Twitter withdraws guidance for next month’s earnings call

With the FTSE 100 down 30% and the Dow Jones declining 31% in a month, it would surprise few there are numerous companies preparing investors for a tricky earnings call.

Twitter has its first quarter earnings call in just over a month and in preparation for what should be a difficult conversation, the team has taken the opportunity to withdraw revenue guidance. Engagement is growing to the levels it would have expected, monetizable Daily Active Users are up 8% quarter-on-quarter, though a decline in advertising revenues is likely to be a painful reality.

Year-on-year revenue is likely to decline, while team has warned it is likely to report an operating loss for the period.

“Twitter had a strong start to the year before the effects of COVID-19 began spreading more broadly, including a successful Super Bowl and overall strength in the US,” said CFO Ned Segal.

“The COVID-19 impact began in Asia, and as it unfolded into a global pandemic, it has impacted Twitter’s advertising revenue globally more significantly in the last few weeks. We have made solid progress on our consumer and revenue product priorities and we remain confident in our opportunity and strategy.”

This is of course a very tricky period for any advertising-led company to navigate, though the Twitter team might take some comfort in realising it is not alone in the technology space.

At the end of February, Microsoft warned investors its revenues would not be as high as forecast in the previous earnings call, while PayPal suggested to its investors COVID-19 would have a negative impact on its performance.

Although the new kids in Silicon Valley might be feeling the pinch, it is the older residents, the semiconductor companies, who seem to be impact more significantly thanks to lower devices sales. Qorvo, a supplier to lower-cost iPhones Apple was rumoured to be launching this spring, lowered its revenue forecast from $840 million to $770 million, while ON Semiconductor’s revenue guidance fell to of $1.275 billion to $1.325 billion from $1.355 billion to $1.405 billion. Qualcomm recently announced results and a lower than expected guidance, while Broadcom has withdrawn prior annual guidance.

These statements might have been expected from the market considering the on-going challenges presented by COVID-19, but for Twitter this is a precarious period in particular.

Twitter is facing pressure like few other companies, and it comes in the shape of a vulture more commonly known as Elliott Management.

Like any vulture fund, Elliott Management aims to capitalise on difficult conditions to make money. It scours the globe searching for companies where share price is lower than expected, and it may believe it can sway other investors into a change of strategy and/or management. When it purchased 4% of Twitters shares over the last few months, share price was in region of $33-38, which was deemed undervalued. With Twitter’s share price now down at $25 (at the time of writing) it might sense an opportunity.

Twitter attempted to appease the activist investor by appointing one of its partners, Jesse Cohn, to the Board of Directors, but this new context might offer some encouragement to Elliott Management to pursue a more aggressive path.

32% of start-ups fear a bursting tech bubble is on the horizon

Research from venture capital firm First Bubble suggests 47% of start-up founders believe there is currently a tech bubble, and worryingly, 32% think it is about to burst.

The idea of a tech bubble will strike fear into the hearts of investors and entrepreneurs around the world. An unsustainable rise in market value attributable to speculation in technology stocks and firms could mean financial disaster for millions, you just have to look at the impact of the ‘Dot-com’ bubble for evidence.

The burst of the 2000 bubble saw several prominent internet businesses collapse while others were hit aggressively with a sharp decline in share price. Cisco’s share value dropped by 86%, while the US Securities and Exchange Commission directed heavy fines towards the likes of Citigroup and Merrill Lynch for misleading investors.

One can only hope the founders being interviewed for this research sit more on the pessimistic side of the fence.

Looking at the research, 32.1% of respondents believe there is a bubble and it is close to popping, 15.2% agree about the bubble but they are safe for the moment, while 21.7% dismiss the concept. That said, despite the negative outlook, 92.1% of respondents believe this is still a good time to start a new company.

Understanding where the alleged bubble is centred is of course critical, and the research suggests areas such as cryptocurrency, artificial intelligence and VR/AR are the areas which are being over-hyped. These are of course the segments which are attracting the lion’s share of investments over the course of 2019, which might make for uncomfortable reading for some.

Another interesting snippet is the element of control. Respondents believe (52.1%) over the course of 2019 power has remained in the hands of entrepreneurs, though 68.8% think this will be wrestled away by investors over the next 12 months.

Ironically, the sense of pessimism will be one of the contributing factors to the burst of a bubble which may or may not exist. Confidence is one of the key components for markets to succeed, and the more people talk about a bubble, the more real it becomes in the hearts and minds. The entrepreneurs, some of the people who are under the greatest threat, may well be making a rod for their own backs with such pessimistic attitudes.

BT CEO in last chance saloon as investors voice concern

New criticism of BT CEO has emerged, with some investors questioning his position at the helm as share price drops to the lowest point for six years.

According to the FT, five investors have requested a meeting with no-nonsense Chairperson Jan du Plessis to discuss whether Patterson is the right person to lead the transformation of the BT machine after numerous scandals and poor performances littering the record books in recent years. This is not the first time Patterson’s role has come into question, but calls for a change are starting to become louder.

“I don’t have much faith in Gavin,” one shareholder said. “Since he took over, it has not been a happy time for shareholders. I am not sure he is the right man for the job.”

