Editing Twitter Twitter is a pretty silly company but it's not Snap. Twitter Inc. makes a tiny fraction of the money that dominant social-media giant Facebook Inc. makes, but it has been profitable for the last two full years; Snap Inc. has never been profitable. Twitter went public in 2013 at $26 per share, and closed on Friday at $33.20; Snap went public three years ago and is still below its IPO price. Facebook is eating Twitter's lunch, but it is eating Snap's breakfast, lunch, dinner, dessert, midnight snack, dog-face filters and self. Twitter is often blamed for enabling online abuse and destroying democracy but at least that means it matters. Twitter's chief executive officer, Jack Dorsey, is also the CEO of another public company and plans to move to Africa for a while, apparently mostly to work for the other company. This is extremely silly indeed, and no professional CEO of a responsible public company would be allowed to do it. "We'd like you to be our CEO," the board would say, and the CEO would say "sounds great but I am also the CEO of another company, is that a problem," and the board would say "yes of course that's a problem, we meant you'd quit your other CEO job and work for us, that's how CEOing works, you can be CEO of multiple companies sequentially but not at the same time, what on earth," and the CEO would say "also I think it'd be cool to move to Africa" and the board would go find another candidate. "This candidate was really talented," they might say, "but he couldn't commit to working for us and that is kind of important." On the other hand, if you are the founder-CEO of a modern tech company, it is a little weird not to have multiple jobs. Your role as a tech founder-CEO is to be a charismatic kooky visionary, and if you just go to the office and focus on growing your market share and improving margins, no one will respect you. You need to also run a spaceship company, or have a side project involving curing death or saving humanity from robots or running for president or, at the very very very least, blockchain. The pattern for world-changing tech founders—the characteristic celebrated in role models and sought by investors—is that they are constantly coming up with diverse brilliant ideas and then overcoming obstacles to make them reality. As obstacles go, "well I have a 100-hour-a-week job running a company" is no reason not to go do some other brilliant thing. Just running one multibillion-dollar public company displays a certain fatal lack of ambition. So there is a cultural clash here: "Wall Street," the normal investors in normal public companies and their representatives on public-company boards, wants focused undistracted competent CEOs; "Silicon Valley," the founders and venture capitalists behind the big tech companies, wants thought-leader-y every-direction-at-once visionary CEOs. There are basically three ways to resolve the clash. One is, if you can make everyone happy, there's not that much of a clash. The founder-CEO does lots of weird stuff, satisfying his Silicon Valley peers and his own ambition, but he also makes lots of money, satisfying his regular investors. This is actually not all that uncommon; the reason that pattern-matching investors are looking for universally ambitious tech founders is that it often works. Super-talented people sometimes really do have lots of different ideas that pull them in lots of different directions, and one of those directions will nonetheless be "make lots of money for shareholders." Another approach is to protect the founder from Wall Street pressures. Give the founder dual-class super-voting stock so that he can control his company and pursue his kooky dreams forever. This is a reasonable thing for a founder to ask of his early investors, because they tend to be Silicon Valley investors and sympathize with his approach. But it is also something that founders can often ask of investors in their initial public offerings, mostly because, again, it often works: Wall Street investors have noticed that unchecked visionary founders often make their investors a lot of money, and so have often been willing to give up voting control to founders. To the point that this has just become fairly standard market practice, and even boring private-equity-owned not-especially-visionary pet-supply companies can demand dual-class stock and investors will more or less shrug. The third approach is, you know, you're a visionary tech founder, you take your company public, and, oops, now you are a public-company CEO; if the shareholders get sick of you then out you go. You can try to persuade them, you can explain that your weird portfolio of interests is actually what makes you qualified to run their tech company, but if they disagree then you can't overrule them. It is not your company; the shareholders own it, you are just working for them. We have not seen a ton of that third approach in the recent crop of founder-run public tech companies, but here you go: Activist investor Elliott Management Corp. has taken a sizable stake in Twitter Inc. and plans to push for changes at the social media company, including replacing Chief Executive Officer Jack Dorsey, according to people familiar with the matter. The New York-based firm has nominated four directors to Twitter's board, said the people, who asked to not be identified because the matter isn't public. … Twitter has been a potential target for activist investors for years. The company only has one class of stock, which means co-founder Dorsey doesn't have voting control of the company like Facebook Inc.'s Mark Zuckerberg or Snap co-founders Evan Spiegel and Bobby Murphy. And: Twitter continued to fall behind in the battle for users, hampering its ability to generate sales from advertising. Twitter now has 152 million daily average