Friday, May 16, 2014

Poor Twitter

Kurt Wagner writes in just six short months, Twitter stock holders have been treated to the full, unpredictable Wall Street experience.

First the stock surged — big time — jumping from an IPO price of $26 per share in November to more than $70 per share by Christmas Eve. Then came concerns over user growth and profitability, paving the way for a stock decline that eliminated more than half the company's value in a three-month period. By the time Twitter employees were able to sell their shares, six months after IPO, stock price per share was hovering around $30.

Response has been predictably hysterical; The Atlantic went so far as to pen a eulogy for the microblogging service. But of the many people surprised by Twitter's recent stock market struggles, there was at least one person expecting it: CEO Dick Costolo.

According to multiple sources close to the company, Twitter's chief executive warned employees in the months following the company's IPO to prepare for ups and downs in the market. Costolo, who hosts company-wide "Tea Time" chats every other week where employees can ask him questions, at some point prepped Twitter employees that the company's initial stock surge wasn't permanent.

"Dick has done and continues to do a great job of setting expectations around that sort of stuff," one source close to the company told Mashable. "[He's] constantly reminding folks Twitter needs to fulfill its promise and think long term."

Preaching patience is far easier than practicing it, and Costolo's advice is likely being put to the test inside Twitter HQ. A number of Twitter executives, including Costolo, promised to hold onto their shares as a show of support for the company even though the six month lockup period is now over.

Others, however, including COO Ali Rowghani, sold shares last week in bulk. Former employees attempted to cash out as well, though technical issues and confusion over who was able to sell caused frustration among them. According to reports, Schwab was unable to process a handful of sale orders, resulting in angry former employees taking to a private Facebook thread to try to circumvent the issues.

Following the lockup fumble, the share price fell nearly 20%. A Twitter spokesperson did not comment on the lockup issue or on sentiment inside the company.

Stock fluctuation isn't rare for newly public companies. Lise Buyer, the founder of Class V Group, a firm that helps companies go to market, says that volatility is almost a given. "Emerging tech stocks always have, and always will be volatile," she told Mashable. "IPOs are the most risky sorts of equity investments as the companies they represent haven't been tested in the marketplace or had to function with the incremental burdens of public disclosures."

The public disclosure element seems to be hampering Twitter. Investors are balking at the company's user growth, which has been slower than expected despite a 25% increase year-over-year. It was widely thought that Twitter was aiming for 400 million users by the end of 2013, and the reality — 255 million as of March 31 — is a long way off.

Stock valuation may not be the only thing Twitter is trying to maintain, however. Multiple former mid- and low-level employees told Mashable they know numerous current employees either planning to leave the company, or actively seeking other work now that the IPO is in the past.

Twitter has close to 3,000 employees, so it's bound to both lose and add new faces on a regular basis. But those planning to leave the company are reportedly doing so because they're burnt out; two to three years at Twitter feels like 10, one former employee told us, a sentiment echoed by two other low-level employees who used to work at the company. Employees seem to enjoy a collegial atmosphere, and no one we talked to said negative things about the product itself, but people work extremely hard — that comes at a price.

Part of that grind is because Twitter innovates constantly. As a public company, it's no longer a startup, but that doesn't keep it from acting like one. "It's like having a thousand cooks in the kitchen at one time," one former employee told Mashable. Added another: "This month's success is next month's expectation. That grind just catches up with people."

In some ways, the situation at Twitter appears to be similar to Facebook's following its IPO in 2012. Investors first flocked to the social network. Then the stock price, which opened at $38 per share in May, fell below $20 by mid-November. Like Costolo, Zuckerberg preached patience to employees, encouraging them to ignore Wall Street and focus on building great products.

Employees did notice the stock decline, however, but few were comfortable talking about it. Bret Taylor, now CEO of Quip, was Facebook's CTO at the time of the IPO. He says employees refrained from talking about the stock price — saying it was viewed as "uncool" to worry about it — even though it may have been on their mind.

I have said for a long time Twitter was over valued and would tank. I see it falling into the $20 dollar range before it levels off.

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