Jack Dorsey Photo: ioulex By Jon Swartz Aug. 10, 2018 2:40 p.m. ET Twitter and Square may be a world apart when it comes to their businesses, but there is an important reason the two companies are across the street from each other in the Tenderloin neighborhood of San Francisco.
It makes it possible for their shared chief executive, Jack Dorsey, to shuttle between them in just two minutes on foot (trust us, we timed the walk) and run the companies concurrently.
That brief commute helps explain why both companies, which were struggling more than a year ago, have reversed course—and why their stocks are among tech’s best performers this year, despite a recent stumble by Twitter.
Dorsey’s common leadership is credited with their revivals, much as he was blamed for their troubles when he became the nation’s most prominent dual executive in mid-2015.
Dorsey, 41, has orchestrated the two comebacks by focusing on a big-picture tech bet and delegating a top-flight management team to execute his strategy.
For Twitter (ticker: TWTR), it has been the adoption of live video, while a push in Bitcoin has helped lift the payment company Square (SQ). Over the past 12 months, shares of Square are up 176%, and those of Twitter, 99%.
True, Twitter stock has slid 4% since the company said on July 27 that its keenly watched number of monthly active users had declined in the second quarter, throwing cold water on hopes that the social-media platform could achieve much greater scale.
And lately, Twitter—and Dorsey in particular—has come under a harsher light because of the platform’s decision not to ban Alex Jones or InfoWars, as did Apple (AAPL); Facebook (FB); YouTube, which is owned by Alphabet (GOOGL); and Spotify (SPOT). Jones and InfoWars have been accused of spreading false news and denying that actual events, such as the Sandy Hook school massacre, occurred.
In tweets late on Tuesday, Dorsey said that Jones “hasn’t violated our rules,” but “we will enforce [them] if he does.” “Accounts like Jones’ can often sensationalize issues and spread unsubstantiated rumors, so it’s critical that journalists document, validate, and refute such information directly so people can form their own opinions,” Dorsey tweeted. “This is what serves the public conversation best.
”
Questions over that decision threaten to spur more scrutiny of the platform. But as a business, Twitter is in much better shape than it was less than two years ago. At that time, the company was hemorrhaging money and appeared to be on the sales block. But management couldn’t give it away. Would-be buyers blanched at a poorly run organization that was struggling to ramp up growth in active users and turn advertising potential into real ads.
Dorsey’s other creation, Square, was faring slightly better then, but some observers— including Barron’s —were very bearish on it. A major partnership with Starbucks had amounted to a cup-half-full proposition. An emerging parlor game in Silicon Valley was whether Dorsey could successfully navigate one company, let alone two.
Today, Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management, says he’s “shocked” that Dorsey has revived two enterprises with “different audiences, constituencies, pressures, time frames, and technologies.” Says Sonnenfeld: “About the only thing in common is the area code. He must feel like Mrs. Doubtfire some days, multitasking.
”
Dorsey has done so in his own peculiar style. While he may emulate Steve Jobs and his obsessive attention to design at Apple, Dorsey is not a micromanager in the way that Jobs was.
Former Twitter boss Dick Costolo, whom Dorsey succeeded in 2015, says Dorsey is getting all the credit he deserves. “Jack is a calm, thoughtful leader,” Costolo tells Barron’s .
Related Sidebar: How Some CEOs Successfully Run More Than One Company Current and former employees at Twitter and Square say that Dorsey manages his time assiduously, usually through highly regimented meetings with specific agendas and goals, and by delegating authority to highly trusted executives. Each day is organized around a theme, such as business leadership or product development.
“I like having a lot of repetition in my schedule because it allows us to see how we’re actually growing, rather than randomness, which hides that,” Dorsey told Fast Company magazine in 2016 .
“We kick off the week every Monday with a leadership meeting to talk about what we’re committing to this week and what we learned last week.
And we have check-ins on Wednesdays and Fridays for 30 minutes.”