“Shareholders are worn out,” another said.

Patterson seemed to have the ambition to take BT back to the promised lands of profitability, but delivery on the grand plan was somewhat lacking. When he took over, five years ago, BT was already struggling, and a vision to wrestle control of the content world out of the hands of the dominant Sky was the plan to turn fortunes around. Hindsight is a wonderful thing, as the BT content mission doesn’t look to be anything more than an expensive mistake now with subscription numbers heading in the wrong direction.

This might be the downfall of Patterson, as while other attempts at diversification might have been forgiven, the billions and billions spent on sub-par delivery cannot be over-looked. In truth, Sport promised and delivered, but the BT approach was fundamentally flawed. Subscribers were tempted in on the promise of football, but for the rest of the week the BT platform was mediocre at best.

Sky spent years developing a platform which was rich in content, for all demographics and moods of the individuals. It has something for every person in the family, and an intuitive interface, two aspects which complete the experience. Football is the poster-boy of the Sky content promise, but it is by no-means the only factor. Patterson and the BT content team didn’t take this into account, and now the CEO is seemingly being punished for it.

Of course this is not the only failing of Patterson over the years. The accounting scandal in Italy cannot be forgotten, neither can a quickly disintegrating relationship with regulators which should not be viewed as anything but negative. There have been some positives to take out of the last five-years, but it seems for investors, nowhere near enough.

Facebook’s shareholder meeting reveals investor tensions

Investors are demanding and sometimes inconsiderate of the ebbs and flows of the business world, but Facebook’s Annual Shareholder meeting demonstrated the frustrations and fears surrounding the company’s precarious position.

The last couple of months have seen Facebook as the recipient of some pretty intense criticism and scrutiny, primarily from politicians and the media, but this meeting has the potential to cause some very considerable damage. Mark Zuckerberg might be able to ignore MPs in the UK, or brush off ignorant questions from Senators in the US, but awkward and condemning comments from those who are pumping money into the profit machine should be a monumental concern from the ironically socially-inept and privacy enthusiast CEO.

“So if, privacy is a human right as stated by Microsoft CEO and we condemn that Facebook’s poor stewardship of customer data is tantamount to a human rights violation,” said Christine Jantz from NorthStar Asset Management, who was proposing a change in stockholding voting to redistribute control, allowing each share of the company an equal vote.

“It is evident to us that Facebook’s piggybacking of risk oversight onto the audit committee, no matter how well utilized, is not up to the task,” said Will Lana of Trillium Asset Management and Park Foundation, who proposed the foundation of a risk oversight committee. “The purpose of the audit committee is to focus on financial reporting processes, not on big picture risk oversight.”

“Controller DiNapoli recently pointed out that, hundreds of millions of social media users are at risk of being exposed to fake news, fake speech and sexual harassment, if the company cannot enforce its own user agreements,” said Patrick Doherty of the New York State Common Retirement Fund, which co-sponsored a proposal to create an annual content governance report. “Unless safeguards are put in place, the Company is at risk of financial losses and serious reputational damage. Facebook needs to confront that its customers and its investors want protection against abuses of the platform.”

We should point out there are few shareholders meetings where investors stand-up and praise the management team and the operations. The investors are investing to make money, and as far as they are concerned, it could always be done better. But Facebook is generally a company which has been protected from criticism. Generating 50-odd% year-on-year revenue growth consistently offers a bit of breathing room, but not even Q1’s revenue of $11.795 billion, 50% more than 2017, could ease the tensions of scandals, poor reputation management or failure to meet public expectations. Facebook has been protected from many incidents of bad press over the years, but the swell pro-privacy voices is becoming deafening; investors are starting to worry, with some just cause as well.

Recent research from Pew Research Centre suggested other social media platforms are out-performing Facebook for engagement, the business is being sued by Max Schrems for GDPR forced-consent, while there have been calls to break-up the social media empire over monopoly fears and Zuckerberg could actually be arrested next time he enters the UK for refusing to answer questions in-front of a Parliamentary Select Committee. The concerns are becoming very real, very quickly.

Aside from the worries about reputation management and the bottom line, representatives also reacted to various other trends in the business world. The sheer breadth of criticisms aimed at Facebook during this meeting, and of course in the press and political arenas over the last couple of months, is starting to paint a worrying picture.

Fake news and fake accounts were once again concerns, as was inclusion and diversity, with one shareholder seemingly suggesting efforts were nothing more than simple window dressing. Political bias of the organization, as well as the moderators who decide what content is considered appropriate for us, was called into question, as well as the social responsibilities of the company in ensuring rent prices does not destroy the current community in Menlo Park, where an additional 30,000 Facebook employees will need to find somewhere to live.

Facebook was founded in 2004 and its CEO is 34 years old. The company is doing an excellent job at pretending to be an adult organization, but realistically it has only been in existence for 14 years, and only facing genuine inspection since going public in 2012. In this short period of time it has not been able to create the right operating model which stands up against the scrutinies of today economy and society. Multi-billion year-on-year increases on the spreadsheets papered over the cracks in the business for a few years, but there are beginning to widen.