users, according to its latest quarterly figures. Facebook's user base now tops 1.6 billion. Mr. Dorsey has also failed to deliver consistent earnings growth and Twitter's share price is little changed since he returned to the CEO role while Facebook's stock has more than doubled during that period. In a nice symbolic move, Dorsey didn't show up to meet with Elliott: When Twitter executives met their activist investor agitators from Elliott Management Corp. for the first time last week, the man with the most to lose was absent. Dorsey didn't attend the Friday night summit in San Francisco where his future was the main topic of conversation, according to people familiar with the matter. Instead, Twitter's representatives included Chairman Omid Kordestani and its lead director Patrick Pichette, said the people, who asked not to be identified as the details aren't public. In Elliott's corner was the New York-based hedge fund's head of U.S. activism, Jesse Cohn, and portfolio manager Marc Steinberg, they said. Chief among Elliott's concerns: The need for Twitter to have a full-time CEO, rather than one who splits his time, as Dorsey does, between the social media company and mobile-payments platform Square Inc. In a year where major news events are colliding -- from the spread of the coronavirus to the U.S. election and the Summer Olympics -- Elliott thinks Twitter needs the undivided attention of a CEO to oversee the role it plays in disseminating information, especially when new users and advertisers are flocking to the platform, the people said. This is all, of course, a repeated game. Other founder-led tech companies will go public, and they will or will not have dual-class stock, and that will depend basically on how burned tech founders feel by the public markets, and how burned public markets feel by tech founders. When Snap went public with non-voting stock, cementing its founders' control forever, public investors raised a fuss and changed some index-inclusion rules, without having much deterrent effect on future IPOs. Three years later, Snap has never been profitable, it trades below its IPO price, and disgruntled investors can't do anything about it. When WeWork tried to go public last year, with triple-class stock and an assortment of other founder-friendly provisions that made it clear that the founder owned the company and the shareholders just provided the money, the market genuinely rebelled, the deal got pulled, and the founder's net worth was reduced by perhaps tens of billions of dollars. There is a story you could tell here about how in hot markets investors were willing to put up with a lot, but the unicorn IPO market has cooled, a lot of recent tech unicorns have not worked out that well for investors, and those investors are now asserting themselves and demanding more normal governance. They have learned that, if they give founders total control, they can get burned. If things at dual-class companies get ugly, expect more investors to push back against the next one. But the founders get to observe the market too. An Elliott-led ejection of a public-company CEO is not a pretty sight. (One CEO deposed by Elliott memorably commented that "when he began to research Elliott online, the experience was like 'Googling this thing on your arm and it says, "You're going to die."'") If you're a public investor and you bought shares of Snap in its IPO, the experience might lead you to object to dual-class stock in future IPOs. But if you're a tech founder and you watch Elliott wage an ugly proxy fight to get rid of Jack Dorsey for the venial sin of working half-days at his company, the experience might lead you to insist on dual-class stock in your own IPO. Twitter is a little bad, and its founder is in the crosshairs of big scary Elliott; Snap is worse, and its founders are fine because they had the foresight to prevent this.[1] The whole point of dual-class stock is to protect tech founders from Elliott so that they can follow their bliss in a long-term visionary way! If things at Twitter get ugly, expect more founders to demand dual-class stock in their IPOs. Zoom Zoom If you were the chief executive officer of Zoom Technologies Inc., what would you do about it? Not Zoom Video Communications Inc., the cloud-based videoconferencing company with a $29 billion market capitalization. Zoom Technologies, the $19 million market-cap Beijing-based mobile-phone-component manufacturer whose stock trades over-the-counter in the U.S. and that hasn't made a filing with the Securities and Exchange Commission since 2015? Zoom Video's stock was up 37.6% in February, because its product might become a lot more popular if people are working from home and not traveling for meetings due to coronavirus. Zoom Technologies' stock was up 209.6% in February, because its name is Zoom and, more important, its ticker is ZOOM. (Zoom Video's is ZM.) If you thought "wow coronavirus will be good for Zoom, better buy some" you probably bought ZM, but you might have bought ZOOM. Before last month ZOOM's stock usually traded less than $50,000 a day, so it didn't take that much interest to push the stock up a lot. More people bought ZM than ZOOM, but there's a lot more ZM than ZOOM to begin with, and the net result is that ZOOM's stock went up a lot more (on a percentage basis) than ZM's. This is not the first time; we talked last year about how ZOOM zoomed when ZM filed for an initial public offering. To stylize the situation, you can think of ZOOM as sort of a dormant corporate shell that owns one asset, the ZOOM ticker. It owns that asset more or less by accident, and it is not ownership in the traditional sense; stock exchanges assign tickers, and ZOOM can't just go and sell its ticker. But still every now and then the ZOOM ticker becomes a valuable asset and starts generating revenue. In good-for-ZM times, you can make a couple of million dollars a day selling ZOOM, which I suspect—again, they don't file financials—is more than ZOOM can make selling mobile-phone components. I feel like I'd … sell stock? It would be hard! You'd have to get your SEC filings current, file a registration statement, all that stuff. If you're not running a business anymore the financials would be pretty easy—no revenue, no costs, etc.