Twitter Gaps Up Then Declines On News Of CEO Dorsey's Departure

Shares of Twitter NYSE: TWTR moved back and forth between gains and losses in morning trade Monday, following news that CEO Jack Dorsey would be stepping down, effective immediately.

Parag Agrawal, who has been Twitter’s chief technology officer since 2017, becomes CEO. Agrawal has overseen the company’s machine learning and artificial intelligence initiatives. 

Twitter shares gapped up 11% at the open, then quickly fell from that early high of $52.27. Trade was briefly halted, as the market awaited pending news. 

When trading resumed, shares rallied again, although they remain below that earlier high as they bumped along the low of Monday’s session range. 

In a statement, Dorsey said, “I’ve decided to leave Twitter because I believe the company is ready to move on from its founders. My trust in Parag as Twitter's CEO is deep. His work over the past 10 years has been transformational. I'm deeply grateful for his skill, heart, and soul. It's his time to lead."

He elaborated upon his decision in a longer memo posted, naturally, on his Twitter account.

Dorsey continues to serve as CEO of digital payment company Square NYSE: SQ, which he also co-founded. 

Twitter, with a market capitalization of $37.73 billion, is tracked in the S&P 500, where it comprises 0.096378% of the total index weighting. In other words, it’s not likely to have any effect on the broader index’s movements. 

Although it seems like Twitter has been around a long time as a public company, it only listed on the public markets seven years ago, in November 2013. Given that timetable, the stock is still in its best window of opportunity to notch market-beating gains.

Underperforming S&P 500

However, that hasn’t been the case for Twitter. Year-to-date, it’s underperforming its index by a wide margin. The S&P 500 is up 22.53% year-to-date, while Twitter is down 13.07%. 

Twitter is also lagging larger social media rival Facebook NASDAQ: FB, which is up 21.95% year-to-date. 

Twitter posted a loss last year, as advertisers pulled back spending in the early days of the pandemic. After being profitable every year from 2013 through 2019, the company lost $0.87 per share last year. The quarter ended in June 2020 is where the damage occurred, as revenue slowed 19% from the same quarter in 2019. 

Fortunately for Twitter (and its shareholders), sales and earnings both rebounded in the subsequent quarters last year. 

Analysts expect Twitter to earn $0.29 per share for the full year. Next year, that’s seen growing by 203% to $0.88 per share. 

Agrawal will now be tasked with meeting not only Wall Street’s expectations but the company’s own lofty objectives. In February, Twitter said it hopes to have 315 million monetizable active users before 2024. It aims to double revenue by the end of 2023.

That means growing from going from $3.7 billion last year to at least $7.5 billion in 2023, the company said in February. 

Potential Early Buy Point

According to MarketBeat data, analysts have a “hold” rating on the stock, with a price target of $72.36, representing a 54.99% upside. 

Twitter rallied in late February, following news of the aggressive revenue-growth plan. However, since then it’s been consolidating below its February 25 high of $80.75. A trend line going back to the March 2020 low indicates a potential early buy point around $74, but if that’s to happen,  the stock has to begin definitively etching the right side of its consolidation. It’s not a given that the stock is ready to begin an uptrend. 

The previous structure low was $44.40, from January 19. Twitter shares are falling perilously close to that mark, trading just above $46 mid-session Monday. 

If the stock does undercut that prior structure low, it could constructive, and would re-set the base count. That’s often a point when institutions step in to get more shares of a promising stock at a lower price. Given the growth projections from both Wall Street and the company itself, there could be an opportunity in the weeks and months ahead to scoop up some shares at a relatively low valuation.