After last week's rollercoaster ride, Twitter (TWTR) shares are climbing on news that Chairman Jack Dorsey has been named permanent CEO. The transition shouldn't be difficult -- he's been interim chief executive of the social-media company since Dick Costolo stepped down in July and previously was CEO from 2007 to 2008.
The company has some major challenges and investors have been edgy, wondering if it will finally pay off on the promise that got so many to buy shares, which is just above its 2013 IPO price. Here are the things that Dorsey has to face, and fix, if he's to remain as chief executive.
- Twitter keeps losing money. Although there are a number of Internet-related companies with high valuations that outstrip revenue, ultimately investors learned from the dot-com bubble and want promises of growth and profitability. Twitter is on a $2 billion revenue run rate, according to company representatives on a Monday morning conference call about the Dorsey appointment, but the company has been losing money all along. Last year it brought in $1.4 billion but still lost $539 million. In its last reported quarter, the company lost $137 million on $502 million in revenue. It seems unlikely that the $2 billion mark will suddenly bring profitability.
- User growth is slowing. Not only does Twitter lose money, but it doesn't see the user growth that would comfort investors in thinking that the company was still hot and capable of attracting buyers who would purchase their shares at even higher prices, leaving the current investors with a profit. Twitter will come out with new features and products to attract people, but so far that hasn't seemed to offset the slowdown.
- Too few users are heavily active. Related to a slowing number of users is that it is unclear how active they are and whether most people get involved or just come by to read their feed of posts. People who don't make the time don't convince their friends to join and use the service. Dorsey talked about helping people get value out of the service immediately, but that raises the question of whether users won't don't bother with Twitter because it is hard to use or if the value that company insiders perceive is of little interest to the public in general.
- Many talented people have already jumped ship. Several times during the conference call, lead independent director Peter Currie emphasized Dorsey's ability to attract and retain talent. That would be critical because many talented people have already left the company, even with all the excitement that Currie, Dorsey and others said is in the air. Employees want to see the company moving in a direction that might pay off for them. Until there are some sustained improvements, promises of better days to come, after nine years of existence, could wear thin.
- Dorsey is still only a part-time CEO. This could be one of the biggest issues. Dorsey will remain CEO of Square, which could become a more engrossing operation if the mobile-payment company goes public. Adam Bain has been named COO to take some pressure off Dorsey, but Bain was noted as the driving force behind getting Twitter the level of revenue it has attained, so there is a danger of the COO position distracting from the need to improve on the revenue front.