Twitter Inc (TWTR): Will The Management Shake-Up Move The Stock

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June 13, 2014 12:39pm NASDAQ:SOCL

twitterTara Clarke: Twitter Inc. stock (NYSE:TWTR) surged more than 4% Thursday morning on news of Chief Operating Officer Ali Rowghani’s resignation.


Rowghani will shift into a strategic advisor role, and Twitter confirmed the COO spot will remain vacant.

One major factor likely behind the management shake-up is the microblogging site’s sputtering user growth. A troubling Q1 2014 earnings report on April 29 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.

“The fact that the stock got beaten down [after Q1 earnings release] is not surprising because I think the run-up based on any metric was out of whack,” Columbia Business School assistant professor of finance and economics Moshe Cohen said to Slate. “Twitter is a very interesting company, the space is very interesting, but there’s still a significant uncertainty and risk as to how to monetize the platform.”

In an appearance on FOX Business’ “Varney & Co.” on Dec. 30, when TWTR was trading for more than $60 a share, Money Morning Chief Investment Strategist Keith Fitz-Gerald predicted Twitter stock was in for a rough ride.

“Customers are leaving in droves, you’ve got a complex thing they can’t monetize, and the next best thing is a click away,” Fitz-Gerald said.

Besides a push to improve its numbers, the other reason for the management shake-up is likely Rowghani’s loss of favor among Twitter staff.

On May 6, TWTR’s six-month lock-up period expired, allowing insiders to sell stock following the company’s Nov. 8, 2013, initial public offering (IPO). Re/code reported that Rowghani’s sale of 300,000 shares of Twitter stock for $9.9 million in profits that day created severe internal tension – it went against other Twitter insiders’ vow not to sell as a signal of confidence about the company’s future.

With Twitter stock down more than 42% year to date, the management shake-up is a clear signal that the company is trying to right the ship by sloughing off internal strife and improving user growth and revenue numbers.

Money Morning’s tech expert weighed in on Twitter’s future – and made a spot-on observation about the market perception of the company right now…

“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 this morning in reaction to the news.

What remains to be seen is whether the move will help Twitter stock.

“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 seven months after going public.”

Although the restructuring was decisive and reactive, this fledgling company – and its stock – must turn around user growth and revenue before it gains our confidence.

Money MorningWritten By Tara Clarke From Money Morning

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