Can Jack Dorsey Lend Stability To The Volatile Twitter Stock?

  • Jack Dorsey, co-founder of Twitter, was named the new permanent CEO
  • Dorsey may be a good leader for the short-term, but risks a burnout having to manage two full-time positions.
  • Will the unprofitable operations and Volatile Twitter stock prove a bit too much for the co-founder?

Jack Dorsey, co-founder of Twitter (NYSE:TWTR), was recently named the Permanent CEO of the micro blogging platform.  He had been working as interim CEO since June 2014, the time of Dick Costolo's resignation. Costolo had been CEO for five years.

Investors cheered the news as Twitter stock closed at $28.15, up $1.84, nearly a 7% increase for the day.

Naming the founder of the company as CEO is often a good decision.  No one knows the company as well or has as much motivation to see the company succeed as the person or persons who started the company in the first place.  The odd thing here is, Dorsey is still CEO of another company he founded, Square, the mobile card payment company.

Being CEO of a company is more than a full-time job.  Having adequate time and energy to successfully lead two large companies seems too great a task -- especially when one of them needs to be turned around to profitability.  Even if he is able to manage both companies for a while, burnout appears to be the inevitable conclusion sooner or later.

Twitter clearly needs a change of direction, although some points about the company remain positive.

Revenue has been rapidly growing, coming in at $665 million for 2013, a 100%+ increase over $317 million for 2012.  Again in 2014, revenue climbed by 110% to $1.4 billion.

Profitability: A Thorn In Twitter's Flesh

In spite of this fast revenue growth, the profit outlook is dismal and getting worse.  Losses accelerated from $79 million in 2012 to a loss of $645 million in 2013 and $578 million in 2014.  The cost to maintain this rate of growth has been exorbitant.  Expenses engulf revenue and the company continues to hemorrhage cash.  The bottom line:  the company has never been profitable.

What I can't understand is, how can a company increase revenue that fast but have even greater losses?  Is Twitter trying to catch Facebook with heavy spending?  Is the company trying to use a spend now to buy market share for greater profits later strategy?  If that's what they are trying to do, it hasn't worked.  Twitter's user base is growing slowly. The percentage of adults who have tried Twitter and left remain high.

Since its IPO on Nov 7, 2013, Twitter stock has been on a volatile ride.  After climbing to $75/share a month after going public, Twitter stock fell to a low of $30 in 2014 before rallying back to $55 in October 2014.  Since then it fell to a recent low of $21, down 59% from just six months ago.  Shares rallied off the low to $26.31 before the announcement naming the new CEO.

TWTR stock chart

Source: Twitter stock price data by amigobulls.com

Jon Kostakopoulos of TheStreet.com wrote yesterday that Twitter is a "Sell", even with Dorsey as CEO.  I have to agree.  Twitter is a turnaround play.  Buying the stock of any company with big problems should be avoided until the company shows signs of lasting improvement.  Once that happens and the stock shows signs of life, then I will want to review Twitter.  Any online company with a huge user base has huge potential.  Until that happens, stay away from Twitter.

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  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
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  • I do not have any business relationship with the companies mentioned in this post.
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