Dorsey Unleashes the Ugly Truth — Twitter Stock

To generate long-term earnings growth and satisfy investors, Twitter needs to broaden its portfolio and create an ecosystem of products similar to that of Google GOOGLE INC.

So far, 73% of companies that have reported earnings have topped expectations, topping the long-term “beat” average of 63%. Analysts had been expecting that Twitter report earnings of 4 cents a share and revenue of $481 million. Mobile accounted for 88 percent of advertising revenue. Analysts had predicted $3.99 billion in revenue with 47 cents EPS.

In May, we again cautioned that despite small rallies, stocks of public companies that disappoint Wall Street, as Twitter did in late April, usually drift lower for many months afterward and, sometimes, for many quarters. Core MAUs rose only 2 million to 304 million.

But Twitter can’t just be the best window to the world.

On a conference call, executives quashed any initial optimism generated by the report by confronting Twitter’s underlying problem: It’s much smaller than the competition.

Lastly, remember that this is all coming from Interim CEO Jack Dorsey. These comments were largely why shares quickly turned around and went the other way; shares were down 13% by the time after hours trading was done.

“It might have dropped 20 per cent if he hadn’t taken ownership”, Larcker says.

Of course, Twitter’s CEO, while refreshingly (albeit painfully) honest, failed to convince investors that there is actual value to be unlocked in TWTR.

He added that even though 95% of people in Twitter’s most important global markets are aware of Twitter, less than 30% of them actually use Twitter. “If you don’t follow all four of them, you missed that”. I’ve always felt that way about Twitter. We are advancing this marketing communications work as fast as possible and ensuring it’s coordinated with the simplification of our service. Two, we need to simplify our service to deliver Twitter’s value faster. Twitter has been hovering above 300 million users for a while now and the people who use it, use it frequently.

Anthony Noto, Twitter’s chief financial officer, said during Tuesday’s call with analysts that the company does not expect any meaningful growth in the near term.

Twitter’s still growing, but its rate of growth is dismal.

The first step is admitting you’ve got a problemThere’s good news and bad news here.

Dorsey spoke at length about a simpler Twitter that is easier for new users to pick up and enjoy.

“They made those remarks  with full disclosure in mind”, said Ken Sena, Evercore ISI analyst.

Specifically, what if Twitter never becomes mainstream?

Twitter investors must be spitting feathers. For reference, Facebook (whose Q2 call is today) grew by 53 million MAU from Q4 to Q1. Elon Musk, the Canadian-American business magnate who founded Tesla and Space X, was brutally frank last year when he said “I think our stock price is kind of high right now, to be totally honest”.

Twitter bosses have admitted the service could be too hard to use and have said they are considering radical changes to its fundamental workings, after revealing disappointing growth in new users that was branded “unacceptable”.