MorningWord 8/20/15: $TWTR – It’s just Bird to me

by Dan August 20, 2015 9:26 am • Commentary

Yesterday I listened to Re/Code’s Kara Swisher interview with Twitter’s (TWTR) general counsel Vijaya Gadde (listen here).   My first takeaway was that she sounds like a serious operator, and that’s fairly reassuring as most shareholders (including myself) remain scarred by the CNBC interview of former CEO Dick Costolo & Interim CEO & founder Jack Dorsey from early June. To put it mildly, it was a shitshow, and the stock is still reeling.

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The conversation between Swisher & Gadde focused mostly on privacy issues and abuse on the platform, but offered no shortage of examples of the power of the platform and the service.  Regular readers know my strong belief that despite monthly active user growth having all but ground to a halt, Twitter is an amazingly unique social media platform with a service that has yet to be understood by the masses, as they remain preoccupied swapping back and forth between their Facebook newsfeed, FB messenger, WhatsApp, Instagram & SnapChat. That all seems like a lot of work, and frankly I am a casual Intsagram user, but I think the App really sucks, and an occasional WhatsApp user but wonder why I would use that when 95% of the people I communicate with over text have iMessage on iOS.  Its my sense that Twitter has merely scratched the surface with their addressable audience, and as venture capitalist Roger McNamee stated on Friday’s Fast Money, Twitter’s management is “one good night sleep about figuring this all out” and sees it as a “huge latent value”:

Twitter has always had the potential to be all of the above listed apps, a preeminent social network, a fire-hose for information and a dominant short messaging platform.  It has yet to do so, but it can within a larger media or tech platform.

Another takeaway from the Gadde interview is the obvious challenges of operating a service like Twitter in a repressive country like China, which Twitter has not attempted, but where the future growth on the internet lies. Swisher was quick to highlight the compromises that need to be made to do so, which LinkedIn has done, and have the potential to compromise a company’s ethics.  But my quick take is that Twitter should be looking at the prominent short messaging / micro-blogging service in China, Weibo (WB) which has 212 million monthly active users, which in the quarter just reported grew 36% year over year.  In TWTR’s Q2 just reported the company announced monthly active users of 304 million, up only 2 million sequentially and 19% year over year.  The stock is trading at the lows largely because of this lack of user growth. One quick fix would be to acquire Weibo, assuming Chinese regulators would allow it, operate as is, comply with existing regulations, and figure out how to backdoor into China, but at least have a beachhead.

WB has a market cap of $2.8 billion, less than TWTR’s cash balance of $3.5 billion ($2 billion net of debt).  Would this be a good use of TWTR’s cash? I think so. And it would likely have to be a cash and stock deal. But with sentiment so bad on the company’s prospects, this would be a very bold move with an eye towards the future, and frankly the future of the internet, because it lies in China!  How could they do this without a permanent CEO you ask? They can’t.  So this is pie in the sky sort of stuff, but maybe a deal looks more like an equity investment (with an eye towards a partnership) reminiscent of Yahoo’s investment in Alibaba back in 2005 (which for all intents and purposes was orchestrated by Jerry Yang founder and then Board member of Yahoo, but not CEO). Clearly there are lots of hurdles to such a deal, but could make a lot of sense, under the right leadership with a long term view.

Lastly, things are getting a tad unhinged in my opinion on the spread between private market values of tech companies like Snapchat and that of the public equity of Twitter, something has to give here:

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Disclosure: I remain long, but not so strong – TWTR