The Twitter CEO change is good, but ‘whether it's good enough’ remains to be seen, strategist says

Evercore ISI's Mark Mahaney joins Yahoo Finance Live to discuss the future of Twitter after CEO Jack Dorsey stepped down yesterday and the hurdles the social media company faces in product development and advertising tools.

Video transcript

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JULIE HYMAN: Yesterday Twitter announced that Jack Dorsey would be leaving as CEO, and CTO Parag Agrawal will take over. Let's talk about the reaction to that. Initially it was positive yesterday, then it went negative.

Mark Mahaney is with us, he's Evercore ISI Senior Managing Director and Head of Internet Research. And Mark initially it seemed like the market was pretty happy that Dorsey was being shown the door, or choosing to leave the company, because it's sort of muddled along for quite a while now. Is Agrawal not the right choice to replace him, or is it just that he has such a big job ahead of him?

MARK MAHANEY: Well you're right, Julie, there was an unusual reversal, I guess, in the trade on Twitter shares yesterday. My interpretation of it was that the market was happy that there is a CEO change, and then disappointed that it wasn't something more material. In other words, I think the market's been correctly focused, and I have been too, on the product development challenges at the company.

And the company has acknowledged this, they did a great investor day earlier this year, and they acknowledged that they were slow and ineffective in rolling out product changes. And they promised to change that, and maybe they have, maybe they haven't, the evidence isn't clear. So that's where people wanted a change, and then they brought in the CEO, the CTO. And I think the Street's reaction may have been a little bit too negative.

But was that-- well the person who's been running product for the last eight years roughly, you're going to have that person now be the CEO? Like is that enough of a change to address the problems that Twitter faces? I think that's the right interpretation of what happened with the stock yesterday.

BRIAN SOZZI: And Mark, you hint in your note that Twitter perhaps needed a more dramatic change. So in your ideal scenario, what is dramatic change at Twitter? Who's leading the company, and what would you like to see the platform transform into over the next few years?

MARK MAHANEY: I don't know, Brian, if I've got a great idea about who the leader-- and Agrawal may well be the right leader for the company. We're just not going to know for a while. I'm just-- the problem has been product development at the company, and both on the advertiser and on the consumer side. And if I step and just focus on the advertiser side, the challenge that Twitter faces is that marketers have some wonderful options, Google, Facebook, Snap, Pinterest, TikTok. There are other platforms that dramatically greater reach more commercial intent, better direct response, advertising tools.

And Twitter has been a brand advertising vehicle pretty much throughout its history, display brand advertising. And the growth on the internet has been direct, internet advertising has been direct response advertising. So partly this is Twitter needs to improve its advertising toolset, its value proposition for marketers.

And then on the consumer side, there's a hard core group of users. So about 35 million, 36 million in the US that just love this product, that love Twitter. I'm one of them.

The question is, are there a lot more than those people, that group of people? And it's unclear to me that the product, the service, can be made as intuitive as it needs to be in order to really get mass market. I know 35 million is a lot of people but if you only get a lot bigger, you need to make the service more intuitive. And I'm not sure the company's done a good enough job of doing that over time.

BRIAN CHEUNG: Hey Mark, it's Brian Cheung here. But can we talk about the way about which this was announced, because it was a little bit unusual. You had the media leak before the market opened then you had the freeze on the stock, on the public exchanges.

And then ultimately you had a tweet coming out from Jack Dorsey on Twitter. A lot of this-- and we know that there's been activist pressure from Elliott, and for many years there was calls for Dorsey to step down-- but was this an orderly step down? Is there anything about the management of the company that there is to be gleaned by how it all unfolded yesterday?

MARK MAHANEY: It's a good question you're asking, Brian. There's a lot of inside baseball stuff there that's going to be very hard for us to know. You did hint at something, or touch on something that's really important.

It's been an issue for investors that we've had a part time CEO. I know Jack Dorsey is-- I'm going to give him full credit. I mean, this is one of the best visionaries and entrepreneurs of our generation.

He founded two companies, Square and Twitter, that have combined for well over $100 billion in market cap. That is truly impressive, and very different businesses too. So hats off to the guy as an entrepreneur, as a visionary. But trying to run both of them at the same time, that's always been kind of a bone in the throat for a good number of investors. And when challenges come up that means it's just a little bit less safety net for the founder, for the CEO.

So I think that's kind of one of the messages that kind of came across, and I think that's what Elliott was also, one of the changes that they have been trying to push for, for a while. So in that sense, I do think it's better to have a full time CEO at Twitter, and this management change is good. Whether it's good enough, I don't think anybody is going to know for three, four quarters.

JULIE HYMAN: Hey Mark, I just wanted to broaden it out for just one second, and we're running short on time. I was going to ask you about Facebook but I want to broaden it even beyond that. As we look at the whole Omicron variant situation, the effect it's having on the market, as you look across your coverage universe-- because I know in particular you have some online travel stocks that you cover. But just everything work from home trade, there are so many implications of this. And I'm just wondering what you're watching in particular as we watch the developments unfold.

MARK MAHANEY: Like everybody else we're just watching to see how virulent this new strain is, this variant yeah, the strain is, and then whether existing vaccines are effective enough or not. I do think if we step back a little bit, it's hard to see how this is going to be as impactful as the original rollout of COVID, the original impact of COVID, in that we've got enough processes in place as societies, as cultures, whatever, to manage this. So if you get a major trade off on travel stocks, and mobility stocks, the ridesharing stocks, the travel stocks, that's probably a buying opportunity. I find it hard to believe we're going to have a repeat of the shocks that we had, which were massive, in that last March, last April, year, year and a half ago.

JULIE HYMAN: Mark we all hope that you're right. And it looks-- initially we'll see what all of this research shows as we find out more. Mark Mahaney, good to see you, Evercore ISI Senior Managing Director and Head of Internet Research. All right we've got some more top business stories for you after the break.