Musk's quick Twitter deal underscores weaknesses
Influential analyst tells shareholders of platform to `take the money ... and run'
To understand the speed with which Twitter's board accepted Elon Musk's Us$44-billion buyout offer, look no further than the dim view Wall Street holds over Twitter's ability to reach lofty financial goals announced after demands by activist investor Elliott Management in 2020.
When Twitter reports quarterly financial results on Thursday, analysts expect user growth to lag behind what they need to reach aggressive 2023 growth targets that Jack Dorsey, the co-founder and then-chief executive of Twitter, promised Wall Street. According to data from Refinitiv, Twitter is expected to miss this target and remain off track for the remainder of the year.
Two weeks ahead of the deal announcement, Michael Nathanson, an influential tech and media analyst at Moffettnathanson, advised shareholders to “take the money ... and run.”
Twitter's board reached the same conclusion. Directors lacked confidence in new CEO Parag Agrawal's ability to deliver a higher return than what Musk offered, clearing the way for the decision to sell just four days after the Tesla CEO detailed his financing, according to sources familiar with the board's deliberations.
Handing off the CEO role to an untested leader, Agrawal, five months ago created additional risks for Twitter, said Ryan Jacob, chief investment officer at Jacob Asset Management, which holds US$7.7 million worth of shares in Twitter.
“They have aggressive targets out there, and there's a lot of skepticism they can hit those numbers,” Jacob said. “The CEO doesn't have a record.”
Twitter shares fell 2.1 per cent on Wednesday at US$48.64, below the US$54.20 a share offer price.
Eight current and former Twitter staffers, including both executives and employees, described to Reuters long-standing issues of internal dysfunction, indecision and a lack of accountability, which, in the view of one current employee, were exacerbated by the pressure to deliver promised results.
After the deal to be taken private was announced on Monday, Dorsey thanked Musk and Agrawal in a tweet thread for “getting the company out of an impossible situation,” that he blamed on being “owned by Wall Street and the ad model.”
Twitter declined to comment. Tesla and Musk did not immediately respond to requests for comment.
Employees are bracing again for more change under Musk.
Current and former employees told Reuters that Twitter's history of executive shakeups since its founding in 2006 has made it difficult for the company to commit to long-term plans, often leaving projects dangling just as they start to bear fruit. Its last major reorganization was in December under the new CEO.
Take the push into live sports, entertainment and news in 2016 aimed at capitalizing on Twitter's strength as a real-time platform. Twitter had signed high-profile deals with partners like the NFL to stream games and promoted the feature widely.
A 2018 reorganization divided Twitter under 10 leaders overseeing aspects of the business like technology, product and revenue, which spread responsibility for projects like the live video push, a former executive and current employee told Reuters.
Without a clear owner in the increasingly competitive space, and with hearings in Washington, D.C., new privacy rules in Europe and financial pressures vying for executives' attention, live video languished, they said.
Lack of coordination at the top meant senior executives frequently pursued their own agendas without working together, four sources said.
The problem was particularly acute among executives responsible for product, engineering, technology and revenue, known internally as the “experience” team, the sources said. Following Elliott's arrival, pressure to hit the 2023 growth targets exacerbated those issues, one current employee said, likening the environment to a “pressure test.”
Fleets, Twitter's short-lived Snapchat copycat product, was one example. Launched in late 2020, and championed by Agrawal and product director Kayvon Beykpour, the feature was mocked by Twitter users as a late attempt to jump on the disappearing messages bandwagon.
The company assigned hundreds of engineers to work on building Fleets, but Agrawal and Beykpour failed to collaborate with counterparts responsible for revenue, and launched the feature without plans for incorporating ad space, said two people familiar with the project.
“It was a real mess, to be honest,” said one former executive. “It was the typical `hey, just push it out there, we'll alter it later.'”
Twitter shelved Fleets eight months after its launch and only a month after introducing a limited ad rollout for the feature.
Product and revenue mismatches may have been less frequent had Dorsey held those teams to account, but the chief executive embraced a management philosophy that led him to shy away from making specific decisions, four former Twitter executives told Reuters.
One of these former executives said Dorsey's approach was inspired by Disney's former CEO, Bob Iger, who was known for hiring strong executives and encouraging them to take risks.
“One of the critiques around Jack is that sometimes he takes a long time to make decisions, he was reluctant to insert himself in decision-making,” said the former executive. “Jack views himself getting involved in a tie-breaking as a failure of leadership, because it means the management team hasn't solved it themselves.”
Some thrived under this autonomy, particularly developers who were motivated to invent new things. But others said it left the company adrift.
“Everyone agrees that we need better accountability for decision-making at the management levels,” a current employee said.
On Monday, hours after the buyout announcement, employees at a companywide meeting complained about Musk's “questionable ethics” and wondered what would happen to Twitter's work limiting hate speech on its platform.
In response to a question about whether Donald Trump, the former U.S. president banned permanently from Twitter for risk of inciting violence, would return, executives admitted they were in the dark on the company's future.