Why Twitter/Square CEO Jack Dorsey is a Failure
Earlier this week, Jack Dorsey's brainchildren, Twitter (NYSE: TWTR) and Square (NYSE: SQ), each received a much-needed boost in the stock market after what's been a largely disappointing year for public investors.
Speaking at Recode’s Code Commerce event in San Francisco on Tuesday, Dorsey revealed that Square had reached a partnership with Apple, allowing its Square Cash app to now be used anywhere that Apple Pay is accepted. The market responded by sending shares up 6.6% the following day, adding about $310 million to the stock.
On Wednesday, Canaccord Genuity released a report forecasting that Twitter will grow its monthly active users to 4.4 million in the fourth quarter, representing a 5.3% sequential increase. The market rallied for Twitter as it did for Square, sending shares up 6.8% that day, adding about $900 million to Twitter's cap.
No doubt it was a good day for Jack Dorsey. Considering an estimated 28% stake in Square and 4.7% stake in Twitter (reported by Business Insider and Forbes, respectively), this put Dorsey up somewhere around $122 million in less than a 24-hour period.
Yet while the two announcements were enough to buoy shareholders for a day, the rallies were short-lived, and short of reason for any true celebration. After all, many of Dorsey's investors are still suffering, with Twitter down ~21% since the start of the year and ~56% since late 2013.
Square investors aren't doing much better, either, if only by comparison. Shares are now trading just a hair above the firm's 2015 IPO price and still rest a full percentage point behind the S&P 500 benchmark since the company’s entry into the public market in 2015.
Of course, there will continue to be investors who hope for a Jack Dorsey turnaround, but I, for one, am not holding my breath. In his reckless and cocksure attempt to run two companies at once, Mr. Dorsey has so far proven only to be twice the failure.
Jack Dorsey: The First (and Second) Worst CEO on Wall Street
Much has already been written about the glaring failures of Jack Dorsey as CEO of Twitter and Square. From Fortune to Bloomberg, it’s widely recognized that Dorsey is one of Silicon Valley’s biggest jokes.
Here are a few headlines and quotations, just to give you an idea:
- “Jack Dorsey Has Failed to Save Twitter, Now It's Someone Else's Turn” — Fortune
- “Jack Dorsey is Losing Control of Twitter” — Bloomberg
- “Timeline: How Jack Dorsey Came Back as CEO and Ruined Twitter” — Breitbart
- “Twitter Stock: Jack Dorsey's TWTR Side Gig Is a Failure” — Investor Place
- “Square Stumbles Again On Way To IPO: 'This Is A Failure'” — International Business Times
- “I never wanted to be an entrepreneur” — Jack Dorsey
As much as I’d love to drag out this hit piece, the truth is we could go on for days tearing Jack down. From his total lack of direction to his burning of investors’ cash to the alienation of half his user base, there are countless arguments to make the case that Dorsey needs to be removed as a decision maker...
But in the interest of time, we’re going to stick to tackling the question of whether or not this week’s rally for Dorsey was justified. We can leave the rest of our criticisms for another day...
Stuck at Square One
In the case of Square, a partnership with Apple certainly does look good at first glance. After all, who doesn’t want to be shaking hands with one of the world’s most iconic tech companies?
In reality, though, compatibility with Apple Pay doesn’t change a thing for Square’s mobile payment ambitions, as the entire concept is doomed from the start. While an increasing number of vendors are certainly adopting the payment option, virtually no consumers are using the service.
Mobile payments sounded like a neat idea in 2014, but Apple and Samsung’s ambitions just haven’t played out. It helps to stop and ask yourself for a moment: Have you ever used Apple Pay? Have you ever seen anyone use it?
I’m guessing not.
Notably, Trustev has found that only about one in five people in the U.S. who have an iPhone that works with Apple Pay have ever even tried it. And of that small percentage who do happen to use it, more than half (56%) say they use it only once during the week, while 15% say they don’t use it at all.
The numbers aren’t any better for Samsung Pay and Android Pay.
That’s because the cold, hard truth for Dorsey’s Square Cash initiative is that there’s virtually no incentive to use the product. Why pay with a separate account using your phone when you can just swipe your debit card that’s already linked to your bank instead? Really, what’s the point?
Dorsey was actually asked this question at Recode’s Code Commerce event by Jason Del Rey on Tuesday, and his response wasn’t much of an answer at all.
“It’s crazy to think about,” Dorsey claimed, “but people just want a more modern interface to their finances and something that’s simple and straightforward and modern really wins.”
Of course, simply labeling something modern doesn’t make it useful or effective, and there’s nothing simpler than keeping your money consolidated in one place (Square Cash does exactly the opposite). The reality is Dorsey doesn’t have a good answer as to why his product is useful, and that’s because he’s pushing a product that serves no real purpose.
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A “Growth Company” That Doesn’t Grow
As for Twitter and the firm’s user growth outlook from Canaccord, the numbers are simply not as impressive as the market let on earlier this week. Sequential user growth is forecast to come in at 5.3% in the fourth quarter, only a hair above the 4.0% reported in the third. Considering the uptick in social media use surrounding the recent U.S. presidential election, and Twitter’s own admission of a rise in bot accounts, this 1.4% uptick is nothing to get excited about.
And even if this growth were sustainable, the fact remains that Twitter's user base has dramatically stalled since early 2015 and remains nowhere near its once promising growth rate. The firm took off strong, growing from 30 million in 2010 to 288 million by the end of 2014 (a compound annual growth rate of 57%) but has essentially flat-lined ever since.
Twitter’s user base plateau has already warranted lawsuits against the firm, which was first accused of misleading investors in September. Shareholder Doris Shenwick reasonably claims:
Twitter executives misled investors on its growth prospects in November 2014, promising an increase in monthly active users to 550 million in the “intermediate” term and more than a billion in the “longer term.” The company failed to deliver on either estimate and concealed that it had no basis for those projections... As of June 30, the company had 313 million monthly active users, according to its website.
While Twitter will be protected by Safe Harbor and general obscurity of the terms “intermediate” and “longer term,” the suit does highlight Twitter’s inability to execute on use growth. Putting user lack of growth aside, though, Twitter’s inability to monetize its existing base is arguably a bigger issue.
Twitter’s Fatal Flaw
While social media platforms require a high user base for revenue generation, the two do not necessarily come hand in hand. The inability to monetize large user bases is not at all a unique phenomenon, with sites like Reddit, Pinterest, and Tumblr all struggling to show meaningful numbers on the top and bottom lines.
Why is it that these companies find so much difficulty pulling in ad dollars while Facebook and LinkedIn continue to mop the floor? To put it simply, the users aren’t marketable for one reason or another.
In the case of Twitter, we have a social media platform that's entirely fleeting and superficial in content. Twitter’s scrolling mass of tweets might attract users and engagement, but the very 140-character limit and constant flow of real-time information that drive engagement are exactly what guarantee that engagement is short-lived.
For most advertisers, this is a nightmare because user demographics, and the mindsets of those users while active on Twitter, don’t encourage buying. At the very least, advertisers can’t figure out how to effectively sell to these individuals with much success.
All told, Twitter rakes in about $1.39 for each of its active users. For perspective, Facebook pulls in $5.71 for each user, making it four times as effective as Twitter.
Twitter has so far lost nearly $2.7 billion in total since launching a decade ago, while Square has burned over $1 billion since entering the public market in 2015. Harsh as it may sound, Jack Dorsey’s only true success with his companies so far has been duping public investors out of their money.
Until next time,
Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and Topline Trader. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.
Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.
Outside the office Jason is a lover of science fiction and the outdoors. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.
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