Twitter Inc (TWTR): What’s Next For The Stock In 2014

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July 2, 2014 11:28am NASDAQ:SOCL


Tara Clarke: Twitter Inc stock (NYSE:TWTR) was up more than 4.5% on Tuesday morning after the microblogging company announced it appointed former Goldman Sachs (NYSE: GS) banker Anthony Noto as chief financial officer.

The news comes less than three weeks afterTwitter’s June 12 management shake-up, when Chief Operating Officer Ali Rowghani resigned his position and shifted into a strategic advisor role.

The day Rowghani resigned, Twitter stock shot up 3.52%.

With Twitter stock down more than 32% year to date, the appointment of Noto and the continued trend of a management shake-up is a clear signal that the company is trying to right the ship.

Here’s why Noto’s appointment will help Twitter – and its stock – regain footing.

TWTR’s Bullish Management Makeover

Noto was managing director in the technology, media, and telecom investment banking division of Goldman Sachs. He’s responsible for leading TWTR’s IPO, and also helped to secure the Yelp (NYSE: YELP) IPO in 2012.

“He definitely understands Wall Street, how investors value the company, what investors are focused on,” CRT Capital Group LLC analyst Neil Doshi said to Bloomberg. “Twitter has done a fantastic job in posting very good financial results, but they missed the mark on how important investors view the user growth at Twitter.”

Doshi is referring to Twitter’s troubling Q1 2014 earnings report on April 29. It revealed that monthly active users (MAUs) – the lifeblood of Twitter – were lackluster, with only a 6% gain since last quarter. And the previous quarter saw only a 3% growth in MAUs. The report also showed that TWTR’s net loss grew by more than $100 million. Twitter stock fell more than 8% that day.

“Hopefully Mr. Noto will be able to help craft a better message for investors, how Twitter plans to grow and build from its current user base,” Doshi said. He rates Twitter the equivalent of a “Hold.”

Noto’s background looks like a promising fit for Twitter on paper.

Prior to joining Goldman in 1999, Noto served as CFO of the National Football League for almost three years.

“Noto’s experience as CFO at the NFL will help Twitter gain more ground in television and advertising,” Hudson Square analyst Daniel Ernst said to Reuters.

And Bloomberg notes that he’s one of the only investment bankers with an active Twitter account.

“I think he just brings a different skill set. A set that really has a very high-level view of the competitive landscape; he understands very well what the investment community is looking for given his previous role,” Macquarie Research analyst Ben Schachter said to Reuters.

And so far, the investment community appears happy with the news.

“The market is clearly looking for new direction at the top of the company. Twitter has had quite a bit of turnover in the executive ranks in the last several months, including the head of engineering and its product chief. So, the CEO is clearing house at the top,” Money Morning Defense & Tech Specialist Michael A. Robinson said after Rowghani’s resignation was announced.

Noto replaces Mike Gupta, who will shift into the senior vice president of strategic investments role, effective within the next 30 days.

“I could not be more excited about joining the @Twitter team & helping them reach every person in the world,” Noto wrote on his Twitter account shortly after the appointment, which was disclosed in a filing today.

Former COO Rowghani’s departure came after he lost favor among Twitter staff by selling 300,000 shares of Twitter stock for $9.9 million on May 6 – the day TWTR’s six-month lock-up period expired following its Nov. 8 initial public offering (IPO). Re/code reported that Rowghani’s sale caused severe internal tension. The sale went against other Twitter insiders’ vow not to sell as a signal of confidence about the company’s future.

Twitter said the COO spot would remain vacant.

What’s Next for Twitter Stock in 2014

While the management changes are smart moves for Twitter, it still needs to focus on how it’s going to make money.

“Twitter has made steady gains in sales and still needs to translate that into higher earnings per share and also show its mobile ad strategy is a viable alternative to Facebook’s,” Robinson said. “Ironically, all these changes make the company come across as a restart just eight months after going public.”

Although the restructuring was decisive and reactive, this fledgling company – and its stock – must turn around user growth and revenue to be a more attractive investment.

Money MorningWritten By Tara Clarke From Money Morning

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