—though there'd be some tricky stuff in the qualitative disclosures. "We are in the business of selling stock to people who want exposure to videoconferencing systems, though we are not in the business of selling videoconferencing systems," that sort of thing. But there is a known, persistent market inefficiency here, and theory demands that someone arbitrage it. Why not ZOOM? "Inside the failed crypto auction of a WeWork-leased office tower" "Inside the failed crypto auction of a WeWork-leased office tower" is the headline here, and with a headline like that I am always tempted to just make a exasperated gesture at it and move on. Jokes or analysis seem superfluous, what do you want, it is crypto, it is WeWork, here: Pat O'Meara found success structuring deals for the Catholic Church, but early last year he found a new calling: Raising millions of dollars from cryptocurrency investors for real estate and infrastructure acquisitions. O'Meara, CEO and founder of finance and tech firm Inveniam Capital Partners, targeted $260 million of property acquisitions throughout the U.S. A centerpiece of the project would be the $65 million purchase of a historic downtown Miami building fully leased to WeWork. Inveniam would acquire the nearly 100,000-square-foot Security Building at 117 Northeast First Avenue in part with money raised in an auction from cryptocurrency investors, with a minimum investment of $500,000. Those investors would have a stake in the property and could collect rent from WeWork using cryptocurrency — allowing the volatile currency to be pegged to a hard asset. Pleasingly that's about it. The deal never happened, and it's not clear if that's because of the WeWork ("O'Meara firmly believes the co-working giant gave his lender pause") or because of the crypto ("should serve as a cautionary tale for future real estate investors who want to use cryptocurrency"). The universe was as lazy with this premise as I am. The words "crypto" and "WeWork" sort of drifted together for a while, and were amusing, and then they drifted apart again. Oratory Value investors have been having a rough time, which led Cliff Asness to write, uh, this: One score and eight years ago Fama and French brought forth on this world, a new factor, conceived in either risk or behavioral effects, and dedicated to the proposition that all portfolios are not created equal. Now we are engaged in a great drawdown, testing whether investors in that factor, or any factor so conceived and so dedicated, can long endure. We are met on a great battle-field of that drawdown, the internet. We have come to dedicate a portion of the internet, as a final resting place for those value managers who here gave up their businesses expecting that that factor would soon revive. It is altogether fitting and proper that we should do this. But, in a larger sense, we cannot diversify away from – we cannot time the bottom of – we cannot easily "fix" the pain caused by – this drawdown. The brave value managers who struggled here, have commemorated the drawdown, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget the Tesla they shorted here. It goes on. It's posted on AQR Capital Management's blog. I don't know if he actually called everyone into a conference room and delivered the whole thing in person, out loud, without cracking a smile. That would be pretty cool. My personal favorite inspirational speech from financial history is when, during the most stressful days of the financial crisis, Lloyd Blankfein told a colleague "You're getting out of a Mercedes to go to the New York Federal Reserve. You're not getting out of a Higgins boat on Omaha beach."[2] But a bit of oratory and some martial metaphors do seem to make some people feel better. Things happen Virus Pushes the Global Economy Closer to a Contraction. The rise and dramatic fall of European investment banks in the US. BlackRock, Vanguard Voting Habits Show Why Some Fear Their Power. Robinhood Suffers Online Outage With Market Advancing After Rout. Banks prepare off-site trading in response to virus threat. Wall Street Scrambles to Harden Virus Defenses. 3 Former Barclays Executives Are Cleared of Fraud Charges. AmEx Staff Misled Small-Business Owners to Boost Card Sign-Ups. WeWork Is Said to Rethink Sale of Startup Back to Its Co-Founder. (Earlier.) The Supreme Court Takes on SEC Disgorgement. Nobody wants Stories on their LinkedIn feed. Pet snake swallows an entire beach towel. Google parent Alphabet invents fish recognition system. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] To be fair: Or, Snap is fine because Elliott does not see it as a value investment? Like your thesis, as an activist, has to be "(1) this is a company with potential and (2) it is not living up to its potential due to some problem that I can fix." Dual-class stock cuts off activism on prong 2—the activist can't do anything to fix the problem—but, separately, prong 1 may or may not be true. [2] In a more Laconic vein, I am also extremely fond of an anecdote about the Crash of 1929 from Frederick Lewis Allen: "The story is told of one banker who went grimly on authorizing the taking over of loan after loan until one of his subordinate officers came in with a white face and told him that the bank was insolvent. 'I dare say,' said the banker, and went ahead unmoved." | 
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