Jack Dorsey has rarely been a stranger to controversy.
The concurrent chief executive of Twitter Inc. (TWTR) and Square Inc. (SQ) has been mercilessly criticized for allowing President Donald Trump to abuse Twitter’s platform daily while other conservatives claim they are censored. Dorsey has raised alarms among shareholders of both companies with his intention to spend up to half the year in South Africa. And his quirky behavior — once tolerated in Silicon Valley and on Wall Street — is increasingly being frowned upon.
It comes as little surprise then that activist investor Elliott Management Corp., which has built up a $1 billion stake in the social-media company, wants Dorsey out as head of Twitter, and has nominated four directors to Twitter’s board, according to a Bloomberg report Friday night. The hedge fund declined to say anything more on Monday.
When reached by email, Twitter declined to comment.
But investors spoke loudly about what they thought, pushing Twitter shares up 8.5% in trading Monday. “We think this could continue as details (and Elliott’s letter to the board) become available,” AB Bernstein analyst Mark Shmulik said in a note Monday.
“Twitter is a great product, but we see a disconnect between the current valuation and fundamentals,” wrote Shmulik, who rates Twitter shares as Underperform with a price target of $32 a share. “We welcome Elliott’s position as a catalyst to improving execution, even if the activist push is unsuccessful.”
Daniel Newman, principal analyst at Futurum Research, was more direct with a phone interview. “Twitter is an echo chamber” that doesn’t reach a wide audience beyond the tech community and celebrities, he told MarketWatch.
Elliott’s beef with Twitter and Dorsey is manifold: Its innovation has lagged behind rivals Snap Inc. (SNAP) and Facebook Inc.’s (FB) Instagram in developing filters and stories popular with their users; its relatively lethargic stock performance as compared to its social-media competitors; and Dorsey’s dwindling time commitment to Twitter, given his dueling role at Square and his goal of spending several months in South Africa this year.
But what makes Dorsey most susceptible is that Twitter only has one class of stock, which means he doesn’t have voting control of the company like fellow co-founders Mark Zuckerberg of Facebook or Evan Spiegel of Snap. Elliott reportedly upped its stake in Twitter to 4%.
Dorsey also faces a hedge fund that isn’t shy about imposing change at the tech companies it invests in. After it gobbled up shares of eBay Inc. (EBAY) and made a series of demands, eBay CEO Devin Wenig resigned in September and eBay sold its StubHub ticketing business for $4.05 billion to Viagogo. It now plans to sell its classified ads business. (Elliott advocated the sale of both divisions.)
Elliott has also flexed its shareholder muscle on AT&T Inc. (T) and Marathon Petroleum Corp. (MPC)
Despite criticisms of Dorsey, whose reign as Twitter CEO since July 2015 has been plagued by a flat stock performance, he maintains some vocal defenders. They point to Twitter’s growth — its monetizable daily active users grew 21% in the fourth quarter, compared to 17% for Snap and 8% for Facebook — and its ability to monetize its members. The San Francisco-based company cracked $1 billion in quarterly revenue for the first time this holiday season, though a dip in advertising ate into profits.
“We’re not sure in what areas Elliot Management believes TWTR could be improved by a new CEO,” Evercore ISI analyst Kevin Rippey wrote Monday, in which he raised the company’s price target to $33 from $29.
“We do not believe that a replacement for Mr. Dorsey would better position the company to address the structural issues that challenge sustained growth,” Rippey said.