Is Twitter’s loss the Square stock’s gain?

Investors have given a thumbs-down to both Twitter [TWTR] and fintech Square [SQ] stock in the days following the departure of Twitter’s founder and former CEO Jack Dorsey. However, some analysts think this is a mistake.

Twitter's share price has risen slightly by 1.5% since Dorsey announced on 29 November that it was time for the tech firm to “breakaway” from its founder. He has faced criticism over the social media channel’s failure to get a grip on hate speech, and was at risk of being ousted last year following pressure by activist investors such as Elliott Management.

Yet, Dorsey’s announcement to leave Twitter hurt the stock price, which has inched back to earlier levels.

Square becomes Block

Over at Square, another company founded by Dorsey, and where he will remain as boss, the share price has fared even worse, falling 12% to $186.75 at close on 9 December since 29 November. This is despite Square arguably showing more energy and creativity since the announcement with the news that it will be changing its name to Block on 10 December.

“We built the Square brand for our Seller business, which is where it belongs,” said Dorsey. “Block is a new name, but our purpose of economic empowerment remains the same. We will continue to build tools to help increase access to the economy.” Square, Cash App, music-streaming service Tidal and the bitcoin-focused offering TBD54566975, will maintain their respective brands.

Square Crypto, the company’s bitcoin-focused initiative, will change its name to Spiral.

Dorsey bets on crypto

Analysts and experts took the changes to signify an accelerated switch to the development of cryptocurrencies and bitcoin at Block.

Kurt Wagner, writing in Bloomberg believes solely focusing on Block will allow Dorsey to unite his two passions: bitcoin and his desire to build a company-of-companies, inspired by Disney.

“Dorsey is a bitcoin nut. Square has a very clear and public interest in bitcoin, cryptocurrencies and blockchain technology. It’s also grown into a $90bn behemoth, nearly three times the market cap of Twitter,” Wagner wrote. “He has always wanted Square to become more than just a payments app. He admired the Disney model blending a series of business lines. Block gives him that opportunity in the world of finance.”

Leaving Twitter and focusing on Square could give Dorsey the chance to explore crypto and “try to remake the finance world,” said Wagner. Indeed, analysts expect Block to ramp up investments in its fin-tech innovations.

What analysts think of Square and Twitter

Bank of America analyst Jason Kupferberg upgraded Square to ‘neutral’ from ‘underperform’ after Dorsey’s announcement. It has a price target of $221, up from $210 saying the stock is now pricing in the “deceleration risk” of its CashApp business.

According to MarketScreener, analysts hold a consensus ‘outperform’ rating on Square and an average target price of $292.31, significantly higher than its closing price of $186.75 on 9 December..

On Twitter, the consensus is ‘hold’ and an average target price of $64.38. It currently sits at $45.72.

Analysts have concern over Dorsey's choice of successor, chief technical officer Parag Agrawal. “While investors initially cheered [Dorsey’s] departure, the market recoiled when he named his chosen successor,” wrote Rich Duprey in The Motley Fool. “Agrawal is a 10-year company veteran, but investors indicated they don’t believe an engineer is the leader the platform needs.”

Wedbush analyst Ygal Arounian lowered his price target on Twitter to $52 from $69 and kept a ‘neutral’ rating, adding that Dorsey's contributions to Twitter were undeniable and continued to play a critical role. Therefore, the founder’s departure was "no minor point".

However, Jefferies analyst Brent Thill, according to The Fly, said that the new leadership was a “step in the right direction", and could reinvigorate growth. However, he still sees "plenty of hurdles to clear" such as improving on its sluggish pace of ad product innovation. He has a hold rating and $70 price target.

“While investors initially cheered [Dorsey’s] departure, the market recoiled when he named his chosen successor...Agrawal is a 10-year company veteran, but investors indicated they don’t believe an engineer is the leader the platform needs” - Rich Duprey

Ark celebrates Dorsey’s departure

Ark Invest is a Twitter fan. It snapped up over one million shares in Twitter after the share price dip following Dorsey’s departure. Ark founder Cathie Wood told CNBC that she liked what its new CEO was doing regarding monetisation and turning it into a verification platform. “We are excited. Twitter is starting to accelerate user and advertising growth,” Wood said. “It is one of the most powerful networks out there.”

Both companies have the fundamentals to make a success of Dorsey’s decision. Innovation and responding to changing trends, such as the metaverse and crypto, will be crucial.