Activist investor targets Twitter | The Motley Fool

Activist investor Elliott Management is said to have taken a significant stake in Twitter (NYSE: TWTR) and plans to stir for change, according to a report released for the first time by Bloomberg.The hedge fund is said to have accumulated $ 1 billion worth of shares, or about 4% in the media site besieged social.

Twitter has been the target of activist investors for some time, the result of stagnant growth. Since prominent CEO Jack Dorsey joined the company in July 2015, the company's stock has been essentially flat, far behind the S&P 500, which gained 49%. To put this in perspective, giant social media rival Facebook(NASDAQ: FB) gained almost 125% over the same period.

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

Image source: Getty Images.

A multi-pronged approach

Elliott plans to appoint four directors to the Twitter board – which will only have three seats to open at its next annual meeting – and calls for the ouster of Dorsey, who also serves as the CEO of the financial technology specialist Square (NYSE: SQ). The fact that Dorsey divides her attention between the two companies has long been a source of dismay to some investors, who feel that the troubled company could do better if Twitter had all of its attention.

They could be on something. While Twitter's share has stagnated in 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 reach its potential. Elliott would be willing to have Dorsey keep the post of general manager on Twitter on the condition that he give up his leadership of Square, but admits that this is unlikely to happen.

In addition, Elliott Management contacted Twitter directly and expressed concerns to management, and the pair would have constructive dialogue.

User decline and engagement

Twitter has struggled to grow its user base in recent years, and after reporting a decline in the number of monthly active users (MAU) for three consecutive quarters to close 2018, the company said that she would stop reporting the measurement. It finished the year with 321 million AMUs, its lowest number of monthly users in two years. Instead of this reference, Twitter said it had created its own figure – monetizable daily active users, or mDAU. The metric only counts the users who access the platform daily.

Social media giant reported fourth quarter mDAUs which reached 152 million, up 21% year-over-year, while revenues of $ 1.01 billion increased 11%, showing that some of Twitter's strategies are paying off. Unfortunately, these efforts may be too little too late to suspend any action by Elliott Management.

Image source: eBay.

Another popular target

This is not the first rodeo for Elliott Management. In early 2019, the activist hedge fund became one of the eBayc & # 39; (NASDAQ: EBAY) the largest investors, acquiring a 4% stake worth approximately $ 1.4 billion in the e-commerce platform. The Starboard Value hedge fund also revealed an interest which turned out to be around 1%. Elliot published an open letter to eBay management noting that the stock was extremely undervalued, urging the company to take steps to rejuvenate its declining market, sell its non-core businesses – including StubHub and eBay Classifieds – and increase its dividend.

eBay ultimately accepted all requests from the activist investor. In addition to its fourth quarter 2018 earnings report, the company has announced that it will begin paying a quarterly dividend of $ 0.14 per share, representing a return of approximately 1.6% a year. 39; era. Two directors supported by Elliott were added to the eBay board of directors, and the company eventually sold StubHub for around $ 4 billion. Last month, reports revealed that eBay had started shopping for its classified ad business – the last item on the activist investor's wish list.

Hope for success

There is no guarantee that Elliott Management will succeed as well in blasting its way with Twitter as it does with eBay, but this is a good illustration of the leverage that an activist investor can exercise.

The shareholders seemed to support the idea, the shares of the technology company having jumped almost 8% to the news. It should be noted that it was a record day on Wall Street, so part of the increase could be a rebound from the coronavirus-induced market crisis.