Jack Dorsey Gets a Stay of Execution

It feels like a lifetime ago, but on Monday, private equity firm Silver Lake announced a $1 billion investment in Twitter, and Twitter agreed to 3 new board seats. I posted a series of tweets as a response to the announcement, included below. In sum: I think analysts and the media are getting this wrong.

This is a great day for Twitter shareholders and the commonwealth. “Twitter, Inc. Announces Partnership With Silver Lake and Elliott Management.” Ok, let’s break down this announcement from Twitter.

Sycophants and stenographers (CNBC) gathered at 10 Downing to report that Prime Minister Dorsey has secured “Peace for Our Time.” Striking how badly the media have misread what happened here. This “partnership” means total and near-unconditional surrender by Twitter. I challenge anybody to find an activist campaign levied against a $10B+ company that has resulted in 3 board seats in 5 business days.

What does this mean and what happened?

Jack/board cancelling trip to Africa because of corona and “everything happening in the world.” Heavy lift for “everything happening” (part-time CEO, no self-awareness, negligent board, poor returns, etc.). Part-time CEO in Namibia, half as bad as half-CEO at HQ. You. Can’t. Make. This. Sh*t. Up.

Twitter’s board called their largest shareholders, asked for their support (We’re making progress, Jack is a great guy), and shareholders unequivocally responded, We’re with the guys in the white hats (Elliott/Silver Lake). Elliott’s dialogue with shareholders was a series of head nods — violent agreement. Not a dialogue but IQ test (part-time CEO, weak returns). By midweek, this was no longer a battle (Twitter’s board and Jack had lost), but an attempt to achieve “peace with honor.”

From Twitter’s press release: “To continue to ensure strong governance, we are pleased to create a temporary board committee that will build on our regular evaluation of Twitter’s leadership structure.”

Yeah, right.

The board must now either convince Elliott and Silver Lake that Jack is Jesus Christ (not subject to the time-space continuum like every other CEO) or hire a recruiter in the next 180 days. This agreement gives now-neutered Lead Director Patrick Pichette and Chair Omid Kordestani the opportunity to roll off the board in the next 12 months, and have Jack’s resignation be his own idea.

Imagine the Twitter board now, 3 new directors who secured seats — in record time — as a function of one claim: The CEO needs to be replaced. #awkward. I trust they’ll have board meetings in the morning, when Jack is at Twitter vs. Square.

So Jack is given a stay of execution, but he is walking the green mile as CEO. A brilliant entrepreneur and product guy, maybe chairman? Pichette and Kordestani should be assigned Trump family status, and not be allowed to serve on boards. See above: negligent.

Remember this letter, sent 12/9? I never heard back — the bad news. The good news: Elliott/Silver Lake signed it, two weeks ago, with a $3 billion pen.

A floor has been set on Twitter stock, as Silver Lake will make a bid to take the firm private if the price declines. Silver Lake does not buy shares in tech firms — it takes them private. This was the first step toward that end.

The coronavirus/oil plunge will be to Twitter what the First Gulf War was to CNN, a game changer. A new chapter for Twitter — on a path to commanding the space it occupies. Any platform with the reach, influence, and addictive attributes of Twitter trades at 10–25x the valuation.

In December I purchased shares at $30 and sold them 3 weeks ago at $39. When I saw Elliott’s letter, I bought back in. The focus can now be product innovation: verification based on citizenship on the platform, elimination of bots, a higher bar for reportable tweets, consistent/enforced TOS, and paid niche products.

Predictions: Twitter hits $40+ by EOW (3/13/2020), and all-time high by EOY. I have 40 stocks on my Stocks app, only one is green today, markets love this. This is a great day for Twitter shareholders and the commonwealth.

So my prediction didn’t age well … much like its author. Granted, it’s been the worst markets week since 1987.

As an academic I like to think my students learn skills that help them provide economic security for themselves and their families. I’d also like to believe that academics serve an important role provoking, challenging the status quo, and catalyzing a conversation that shapes better ideas, actions, and solutions. If this sounds like a hella excuse for how wrong I get things, and how often, trust your instincts.

Counterpoint from Richard Kramer of Arete Research

Sorry, Scott, but Elliott and Silver Lake involvement changes ... nothing. Elliott’s “activism” mostly agitates for cash returns. It has no experience in fixing businesses (see EBAY, NLSN, SAP, AT&T, etc). This should surprise no one: investing is a very different skill from operational management of tech firms. There is no bench of C-level execs at Twitter, and the cult of personality around Jack ensures huge disruption if he gets fired. Each incremental user is less and less valuable, maybe because many of them are actually bots, not humans. Twitter lacks the ad formats and data on its (often anonymous) users that advertisers most want to see.

Twitter has zero interest in a healthy conversation; you do not notice two people chatting amiably. You take note when they scream at each other. It is exactly the kind of bot-ridden, weaponized spreader of disinformation and vitriolic abuse you see in Facebook. Brand advertisers don’t want to touch “Toxic Twitter.” It’s hard to insert ads into the natural disaster news Twitter thrives on. It “apologized” three times last year for taking user data it collected for “security reasons” and using it for ad targeting. When it stopped, sales growth plunged. The nail in the 2020 coffin will be cancellations of big events (NBA, Olympics) around which Twitter gets audience, but a tiny share of “time spent.”

Coronavirus

A health emergency on this scale is proving to be a physical and psychological burden we weren’t prepared for, both personally and as organizations. I’m mindful this week of restaurants, small businesses, gig workers that will be particularly hit.

I’m also feeling the collective stress about the elderly. The oldest members of our family are the light of the life of my 9- and 12-year-old sons — Babcia and Dziadzio (Polish for “Grandma and Grandpa”). Btw: helpful info on what to do if you have symptoms.

As a rabbi said this week, “Every hand that we don’t shake must become a phone call that we place. Every embrace that we avoid must become a verbal expression of warmth and concern.”

Life is so rich,

Scott

P.S. My weekly pod premieres Thursday, 3/19. I’ll be interviewing smart people and taking your questions about business and life. Hope to have some good conversations. Subscribe on Spotify, Apple, or anywhere else you get your podcasts.