products in tech, you know that user and revenue growth are preceded by two separate and multi-month phases. First, you have to get the right team in place. Twitter obviously tripped all over itself in this regard for years. Since the era of Jason Goldman, who did an incredible job shepherding Twitter from a simple text-based service to a rich web and mobile platform, the head of product role has been a revolving door.

However, in October of 2014, Kevin Weil was promoted from his then-current role of managing the revenue products, to overall product head of the company. In parallel, his engineering counterpart, Alex Roetter, was promoted to head engineering for the company. Once those two assumed their new positions, it took time to realign their organizations, get status updates on current projects, centralize efforts, and let go any dead weight.

With that foundation in place, they could work with Dick, Adam, Anthony, Katie, Nathan, and others including some board members like Ev and Jack, to re-prioritize the product roadmap to address the challenges facing the company. With new priorities in place, the improved products could be designed, framed, fleshed out, tested, launched internally, etc. But those steps take months and months. It is hard work, particularly for an org that is tackling so much at once on both the consumer and the revenue side of the house. As an outsider, it is now clear though that such work is paying off. They have been making substantial progress advancing the product, and their efforts are now being released to the public.

Now we see the right products hitting the market. The NBA Live timeline was a hit and a giant step forward in making Twitter accessible and indispensable for users new and old. Interactive ads and click-driven pre-populated Tweets are also obvious ways to drive higher engagement and both are now out there. We have also seen Twitter experimenting on Android with using hearts in place of stars. Most important is the news today that Twitter is on the verge of launching their Lightning product, a bold rethinking of the entire product.

User and Revenue Results as a Lagging Indicator.

Will all of these exciting launches impact the company’s results in Q2? Nope. That’s why I assume the company simply reaffirmed their guidance for the quarter. Results will likely be bleak and could, as some analysts have written, show a shrinking user base. That is already priced into the stock and reflected in the general apathy about owning it. The Twitter that users saw for most of the past three months suffered from the lack of improvement that has continually drawn the frustration of users and investors alike.

Will the new stuff impact results in Q3 and Q4? If the company is able to get all of this launched broadly soon, I have no doubt we will start to see the user count and the revenue picture improve. (*Personal opinion, I am not your stock broker, nor your doctor, lawyer, etc.) This is why I remain very bullish on the stock and hope that the company remains independent.

Telling the Story.

Alas, I continue to believe that Twitter’s primary challenge isn’t on the product side of the house as much as that might have been the case in years past. Frankly, there is no shortage of ideas at Twitter about how to improve Twitter. There is no lack of product vision at Twitter.

What has changed is that Kevin Weil and Alex Roetter have been given the reins and they excel at getting shit done. They and their teams appear to now have in place the ideas and the execution to power the future of Twitter. Again, this happened on Dick’s watch and that is why the company’s internal confidence in him as a board member remains high.

Instead, there is an absence of storytelling at Twitter. The issue is that we outside the company have had to do to much work to see and understand all of this. Twitter often still acts like a private company. As a startup in Silicon Valley, you learn to shake off external criticism and continue to work in secret on your new products knowing that you’ll eventually prove your doubters wrong. Yet, as a public company, particularly one with damaged credibility in the market, communication outside the company becomes more critical than ever.

Is this all fixable? Yes. I am optimistic that Twitter will double down on its efforts to reach out to investors and actively listen to their concerns. I was pleased to even see some PR on the Lightning launch today. It has been forever since Twitter promoted a product launch.

While I don’t think Wall Street should be steering the ship, their feedback is immensely valuable. Every time an analyst asks a question, Twitter executives should be asking themselves, “Which cell on her Excel spreadsheet does she have in mind and how can I help her empirically understand the promise of Twitter?” To date, Wall Street has considered Twitter management to be tone-deaf to their questions. So this can easily get better.

In turn, going forward, it will be vital for the Twitter team to pause and consider how their messages land on the ears of investors. They need to be able to put themselves in the shoes of outsiders and very carefully consider how their messages will be heard.

There is so much to be proud of at Twitter right now. All indications are that this company is headed in the right direction. Let’s see if they can get better showing us how all of their moves fit into a cohesive strategy and how Twitter’s best days are ahead. Thoughtful communications will unlock so much value at Twitter and in the price of the company’s stock.

My money says they will get it right.

This entry was posted in Uncategorized. Bookmark the permalink.