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Commentary

Returning CEO No Panacea for Twitter’s Woes

We place little value on CEO Dorsey's star power and remain concerned that the board and the market are overly optimistic about his ability to reaccelerate user growth and engagement, writes Morningstar’s Rick Summer.

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 Twitter's (TWTR) board of directors named Jack Dorsey as permanent CEO of the company he cofounded in 2006, effective Sept. 30. The board also appointed Adam Bain as chief operating officer. Bain has been rumored as a strong candidate for CEO, and we believe his promotion to COO is a sign that the board views his contribution as a critical one in the company's attempt to reinvigorate growth. Still, we do not consider these management changes a panacea for Twitter's challenges, and we are not changing our narrow moat rating or $27 fair value estimate. We consider the company fairly valued and would not recommend investors put new money into the name at this time.

We place little value on Dorsey's star power and remain concerned that the board and the market are overly optimistic about his ability to reaccelerate user growth and engagement. Furthermore, we are unenthused that he is remaining as CEO of Square, a privately held payment company. We are surprised the board finds this arrangement acceptable, particularly with other qualified CEO candidates available. Although some believe that a star CEO like Dorsey can move Twitter into more direct competition with larger social networks such as Facebook, we view today's news as a neutral event at best. Dorsey has been able to influence the direction of the company in the past (having served as CEO at one point, as well as executive chairman), and it's unclear to us why it will be different this time.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.