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Activist Investor Targets Twitter

By Danny Vena - Mar 3, 2020 at 7:29AM

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After hitting a home run with eBay, this hedge fund now has another well-known tech company in its sights.

Activist investor Elliott Management has reportedly taken a sizable stake in Twitter (TWTR 2.25%) and is planning to agitate for change, according to a report first broken by Bloomberg. The hedge fund is said to have accumulated stock worth $1 billion, or about a 4% position in the beleaguered social media site. 

Twitter has been the target of activist investors for some time, the result of stagnant growth. Since high-profile CEO Jack Dorsey rejoined the company in July 2015, the company's stock is essentially flat, lagging far behind the S&P 500, which gained 49%.  To put that into perspective, rival social media giant Facebook (META -0.76%) has gained nearly 125% over the same period.

The activist hedge fund has big plans on how to shake up the social media company.

A woman tapping on a mobile phone

Image source: Getty Images.

A multi-pronged approach

Elliott is planning to nominate four directors to Twitter's board -- which will have just three seats opening up at its coming annual meeting -- and is calling for the ouster of Dorsey, who also serves as CEO of fintech specialist Square (SQ 3.97%). The fact that Dorsey divides his attention between the two companies has long been source of consternation for some investors, who feel the struggling company might fare better if Twitter had his full attention. 

They might be on to something. While Twitter's stock has flat-lined over the past five years, Square has flourished, gaining more than 500% over the same period. This makes the executive a popular target whenever Twitter fails to live up to its potential. Elliott is said to be open to Dorsey retaining the chief executive spot at Twitter on the condition he gives up his leadership of Square, but admits that's unlikely to happen. 

Additionally, Elliott Management has approached Twitter directly and has expressed its concerns to management, and the pair are reportedly having a constructive dialogue.

Declining users and engagement

Twitter has struggled to increase its user base in recent years, and after reporting declining monthly active users (MAUs) for three successive quarters to close out 2018, the company said it would stop reporting the metric. It ended the year with 321 million MAUs, its lowest monthly users in two years. In place of that benchmark, Twitter said it had created its own figure -- monetizable daily active users, or mDAUs. The metric counts only those users who access the platform on a daily basis.

The social media giant reported mDAUs for the fourth quarter that reached 152 million, up 21% year over year, while revenue of $1.01 billion climbed 11%, showing that some of Twitter's strategies are paying off. Unfortunately, those efforts may be too little too late to stay any action by Elliott Management. 

The eBay logo outside its headquarters.

Image source: eBay.

Another popular target

This isn't the first rodeo for Elliott Management. In early 2019, the activist hedge fund became one of eBay's (EBAY 2.93%) largest investors, acquiring a 4% stake worth about $1.4 billion in the e-commerce platform. Hedge fund Starboard Value also disclosed a stake, which later turned out to be about 1%. Elliot published an open letter to eBay's management noting that the stock was extremely undervalued, urging the company to take steps to rejuvenate its flagging marketplace, sell off its non-core businesses -- including StubHub and eBay Classifieds -- and ramp up its dividend.

eBay eventually agreed to all of the activist investor's demands. In conjunction with its fourth-quarter 2018 earnings report, the company announced that it would begin paying a quarterly dividend of $0.14 per share, yielding about 1.6% at the time. Two Elliott-backed directors were added to eBay's board, and the company eventually sold off StubHub for about $4 billion. Last month, reports surfaced that eBay had begun shopping its Classifieds business -- the last item on the activist investor's wish list. 

Hopes for success

There are no guarantees that Elliott Management will be as successful at getting its way with Twitter as it was with eBay, but it does illustrate the leverage an activist investor can exert.

Shareholders seemed to support the idea, as the tech company's stock jumped nearly 8% on the news. It's worth noting that it was a banner day on Wall Street, so some of the increase could be a rebound from the coronavirus-induced market slump.

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Stocks Mentioned

Twitter, Inc. Stock Quote
Twitter, Inc.
$38.23 (2.25%) $0.84
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$160.03 (-0.76%) $-1.22
eBay Inc. Stock Quote
eBay Inc.
$42.89 (2.93%) $1.22
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,825.33 (1.05%) $39.95
Block, Inc. Stock Quote
Block, Inc.
$63.90 (3.97%) $2.44

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