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Twitter's Dorsey goes on the hot seat

Jack Dorsey, CEO of Twitter.
John Chiala | CNBC
Jack Dorsey, CEO of Twitter.

For Twitter CEO Jack Dorsey, Tuesday's earnings report is as much about style as substance.

Sentiment on Twitter is in the dumps. The stock has plunged 38 percent in the past year, the worst performance among the 10 most-valuable U.S. Internet companies.

Dorsey inherited this mess. He was hired as interim CEO in June and, after a four-month search, was given the post permanently despite also running his payments company Square, which is preparing for an IPO.

Dorsey's first major move was to fire 8 percent of Twitter's staff. His inaugural earnings report is set for after the bell, and there's little mystery in the headline numbers.

Earlier this month, when Twitter announced the job cuts, the San Francisco-based company also said third-quarter revenue would be at or above the high end of the previously forecast range of $545 million to $560 million. Analysts predict sales of $560 million, according to Thomson Reuters, which would represent growth of 55 percent from a year earlier.

Twitter will likely report a quarterly loss of 27 cents a share, compared with 29 cents the year-ago quarter.

Of greater importance will be Dorsey's tone and ability to convince investors that new products like Moments, which serves as a real-time news feed of the most important things happening on Twitter, and the live video service Periscope are luring new members and making existing users more engaged and chatty.

"While Twitter needs constant product innovation, the bigger need at this time is to build the business model," Rosenblatt Securities analyst Martin Pyykkonen wrote in a report Monday. "We continue to think that should be done from the standpoint that Twitter is really more so media than tech, even though admittedly a mix of both."

Pyykkonen has a neutral rating on the stock and a $36 price target, 17 percent above Monday's closing price.

Monthly active users (MAUs) is always a critical figure for investors because other social apps like Instagram and Snapchat are competing for attention and Twitter has struggled to attract younger audiences.

Read MoreTweets available through Google mobile search

Analysts expect to see a 14 percent increase to 322.4 million, according to FactSet. That number may be bolstered by Google, which started showing Tweets in search results on mobile devices in May and on desktops in August.

Twitter has said not to expect increased activity from Google yet, but "we don't see how it cannot," MKM Partners analyst Rob Sanderson wrote in an earnings preview this week. "A search in many categories often ranks Twitter content in the top slot."

Sanderson, who has a neutral rating and $31 price target, said the deal could add several million users.

Twitter shares

Beyond the numbers, Dorsey has the added pressure of getting shareholders comfortable with his schedule. As CEO of Square, Dorsey will soon be on the road pitching that company to investors and dealing with a whole separate set of concerns regarding profitability, sustainability and competition.

The Twitter board of directors is clearly aware. In the second paragraph of a statement in June, the board said it would only consider candidates "who are in a position to make a full-time commitment to Twitter."

But the board landed on Dorsey anyway. The stock has mounted somewhat of a rally since then, after falling below its IPO price.

There's still plenty of skepticism about Dorsey's ability to spark a revival.

"While a resolution to the search is positive for Twitter, the presence of a CEO with two separate company roles is negative, if only on principle," Pivotal Research analyst Brian Wieser, who nevertheless has a buy rating and $42 price target, wrote in an Oct. 5 report. "There remains a risk that conflicts may emerge between these responsibilities or that the CEO's time (and decision-making capacity) is divided at critical junctures in the future."