Both Twitter and Square declined to make Dorsey available to Barron’s. In what seemed to be a sort of tug-of-war for his affections, each was reluctant to discuss their shared leader if the other was going to be mentioned.
Dorsey projects an understated, reasoned leadership that is sometimes hard to read.
To motivate staff members, he maintains a transparent, communicative culture, recommending books to read and ways to think about approaching creativity or project management. He often works side-by-side with engineers, meets one-on-one with employees at a nearby Blue Bottle Coffee shop, and holds a weekly all-hands chat at each company.
The introverted Dorsey can appear fanatical about his interest in music (Kendrick Lamar), mass transportation, and history—he can tell you all about the Art Deco architecture of Twitter’s headquarters building, which was built in the same year as the Golden Gate Bridge (1937).
It’s his obsessiveness with public transportation that partly inspired Twitter.
The dispatch systems used by police cars, fire trucks, delivery trucks, and taxis spurred him to come up with a notepad sketch in 2000 that led to Twitter.
“My whole philosophy is making tech more accessible and human,” Dorsey told this reporter in 2012. “I’m a very low-level programmer.”
‘ About the only thing in common [between Square and Twitter] is the area code.
[Dorsey] must feel like Mrs. Doubtfire some days, multitasking.
’
—Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management Dorsey’s reading list over the years has included The Score Takes Care of Itself: My Philosophy of Leadership , by Hall of Fame football coach Bill Walsh; and Mindset: The New Psychology of Success , by Carol Dweck, a psychology professor at Stanford University. “What resonates with tech companies is the [book’s] premise that everyone is capable of development”—not just top-level talent, Dweck says. “Maximizing people’s abilities leads to improved trust and collaboration. It doesn’t just rest on the leader.
”
Indeed, Dorsey is fond of comparing his companies’ teamwork to that of the back-to-back NBA champion Golden State Warriors, made up of individual stars who have found a way to work well together.
Despite Twitter’s recent setback, Dorsey deserves credit for helping the company generate some 20% more revenue per user than it did a year ago.
Its monthly active user base has barely budged for years, and it will almost certainly never come close to matching the scale of Facebook, but its shares have surged because it has found ways to appeal to advertisers. And there’s plenty more potential there. Twitter’s preferred performance measure—adjusted profit margin—is 37%; Facebook’s is in the 40s, but is expected to fall to the mid-30s.
What has changed? Twitter’s fateful decision in 2015 to bet big on video has paid off handsomely.
Dorsey led the push to video content for the then text-heavy microblogging service. What was a near-zero business three years ago accounted for more than half of Twitter’s $575 million in first-quarter advertising revenue, and the same portion of the second quarter’s $601 million, buoyed by the world’s largest sporting event, soccer’s World Cup.
Twitter’s video strategy is unique: It doesn’t saddle the company with the exorbitant fees that competitors are forking over for exclusive rights to major sporting events. During the World Cup, Twitter partnered with FOX Sports to provide near real-time highlights of every goal, as well as pregame shows and player interviews.
The strategy is “the biggest way to show our stake in this business,” says Jay Bavishi, Twitter’s point person for FIFA, the international soccer organization, and the International Olympic Committee.
Since Twitter focused on live video with a high-profile investment in streaming NFL programming in 2016, Dorsey & Co.
have devoted their energies to the strategy and de-emphasized efforts that don’t contribute to it. The approach seemed logical—even necessary—as smartphone and broadband technology improved, and consumers’ usage habits evolved.
The video push has lately been overshadowed by the sequential dip in monthly active users that sent Twitter shares reeling, even though revenue rose 24% and the social-media outfit posted its third consecutive profitable quarter.
Such is the collateral damage from a push to rid the platform of fake or suspicious accounts that may decrease its roster of users, but could establish long-term trust with top-flight advertisers, observes Nate Elliott, principal at Nineteen Insights, a social-media research and advisory firm.
