Get the latest tech news How to check Is Temu legit? How to delete trackers
TECH
NBA Finals

Wall Street hunts for clues to Twitter's future

Jessica Guynn
USA TODAY

SAN FRANCISCO — When Twitter reports second-quarter financial results after the close of trading on Tuesday, investors will be looking beyond the company's current performance to Twitter's future and who will lead it.

n this Monday, Nov. 4, 2013, file photo, a phone post on the floor of the New York Stock Exchange features a Twitter logo, in New York.

Twitter Chairman and co-founder Jack Dorsey has been juggling the top jobs at Twitter and mobile payments company Square since July 1 when he replaced outgoing Chief Executive Dick Costolo on an interim basis. Twitter's board of directors is conducting a search for a permanent replacement for Costolo.

Dorsey has been named as a possible candidate but has said he would not leave Square.  What’s not known is whether his leadership of Square, on the cusp of becoming a more visible company, will take him out of the running.

In June, Twitter’s board issued a statement saying it would consider only candidates who could make a full-time commitment to Twitter. Word leaked last week that Square has confidentially filed for an initial public offering that could take place as early as this year. Dorsey is a co-founder and CEO of Square and owns about 25% of it.

Analysts will probably ask for an update on the CEO search — and whether Dorsey is a candidate — during the earnings call on Tuesday. Dorsey has not officially taken himself out of consideration. Adam Bain, Twitter's head of global revenue and partnerships, is a frontrunner for the CEO job.

"The (second quarter) call marks the debut of Jack Dorsey as the interim CEO. We have a great deal of respect for Mr. Dorsey, but do not believe he will be the permanent CEO for 3 reasons: 1) he owns 25% of Square, which just filed IPO documents; 2) Twitter has stated the new CEO must be full time; and 3) he can still guide Twitter product direction as chairman. Our top guess for CEO remains Adam Bain," SunTrust Robinson Humphrey analyst Robert Peck said in a research note.

Of one thing there is little doubt: Anyone taking the top job at Twitter will face some major challenges.

Costolo announced his resignation in June not long after Twitter delivered its weakest quarterly revenue growth since it became a publicly traded company. The quarter fell short of Wall Street projections and Twitter's own. Twitter blamed the revenue shortfall on a new type of ad that it was testing called direct response ads. The shortfall came as a surprise: Twitter's advertising business has always been a bright spot.

Making matters worse: The company lowered its forecast for the second quarter and first-quarter results were accidentally leaked about an hour early, causing the stock to plunge. It has yet to recover. It closed down 2% to $34.70 on Monday and has lost about 3% for the year.

"We are where we are," Peck said in an interview. "Investors want to the know: What's the strategy? What's the vision from here to get us on the path to where we should be? This is not about the second quarter or even about third-quarter guidance, this is more about: What's the path, the strategy and the vision to get there."

Expectations for the second quarter are pretty low. Wall Street is looking for adjusted earnings of 4 cents a share on revenues of $481.1 million, according to Thomson Reuters. (Twitter has yet to turn a profit as it heavily invests in data centers, staff and offices.) A year ago the company reported adjusted earnings of 2 cents a share on revenue of $312.17 million.

Shares of Twitter (TWTR) have fallen 33% in the past three months, flirting with all-time lows. Weighing heaviest on the stock: sluggish user growth. Twitter had 302 million monthly active users in the first quarter, about one fifth the size of Facebook with nearly 1.5 billion users.

Sanford Bernstein analyst Carlos Kirjner estimates that Twitter had 306 million monthly active users at the end of the second quarter, an increase of four million. Cantor Fitzgerald’s Youssef Squali estimates that Twitter added five million new users. SunTrust’s Robert Peck doesn't think Twitter added any.

Twitter is making a series of attempts to accelerate user growth and encourage more engagement and retention. It's working to make the service less confusing and complex and more fun and engaging for new users with new features such as an instant timeline that guides them to relevant content based on their interests. The company is planning to roll out a new feature code-named Lightning that will place a new tab in the Twitter app to help users follow tweets and videos from major events such as the Oscars or the NBA Finals.

"There is increasing investor focus on whether the ongoing investments in product and feature improvements will lead to some type of reacceleration in (monthly active user) growth. Any indications of traction there, even if not yet reflected in the quarter's performance would be of interest," Kirjner said in a research report.

Featured Weekly Ad