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Twitter CEO changeover may not be the re-energizer Wall Street seeks

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Santosh Rao, head of research at Manhattan Venture Partners, discusses what it takes to keep Twitter current with advertisers and users.

Video transcript

- Roughly 25 minutes until the closing bell at the New York Stock Exchange. Let's check out where we're headed right now. The Dow is up roughly 300 points, recovering from the sell-off on Friday. S&P 500 up more than 1 and 1/2%, and the NASDAQ is up more than 2%. NASDAQ has gained 318 points.

Want to pull up Twitter right now. Twitter has had a bad year. It is off, year to date, over 14%. Today, it's still trading down despite the news that co-founder, Jack Dorsey, is going to step aside. He said-- let's pull up this quote. He said, "I've decided to leave Twitter because I believe the company is ready to move on from its founders. My trust in Parag as Twitter's CEO is deep. His work over the past 10 years has been transformational. I'm deeply grateful for his skill, heart, and soul. It's his time to lead."

And that, of course, was the announcement that Parag Agrawal is going to take over at Twitter. Let's bring in-- to talk about what this means for investors-- Santosh Rao, Manhattan Venture Partners head of research. It's good to see you, Santosh. What do you think?

SANTOSH RAO: Well, I'm not surprised. And this was pretty much-- we knew about it. The activist investors wanted him to focus more full time. They didn't want two part-time-- they didn't want part-time CEOs running two big multibillion dollar companies. So I think that was the whole issue. We knew what was going on.

And I think the chart tells you the whole story. The writing was on the wall. It's been an underperformer throughout, not really executing to its full potential. It got the benefit of doubt for so long. People said, you know, this is a great platform. It's used everywhere. Everyone loves it. But it just hasn't been able to monetize. And that was the whole issue.

So people-- I think the reason the stock is down today is because they thought maybe they need to change something. It's not working. Business as usual is not working. They needed someone-- I think the market expected someone from outside, not the continuity. Because what's going on has not been working. And that's the whole issue. We'll see how the new CEO changes things.

- I want to ask you about Parag Agrawal. But before we get there, what makes it a great platform if they can't monetize it? And there are so many social media platforms that seem to be way-- I mean, TikTok. If you're under 30, you're Tik-Toking, you're not really tweeting.

SANTOSH RAO: Yeah. The thing is, for real-time news, this is the best thing, especially for the media people, for the tech tech-savvy people. I think they use this. That's their lifeline to what's going on in the real world. So I think that's there.

It's not an easy platform for everyone. People come in. They just look at it. The engagement, the time spent on the platform is not much. They just look at the news and just move on or type something and move on.

But the others are more engaging. And that's the whole issue. It's not a very engaging platform. It's informative not engaging. And advertisers love engagement. And that's where they get paid. They get their ROI.

So I think that's the big issue. The engagement level is very low. And-- great platform. But it's just-- by itself, for some reason, it's not been able to get the maximum benefit for itself.

- And they lost their star tweeter when President Trump was banned from the platform. I mean, a lot of people-- that was a great juggernaut of, oh my gosh, you've got to go check out on Twitter, right?

SANTOSH RAO: Yeah, I mean, he was the best advertisement for the company. In 2016, the company lost money when [? the end of ?] the presidential election was going on. He was the biggest Twitter user and pulled so many people into the system, into the platform. They still could not make money. I think something was wrong right there.

I mean, he's been trying different things. They're trying different avenues. They're trying the subscription model. They need to do a lot more, increase the engagement level. They've decided to maintain continuity. Let's see if the CEO can do something different. We thought they'll get some fresh blood out of here and kind of bring some new energy into the whole company.

- This individual, Mr. Agrawal, Chief Technology Officer, joined them in 2017. Why go with the chief technology officer? I get it. I get technology is very important. But does that individual know how to monetize this?

SANTOSH RAO: That's the thing. That's where the market has some doubts about it. And that's why the stock is selling off. CTOs are important. We saw that with every other company-- Microsoft, IBM, and all that. I mean, they are the backbone of these technology companies. In the end, technology is what driving this platform.

So I think they are good, but are they creative enough? That's the thing. I mean, the founders can bring you only up to so much. They have the vision. They bring you up there. Then the CTOs have to take over and really build on that, [? like ?] [INAUDIBLE] did at Microsoft.

So I think-- we don't know if he can do it. I'm sure Jack Dorsey sees something in him. But he'll get some time, maybe a few quarters, to perform. If not, I'm sure there'll be some changes. And the activist investors are pretty impatient. The shareholders are impatient. So these this company has not returned any good percentage to its owners. It's been a bad performer.

So I think they have a very short time to really prove themselves at this point. And let's see-- he needs to make drastic changes. Like they say, he needs to hit the ground running from day one.

- So, from your vantage point, how long would you give him? One year? Two years tops?

- Yeah. They've reiterated their guidance. They think that they can continue delivering. But I think they'll give him like maybe two or three quarters at least just to see if-- just to hear him out.

And that's another thing, the street does not know him. He was not the face of the company. It was really the CEO and the CFO that were the face of the company. So not much is known about him. He's been a behind-the-scenes person.

So let's see how he performs. Let's see if the investors are comfortable with him, if the market is comfortable with him. So we'll have to wait and see. So he'll get two or three quarters for sure to really show that he has the potential to change the company.

- We appreciate your insight. Santosh Rao is Manhattan Venture Partners Head of Research. Have a wonderful day.

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