“Twitter’s monthly active user number has not been a huge factor in its revenue growth for years,” Elliott maintains. “What is important is that revenue grew 24%, year over year, and revenue per user was up 20%.
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Keith Weed, chief marketing officer at Unilever, the second-largest advertiser in the world, underscored that sentiment in a tweet: “Pleased to see Twitter taking a big stand against the fake followers polluting the digital ecosystem. Great step forward, which strengthens the industry.”
Still, regulatory pressures remain a potential hurdle, as Twitter grapples with policing its users, a group roughly the size of the 325 million-plus population of the U.S. Such was the case on Aug.
2, when House Majority Leader Kevin McCarthy (R., Calif.), requested that Dorsey testify before the House Energy and Commerce Committee over allegations that Twitter engages in “shadow banning” of conservative voices.
In a blog post from representatives of its legal and product teams , Twitter denied any use of “shadow banning.” The term has been defined as making someone’s content undiscoverable to everyone, except the person who posted it.
While video has been driving Twitter, another technology has been a catalyst in the recent trajectory of Square. Dorsey’s appetite for cryptocurrency has led to a bump in company shares.
They vaulted nearly 50%, packing on about $8 billion in market value, between November and early June—a period in which it tested Bitcoin trading for customers of its Cash app, which lets users transfer money to friends and family.
“The internet deserves a native currency,” Dorsey, a personal investor in Bitcoin and start-up Lightning Labs, which is developing technology to make Bitcoin faster and easier to use, said at the Consensus blockchain and cryptocurrency conference in New York in May.
Aided in large part by crypto, Square’s gross payments could reach $409 billion in 2026, or 4% of total U.S. payment volume, RBC Capital Markets analyst Daniel Perlin predicted in a note to clients. That equates to roughly $4.
1 billion in U.S.
net revenue, he concluded. By 2026, Square’s total net revenue will reach $7 billion, and adjusted earnings will hit $4.81 per share, according to the report.
The company’s momentum continued in its second-quarter results, disclosed on Aug.
1, which again exceeded analysts’ earnings estimates, producing Square’s fifth consecutive quarter of accelerated revenue growth.
The promise of crypto has generated excitement over Square. But the bullish case goes deeper. The evolution of the aforementioned Cash digital-wallet application from money transfer to “full-fledged financial service offering” could make the app alone worth $20 a share, KeyBanc Capital Markets analysts said in a recent note. The firm raised its price target on Square shares to $75, 6% above a recent $71. KeyBanc’s analysis is based on an increase in gross payment volume for Cash from $9.
2 billion in 2017 to more than $54 billion in fiscal 2022. This would increase Cash-related revenue to $450 million in 2022 from $69 million in 2017.
Square’s winning streak extends to its acquisitions.
One is Website builder Weebly, for which it paid a company-record $365 million. Weebly constructs online and e-commerce offerings for small- and medium-size businesses. A second is food-delivery specialist Caviar, which has bolstered Square’s restaurant operations.
By branching into both markets, Square expanded what had been a market largely confined to small firms.
The case for Square has improved as it has evolved from the maker of a simple dongle for small businesses to a broader financial-services provider for larger enterprises, with the addition of payroll and lending features.
It has differentiated itself from PayPal Holdings (PYPL) and credit-card companies by creating flexible software that lets merchants stay up to date with payment systems, such as WePay, Alipay, Apple Pay, Samsung Pay, and cryptocurrency. It also has established a footprint in lending for small businesses, most recently via a partnership with eBay (EBAY) in July.
In addition, Square’s peer-to-peer Cash app is growing three times as fast as Venmo and will soon pass it in total downloads, according to a recent report from Nomura Instinet analysts Dan Dolev and Conan Leon.
Dorsey has found a niche in an underserved market for millions of smaller customers that will only grow as Square blossoms globally.
