Founder-led firms are winners. Except Twitter
‘Twitter has lagged behind peers as social media has evolved, both on the product side as well as advertising infrastructure’
From Elon Musk’s Tesla to Reed Hastings’ Netflix, tech firms led by their founders have mostly beaten the broader market by a huge margin. Twitter has always been an outlier.
News this week that Jack Dorsey is stepping down as CEO of the social media company comes after the stock rose just 63% during the co-founder’s six-year tenure.
That’s a far cry from the multifold gains in peers such as Facebook-owner Meta Platforms or Amazon.com on the NYFANG+ index.
Jack Dorsey hasn’t exactly been the faithful typeDanni Hewson, AJ Bell analyst
After a souring run in stock markets, Twitter has now appointed Parag Agrawal, formerly the chief technology officer.
“While his last tweet [before resignation] declared his love for the platform, Jack Dorsey hasn’t exactly been the faithful type,” said AJ Bell analyst Danni Hewson, pointing to his other CEO role at Square.
“There were plenty of investors who wondered whether it would be better served by a new master. Today it has one, and one that certainly knows the ropes.”
Unlike Twitter, Square has been a stellar performer in recent years, more than tripling in 2020 alone. Twitter failed to even keep up with the broad rally in indices, lagging the 280% rally for the Nasdaq 100 and the 134% gain in the S&P 500 in that time.
Square’s gains are more typical of founder-led companies. Though the likes of Mark Zuckerberg, Bill Gates, Steve Jobs and Jensen Huang were all focused “solely on one thing” — running the company they started — Dorsey had fingers in more than one pie, said Jim Dixon, an equity sales trader at Mirabaud Securities.
Bloomberg Intelligence analyst Mandeep Singh said that though Dorsey’s time commitment with Square was probably a factor in Twitter’s lacklustre performance, the company also struggled to find its groove in terms of execution. Twitter has lagged behind peers as social media has evolved, both on the product side as well as advertising infrastructure, he said.
Singh doesn’t expect any drastic changes in how Twitter will think of its strategy as Agrawal takes the helm, given that he was part of the company’s management team. He expects the user growth and revenue targets for 2023 will become harder to achieve in the near term as Agrawal may establish goals of his own.
Jefferies analyst Brent Thill is more optimistic. He expects the management changes to be positive for the stock, arguing that new leadership could revive growth and help the company meet its targets.
An exchange traded fund of founder-led firms has risen 128% since its inception in February 2017, outstripping a 96% advance for the S&P 500 index. Square is the fund’s sixth-best performer in that time with a gain of more than 1,300%.
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