Shares of social media giant Twitter (NYSE:TWTR) fell 26% in March, according to data provided by S&P Global Market Intelligence. That was more than the S&P 500, and that's because the COVID-19 coronavirus pandemic is tangibly affecting its advertising revenue, as businesses cut back on spending.
There's also uncertainty surrounding the future of founder and CEO Jack Dorsey. Some activist investors wanted him out, although he's still in charge at least for the time being.
On March 9, Twitter announced an agreement with private-equity firm Silver Lake and activist investor Elliot Management. For now, each gets a seat on Twitter's board, and Dorsey gets to keep his job. For his part, Dorsey is pursuing 20% growth in monetizable daily active usage (mDAU) in 2020. It's ambitious, but attainable; consider that mDAU grew 21% in the fourth quarter of 2019.
Part of the agreement also includes a $1 billion investment from Silver Lake to be used in a $2 billion stock buyback plan. However, just two weeks later Twitter pulled its 2020 guidance because of COVID-19. It turns out that digital advertising revenue is falling as companies slash advertising budgets. Twitter has seen increased usage of its platform during the coronavirus pandemic, but it's not able to monetize it as much as it would like.
Twitter expects first-quarter revenue to fall year over year, resulting in a net loss. The company still hasn't withdrawn its $2 billion buyback guidance. But without a predetermined repurchase timeline in place, it's fair to wonder if the company will choose to wait for now.
Increasing user monetization and buying back stock are two concrete catalysts that can generate positive shareholder returns. But with both of those catalysts at least temporarily in question, investors fled Twitter's stock.
That thinking may be too short term. As a result of COVID-19, Twitter has seen daily active accounts surge 23% year over year to 164 million. User growth is one of the metrics Dorsey will be evaluated by, so the chances of a shakeup at the top are getting thinner. And if the global economy can recover from the coronavirus pandemic, I'd expect advertising budgets to go back up, turning the current headwind into a rewarding tailwind for shareholders of this technology stock.