Twitter Up 7% Following Elliot Management Appointing New Directors in Potential Threat to Jack Dorsey

Mar 2, 2020 10:31 EST
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Following the week's close on Friday, and in the aftermath of the bloodbath wreaked by the coronavirus on stock markets, reports surfaced that Twitter (NYSE:TWTR) and Square Inc C.E.O. Jack Dorsey was facing threats to his role from activist investor Elliot Management. Mr. Dorsey, who heads to companies has also announced plans to spend a big chunk of his time each year outside the United States - a move that will not only complicate his day-to-day responsibilities as the head of two companies but also sow worry among investors.

Elliot, it seems, is eager to resolve these concerns as soon as it can. The firm has acquired a $1 billion stake in Twitter reports The Wall Street Journal. Additionally, the investment firm has also nominated four directors to Twitter's board, and following this flurry of activity, shares of Twitter Inc have opened 8% higher today as markets hope to recover from Friday's drops.

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Twitter Opens 8% Higher Following Reports Of Elliot Management Buying $1 Billion Stake In Company & Nominating Board Members

Despite the fact that the term 'Tweet' has become ubiquitous in social media usage, Twitter's financial performance is not quite as impressive. Despite breaking past the $1 billion revenue barrier for the first time in its history in its latest quarter, the company nevertheless reported year-over-year net income and earnings per share drops in its fourth fiscal quarter last month. This performance came after Twitter missed Wall Street's revenue and earnings estimates in its third-quarter due to advertisement expenditures.

As per the details of today's report, not only has Elliot Management bought a $1 billion stake in Twitter but it has also nominated four directors to the company's board. The move will give Elliot more bargaining power in its dealings with Twitter, which for now are focused around working together with the company's management instead of making further changes reports the Journal.

Ever since Twitter's current C.E.O. Dorsey returned to the company, the social media network has found it difficult to sail smoothly. Despite having a much simpler platform, Twitter has lost out in the subscriber race to Facebook and the company continues to battle cost and privacy effective measures to generate revenue despite having been in the business for more than ten years.

Twitter's share price is showing positive movement following Elliot Management's entry in stock; Koyfin

At its latest earnings report, the social networking company highlighted how it expects costs to increase throughout the upcoming fiscal year. The company's costs increased by 22% in its fourth-quarter as it recovered from problems in its advertising software reported in the previous quarter. The problems made it difficult for Twitter to accurately match users and advertisers on its platforms, and subsequently, advertisers cut their spending on the platform at a time when Twitter was looking to compete with larger rivals Facebook Inc and Alphabet Inc.

Following the report, Twitter lost one-fifth of its value on the stock market, and the company has not regained all of it since then. Elliot Management's latest moves do seem to injected fresh optimism in the company's future, as the stock rallies today. Naturally, since reports of a shake-up in Twitter's board are still fresh, we'd advise you to be patient before expecting more major news.

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As the Journal reports, Elliot Management's first objective seems to be working with the company's existing management. Still, electing four members on Twitter's board sends a clear and strong signal for the investor's backup plans in case the current approach fails to work. For its part, Twitter has already admitted that fixes to the aforementioned advertisement software and workforce increases will cause operating costs to rise this year.

Whether the company's current strategy will sit well with Elliot is uncertain. The firm is popular in Wall Street for making the right changes to the company's procedures but whether this will also pan out for the social network, only time will tell.

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