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Twitter Stock Continues to Fall. Its New CEO Has a Tough Task Ahead.

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Parag Agrawal was appointed CEO of Twitter this week. He had been the company’s chief technology officer since 2017.

Courtesy Twitter


Twitter

is betting its future on Parag Agrawal. Having served as the company’s chief technology officer since 2017, Agrawal’s ascension to CEO screams continuity. But the stock’s reaction this week signals some on Wall Street hoped for a cleaner break.

Agrawal took over as CEO earlier this week and already faces a laundry list of investor and lawmaker concerns regarding the social media giant.


Twitter

(ticker: TWTR) has stumbled in growing and monetizing its user base, all while the company deals with a political firestorm as it seeks to balance content moderation and free speech.

Twitter stock initially jumped on a CNBC report that Twitter co-founder Jack Dorsey would soon step aside as CEO. But after the company announced Agrawal as his replacement, shares dropped. The slide continued on Tuesday and Wednesday. The stock is down 21% so far in 2021.

“I admit to being surprised that the reaction wasn’t more positive,” Maurice Schweitzer, a professor at the Wharton School at the University of Pennsylvania, told Barron’s. “I think Jack Dorsey thought deeply about this, and I think this is a good pick.”

While Dorsey’s departure seemed to surprise media commentators, a person close to the matter told Barron’s that the move was a long time coming. Agrawal has been at Twitter for about a decade and is respected by employees, the person said. And, Agrawal’s financial interests will be more tied to Twitter’s stock. Dorsey, by contrast, has more of his portfolio tied up in


Square

(SQ), the fintech company he founded and has continued to lead, even while he served as Twitter CEO.

Schweitzer says Dorsey was likely stretched thin running Twitter and Square, and may have felt being Twitter’s CEO was no longer enjoyable. He notes that companies like Twitter need consistent policies and procedures for moderating content and user behavior, along with plans for handling potential regulation.

“Those are very different kinds of skills,” he says. “And it takes a very different kind of person to do that than it does to start up a fledgling tech company that’s going to become a fun, exciting place to attract young tech workers. So I think the job changed and it became a less-good fit for Jack Dorsey.”

Agrawal was unanimously appointed by Twitter’s board of directors, which includes representatives from activist firms Elliott Investment Management and Silver Lake, Schweitzer notes. Agrawal brings continuity to Twitter, along with a technology background, and familiarity with the company’s goals, projects, and stumbles. Schweitzer says such experience could help Twitter attract and maintain talent, especially as the shift to remote work has made it easier than ever for tech workers to switch jobs.

Twitter bulls have made the comparison to


Microsoft

‘s (MSFT) 2014 pick of Satya Nadella, a not-so-flashy internal hire. Of course,


Microsoft

‘s transformation was driven by the explosion of the cloud infrastructure business. Twitter’s path forward is more focused on unlocking the value of its existing services.

Some investors have grown tired that Twitter’s out-sized influence in politics and popular culture hasn’t translated into the kind of profits and shareholder returns that rival online ad companies, notably


Meta Platforms

‘ (FB)


Facebook

and


Alphabet

‘s (GOOGL) Google, can tout.

Evercore ISI analyst Mark Mahaney wrote earlier this week that Google, Facebook,


Snap

(SNAP),


Pinterest

(PINS), and TikTok offer advertisers either greater scale, more unique demographics, or better direct response marketing tools. He rates Twitter at In Line with a $79 target price, still some 80% above the stock’s recent price.

“And what underlies these value proposition challenges, we believe, has been an inconsistent product development track record, which the company has acknowledged, to its credit,” Mahaney wrote. “Perhaps having a ‘full-time’ CEO will improve this track record. It’s hard to know. And we don’t believe we’ll have great insight for several quarters to come.”

While making the platform more appealing to both advertisers and users will be enough of a challenge for Agrawal, he must also contend with Twitter’s positioning amid a heated political landscape. The company’s decision to ban then-President Donald Trump after January’s capital riot led some conservative users and activists, as well as the former president himself, to call for regulatory action or an alternative platform.

“My first piece of advice to new management of Twitter would be to build coalitions and try to minimize the times the issue in D.C. is Twitter versus government—the broader the coalition, the outcomes are usually better,” says Fundstrat strategist Tom Block, who once ran government relations for JPMorgan Chase. “Some companies and industries can stay out of the public policy limelight but like big banks, big tech doesn’t have that option.”

Block says both Democrats and Republicans are scrutinizing Section 230, which protects platforms like Twitter from liability for things users post online. Still, he doesn’t think conservatives and liberals will come to an agreement on such a policy shift. That said, if Republicans win back the House of Representatives in 2022, Block believes Republicans could stage wide ranging hearings and put a political spotlight on Twitter, especially since the platform banned Trump.

“Former President Trump remains that leader of the Republican Party and when he says jump, most Republicans respond ‘how high,’” Block added. “If Republicans recapture the House I would expect almost daily pronouncements from Mar-a-Lago on what House Republicans should be doing—and tech hearings will be high on the list.”

The 2024 presidential election could put an even greater focus on Twitter’s decisions.

Schweitzer says that finding ways to handle moderation concerns may be a higher priority for Agrawal than hitting aggressive advertising goals. Agrawal has some experience with the topic, having helped find a leader for Project Bluesky, a Twitter-funded initiative that’s working on an open and decentralized standard for social media.

“Because if you narrowly hit aggressive advertising goals—which is what Facebook did—you may end up cutting corners or sacrificing other concerns that end up making you a target of government regulation and consumer backlash that threaten the company’s existence,” Schweitzer says.

With a new CEO in place, Schweitzer says he wouldn’t be surprised if other top management changes follow. That could be where investors get the fresh set of eyes they’ve been looking for—especially if leaders bring in advertising or political expertise. For now, though, Twitter has a tough task in repairing its relationship with investors. On Wednesday, Twitter stock closed at its lowest level in more than a year.

Write to Connor Smith at connor.smith@barrons.com

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