Twitter’s Jack Dorsey faces another crisis, this time from an activist investor

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Jack Dorsey has rarely been a stranger to controversy.

The simultaneous CEO of Twitter Inc. TWTR,
+1.07%
and Square Inc. SQ,
+1.53%
has been ruthlessly criticized for allowing President Donald Trump to abuse the Twitter platform on a daily basis while other conservatives claim they are being censored. Dorsey has sounded the alarm among shareholders of both companies with plans to spend up to half the year in South Africa. And his eccentric behavior – once tolerated in Silicon Valley and on Wall Street – is increasingly frowned upon.

So it’s no surprise that activist investor Elliott Management Corp., which has racked up a billion dollar stake in the social media company, wants to remove Dorsey as head of Twitter and has named four directors to the board. Twitter administration, according to a Bloomberg report Friday night. The hedge fund declined to say anything more on Monday.

Contacted by email, Twitter declined to comment.

But investors spoke loudly about what they thought, pushing Twitter shares up 8.5% on Monday. “We believe this may continue as details (and Elliott’s letter to the board) become available,” AB Bernstein analyst Mark Shmulik said in a note on Monday.

“Twitter is a great product, but we’re seeing a mismatch between current valuation and fundamentals,” wrote Shmulik, who ranks Twitter stocks as underperforming with a price target of $ 32 per share. “We welcome Elliott’s position as a catalyst to improve execution, even if the activist push fails. “

Daniel Newman, senior analyst at Futurum Research, was more direct with a phone interview. “Twitter is an echo chamber” that does not reach a large audience beyond the tech community and celebrities, he told MarketWatch.

Elliott’s beef with Twitter and Dorsey is multiple: his innovation has lagged behind rivals Snap Inc. SNAP,
+ 0.61%
and the FB of Facebook Inc.,
+1.89%
Instagram in developing filters and stories that are popular with their users; its relatively sluggish stock market performance compared to its competitors on social networks; and Dorsey’s ever-shorter engagement on Twitter, given her dueling role at Square and her goal of spending several months in South Africa this year.

But what makes Dorsey most likely is that Twitter has only one share class, which means it doesn’t have control over the company’s votes like co-founders Mark Zuckerberg. from Facebook or Evan Spiegel from Snap. Elliott is said to have increased his Twitter stake to 4%.

Dorsey also faces a hedge fund that doesn’t hesitate to force changes on the tech companies it invests in. After gobbling up the shares of eBay Inc. EBAY,
+ 0.34%
and made a series of demands, eBay CEO Devin Wenig resigned in September and eBay sold its StubHub ticketing business for $ 4.05 billion to Viagogo. She is now considering selling her classifieds business. (Elliott advocated the sale of both divisions.)

See Also: Ebay Sells StubHub To Viagogo Ticket Marketplace For $ 4.05 Billion In Cash

Elliott also flexed its shareholder power over AT&T Inc. T,
-0.65%
and Marathon Petroleum Corp. MPC,
-0.52%

Despite criticism from Dorsey, whose reign as CEO of Twitter since July 2015 has been hampered by flat stock performance, he maintains a few vocal advocates. They point to Twitter’s growth – its monetizable daily active users increased 21% in the fourth quarter, compared to 17% for Snap and 8% for Facebook – and its ability to monetize its members. The San Francisco-based company reported quarterly revenue of $ 1 billion for the first time this holiday season, although a decline in advertising has squeezed its profits.

See also: Twitter action soars to best day since 2017 after sharp increase in user growth

“We don’t know in what areas Elliot Management thinks TWTR could be improved by a new CEO,” Evercore ISI analyst Kevin Rippey wrote on Monday, in which he raised the company’s price target to $ 33 for $ 29.

“We do not believe that a replacement for Mr. Dorsey would be better able to position the company to address the structural issues that challenge sustained growth,” said Rippey.

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