Twitter for sale? More likely it's now a buyer.
Of all executive transitions, the naming of a new chief financial officer may be the trickiest. Sure, the CEO typically has higher pay and greater visibility, but nothing sets investors on edge like the abrupt, surprise appointment of a new CFO. Companies normally take pains to signal such transitions months ahead of time to avoid the appearance that something is wrong with the financials.
What to make, then, of the abrupt, surprise removal of Mike Gupta as Twitter's CFO, along with the even more unusual appointment of Anthony Noto to replace him? Noto is an influential investment banker – even more unusual, a Goldman banker who shepherded Twitter into public market.
This time, investors aren't reacting with concern but rather a sense of bullish, if perplexed, speculation: Twitter's stock rose nearly 3 percent Tuesday. For one thing, executive shuffles are nothing new at Twitter. For another, Gupta isn't resigning in protest or being fired -- He's staying at Twitter in a role that invests in outside companies a la Google Ventures. There appear to be no red flags on Twitter's income statement (unless you count slowing growth).
What's more, Noto has a strong reputation both on Wall Street and in the tech industry. Noto recently left Goldman to join hedge fund Coatue Management, but his background as an investment banker is fueling some speculation that Twitter could be soon up for sale. In that case, the rally that could result from a bidding war outweighs any concern the Street might have about the CFO transition.
There will be others guessing who wants to buy Twitter. The names will likely be big, old media giants that are still struggling for a foothold in the social, mobile web. But I don't buy the Twitter-for-sale theories. Speculation that Twitter is for sale could prompt a bigger, cash-rich company to make an aggressive bid for the company. But it would have to happen at a high valuation: The company may be down from its December 2013 high of $73 a share (a price the stock has yet to deserve) but it's still 62 percent above the $26 a share offering price that Goldman decided it was worth during the IPO.
Beyond that, the more likely reason for bringing in Noto, and having Gupta oversee strategic investments, is that Twitter means to be a buyer, not an item for sale. If Twitter wanted to gauge interest among potential acquirers, it could quietly hire an investment bank and avoid the perception that it's throwing in the towel as an independent company.
What Twitter still has is its power in social and media events, the essential role it plays in how we experience, over and over again, breaking news, serial TV programs, awards ceremonies, and major sporting events like the World Cup. That role is an asset that is, at once, invaluable and not terribly monetizable. Twitter in some ways resembles technologies like instant messaging or VoIP, capable of transforming how we communicate with each other, but devilishly difficult to turn into a big money maker.
What Twitter needs is time to figure out how to maintain robust revenue growth from its service. Selling it to a larger company is more likely to suffocate its most valuable asset rather than make it more profitable. Raising new capital to help the company to make shrewd acquisitions is more likely to help Twitter expand its user base, while keeping it active in new social and mobile technologies.
Twitter still has a tough road ahead in enticing new users while finding ways to monetize all its users without alienating them. But that task will be much easier if it remains independent. The recent round of executive changes is most likely aimed at just that. Twitter's near-term challenge is bringing stability to a management currently in flux. Because the longer-term challenge – convince investors more growth is coming – is growing more pressing by the day.