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Why I'll Avoid the Twitter IPO

By Tim Beyers - Updated Apr 6, 2017 at 10:23PM

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When arrogance and confusion reign, investors pay.

Twitter is in trouble. That's the message of a story published at Fortune this week. Writer Jessi Hempel talked with a variety of sources in compiling a narrative that, frankly, ought to scare the beejeezus out of Twitter's early stage investors.

Only two months ago, they were holding shares of a company valued so richly that it commanded a premium to tech stars (Nasdaq: YOKU) and (NYSE: CRM). The company has since shed close to $3 billion in market value, according to shares traded on secondary trading market SharesPost.

To read the Fortune story is to believe investors' waning interest in due partly to arrogance and confusion among Twitter's board members and executive team. Here's a taste of what Hempel learned:

  • Roughly 47% of those who have Twitter accounts are no longer active on the service. Those who remain spent 10% less time using Twitter in March than they did a year ago, while comScore data shows that U.S. traffic has leveled off even as worldwide traffic continues to blossom.
  • Executive coach Bill Campbell was brought in to mentor management and repair broken relationships between key product management and engineering team members. CEO Dick Costolo spent the first six weeks on the job crafting a mission statement for the company.
  • Facebook bid as much as $2 billion to acquire Twitter. Google (Nasdaq: GOOG) bid as much as $10 billion. Microsoft (Nasdaq: MSFT) showed interest but never put forth an offer. In every case, the board believed the company would do better to remain independent.
  • Co-founders Jack Dorsey and Evan Williams don't talk. A boardroom decision to oust Dorsey and elevate Williams to CEO in 2008 has apparently strained their relationship in a way eerily reminiscent of the schism created when Apple's (Nasdaq: AAPL) board backed John Sculley over Steve Jobs more than two decades ago.

And yet Dorsey isn't Jobs. Please don't take that as a criticism of his talent. Dorsey's work at Square, a payments service, is winning converts precisely because of his skill at creating something from nothing.

But unlike Jobs, Dorsey isn't in control at Twitter. Costolo is, and if Hempel's reporting is accurate, he's got a problem being decisive. Jobs? Just the opposite. If anything, The Steve is best known for stubbornly insisting that others adopt his way of doing things. Apple and its investors have enjoyed the fruits of his arrogance.

At Twitter, arrogance seems to have manifested itself in the form of a confused mishmash of visions and product strategies. Six weeks to form a mission statement? Six weeks is a lifetime in tech, especially in the fast-paced microuniverse we call Silicon Valley.

Executive coaches. Management infighting. A board so delusional that it was willing to walk away from a $10 billion offer from Google? Ten freaking billion! Aaron Sorkin must be overjoyed. The Twitter story as told by Hempel makes his award-winning screenplay for "The Social Network" look like children's theater.

On some level, none of us who invest in tech stocks should be surprised. Tech entrepreneurs are a passionate lot and tech executives are known for pugnacious, outlandish, and even stupid behavior. It's because of this underlying culture that we're unsurprised to see Hewlett-Packard (NYSE: HPQ) suing Oracle (Nasdaq: ORCL) for recruiting another executive who's departing HP under a cloud of suspicion.

But there's a difference between typical Valley dysfunction that breeds stock options entitlement and lush campus cafeterias, and serious management issues. Hempel's story reveals Twitter as a victim of its own success, a company that threw itself into the wild without any sense of what it might one day become.

I'll admit that -- at first -- I loved the idea of experimenting in this way. Twitter's inherent flexibility as a marketing platform made it worth more than $1 billion in market value, I argued two years ago. Venture capitalists would go on to confirm my thesis and then some.

Today, what once looked like a promising business has apparently fallen victim to the same arrogance that plagued dot-com investors in the late '90s. Twitter hasn't respected profits enough and as a result looks more like MySpace than Facebook. I'd like to own the latter. As for Twitter? I'll wait for the movie, thanks.

Do you agree? Disagree? Let us know what you think about Twitter's business model, the rise of Facebook, and whether you like social media as a long-term investing opportunity using the comments box below.

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