He has undergirded that success by tirelessly meeting with customers, and benefiting from the presence of an executive whom many consider the organization’s unsung star: Chief Financial Officer Sarah Friar, a former Goldman Sachs lead software analyst who is highly respected for her ability to “communicate well with the Street,” BTIG analyst Mark Palmer says.
Dorsey’s own narrative parallels the many twists of the Twitter story.
More About Twitter Alex Jones and InfoWars Are Just the Latest Episode of the Same Social Media Conundrum The Trouble With Twitter: Cleaning Up Is Costly Twitter CEO: User Cleanup Work ‘Doesn’t Have an Endpoint’ Widely credited with inventing the service, he rose to chief executive before clashes with fellow co-founder Evan Williams led to Dorsey’s ouster in 2008. He returned as executive chairman in 2011, after founding Square in 2009.
Dorsey became interim CEO in mid-2015, succeeding Costolo, before dropping the “interim” in October.
A major reason for Dorsey’s return was his understanding of the company’s corporate DNA.
The mystique of “Jack,” as he is known in Silicon Valley, is one of grand ambition and Machiavellian impulses. But it betrays a soft-spoken Midwesterner who possesses a self-deprecating sense of humor and dry wit. Denied access to a Starbucks’ Global Leadership Conference in Houston in 2012, he temporarily borrowed a reporter’s badge to gain entry.
Unusual for a CEO of a S&P 500 company, he bears a nine-inch-long tattoo of an F-sharp (shaped something like an “S”) on his forearm. It symbolizes Dorsey’s interests in mathematics, anatomy, and music.
Dorsey walks to work every day from his San Francisco home, listening to podcasts while clearing his head.
After grabbing a cup of coffee at the nearby Blue Bottle around 8:30 a.m.—yes, he pays with Square—the CEO works for up to 18 hours, interrupted only by a 30-minute meditation session. After the morning at Twitter, he spends the afternoon at Square.
Dorsey’s interest in helping small-business owners started with his parents. His father owned a pizza restaurant, and his mother owned a coffee shop, where Jack and his two brothers worked.
Both Twitter and Square depend on Dorsey.
That risk is described in Square’s 10-Q filing in August. Dorsey’s dual capacity, it said, “may at times adversely affect his ability to devote time, attention, and effort to Square.” (Twitter’s July 10-Q cites no such risk.)
So which company—Twitter or Square—has the most upside?
From our corner, it’s Twitter.
Live video has, and will continue to be, a bountiful source of internet advertising revenue, which is Twitter’s sweet spot. PricewaterhouseCoopers estimates that sports-related advertising will help lead an ad revenue surge to $127.4 billion in the U.
S. in 2022 from $88 billion in 2017.
To be sure, there are issues: The total of Twitter’s monthly active users has stalled at 335 million, and, despite significant steps recently to tamp down on bad actors, it hasn’t shaken the lingering impression that it hasn’t done enough to make its platform a safer place.
Newsletter Sign-up Things are more fluid at Square, especially as it pins a chunk of its fate on a play on Bitcoin.
Questions remain about how widespread acceptance of cryptocurrencies ultimately will be, and recent Wall Street notes, though optimistic, are based on projections in faraway 2026.
BTIG’s Palmer has a Sell rating on Square and a price target of $30, out of concern that the stock is too closely tied to the fate of Bitcoin prices. He also has misgivings about Square’s expanding role as a lender. “If the Fed raises interest rates, then Square gets squeezed,” he argues. “I’m not sure this is a side business the company should pursue, given its other business pursuits.”
Still, these are comparative quibbles. Both Twitter and Square have potential because of bold bets placed by Dorsey, and investors should be happy to share him, as well.
“Half of Jack Dorsey is worth 100% of anyone else,” contends Charles Whitehead, a business law professor at Cornell Law School who lectures on the dual CEO.
“He appeals to investors, whom he attracts, and employees, whom he retains.”
Write to Jon Swartz at [email protected]
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