Twit­ter CEO to step down

News that CEO Dick Cos­tolo is leav­ing sends shares soar­ing in af­ter-hours trad­ing.

Los Angeles Times - - FRONT PAGE - By David Pierson and Tracey Lien

Dick Cos­tolo’s fiveyear ten­ure has seen stag­nant growth and man­age­ment dys­func­tion.

Af­ter years of Wall Street grum­blings, stag­nant growth and man­age­ment dys­func­tion, Dick Cos­tolo said Thurs­day he was step­ping down as chief ex­ec­u­tive of Twit­ter Inc.

Co-founder Jack Dorsey was named in­terim CEO while the San Fran­cisco com­pany searches in­ter­nally and ex­ter­nally for Cos­tolo’s re­place­ment. Cos­tolo, 51, will re­main on the board.

“There is never, ever a per­fect time for a tran­si­tion like this,” Cos­tolo said dur­ing a we­b­cast Thurs­day. “But given the com­pany’s cur­rent ex­tremely strong team … and the re­sources avail­able to us, we as the board are con­fi­dent we can ex­e­cute a smooth tran­si­tion.”

The move, ef­fec­tive July 1, ends a five-year ten­ure at the helm of the mi­croblog­ging com­pany for Cos­tolo. At the time of his ap­point­ment, he was thought to be the ex­ec­u­tive who would shape Twit­ter into a ma­ture, mon­ey­mak­ing be­he­moth like some of its big­ger Sil­i­con Val­ley coun­ter­parts.

In­stead, Cos­tolo strug­gled to in­tro­duce new prod­ucts that could add more users. Growth stag­nated for the mi­croblog­ging ser­vice and ad­ver­tis­ing never be­came as lu­cra­tive as in­vestors wanted. There was also a user ex­pe­ri­ence prob­lem: Out­side of the me­dia and en­ter­tain­ment worlds, the site con­tin­ues to baf­fle many peo­ple who aren’t familiar with its 140-char­ac­ter lim­its, hash­tags, lists and retweets. Sim­ply put, many still don’t un­der­stand what Twit­ter is for.

“Twit­ter needed the change,” said Nate El­liott, prin­ci­pal an­a­lyst at For­rester Re­search. “Twit­ter right now isn’t very good at mak­ing any­one happy. It’s not mak­ing its users happy. It’s not mak­ing its ad­ver­tis­ers happy, and that’s a bad com­bi­na­tion.”

Dorsey, who is also co­founder and CEO of Square, said dur­ing the news con­fer­ence that the change in lead­er­ship was not a re­flec­tion of its re­cent per­for­mance.

“This tran­si­tion is noth­ing more to do with Dick want­ing to move on,” he

said.

He also sug­gested that the com­pany would stick to its strat­egy, a po­ten­tially trou­bling sign for in­vestors who have been call­ing for whole­sale changes at the com­pany.

Twit­ter’s share price has fallen more than 50% since their peak of $69 in Jan­uary 2014, two months af­ter the com­pany went public on the New York Stock Ex­change.

Twit­ter’s an­nounce­ment came af­ter regular trad­ing Thurs­day, when its shares closed down 1 cent at $35.84. They spiked as much as 9% in ex­tended trad­ing.

Twit­ter’s prospects for growth this year aren’t great. Its monthly user base is ex­pected to grow just 14.1% this year, slow­ing from more than 30% two years ago, ac­cord­ing to EMar­keter.

The re­search firm said Twit­ter ac­counted for less than 1% of the globe’s $145 bil­lion in dig­i­tal ad­ver­tis­ing rev­enue. By com­par­i­son, Face­book Inc.’s share of the dig­i­tal ad mar­ket last year was 7.93%. Google Inc., the mar­ket leader, com­manded 31.42% mar­ket share.

Calls for Cos­tolo to re­sign have been in­ten­si­fy­ing re­cently, com­ing to a head last week when Chris Sacca, a ma­jor Twit­ter in­vestor, posted a nearly 8,500-word es­say lament­ing all the missed op­por­tu­ni­ties to boost ad­ver­tis­ing.

Ear­lier this year, Cos­tolo faced crit­i­cism for do­ing noth­ing to stamp out ha­rass­ment, bet­ter known as trolling, on the so­cial me­dia plat­form af­ter the tech news blog Verge re­leased a Twit­ter memo writ­ten by the chief ex­ec­u­tive.

“We suck at deal­ing with abuse and trolls on the plat­form and we’ve sucked at it for years,” Cos­tolo wrote.

De­spite be­com­ing one of the In­ter­net’s most valu­able prop­er­ties, Twit­ter has never been her­alded for strong lead­er­ship.

Dorsey, 38, was Twit­ter’s first CEO but was deemed not ready for such a prom­i­nent role. He was ousted in 2008 af­ter a re­port­edly ac­ri­mo­nious dis­pute with one of the site’s other co-founders, Evan Wil­liams, who re­placed him as CEO. Dorsey was re­named chair­man of the board and then later, when Cos­tolo took over as CEO in 2010, as ex­ec­u­tive chair­man. Wil­liams re­mains on the board and went on to co­found the blog-pub­lish­ing plat­form Medium.

Ob­servers ul­ti­mately strug­gled to rec­on­cile how Twit­ter could boast 300 mil­lion ac­tive monthly users and serve as a sound­ing board for the world’s most in­flu­en­tial peo­ple yet still be un­able to cre­ate sig­nif­i­cant profit.

“The ques­tion is, if Twit­ter is such a big brand and so im­por­tant, how come it isn’t a big­ger busi­ness?” said Brian Blau, re­search direc­tor for con­sumer tech­nol­ogy and mar­kets at Gart­ner.

Blau said Cos­tolo’s res­ig­na­tion with­out a clear re­place­ment prob­a­bly sig­naled tur­moil within the com­pany’s man­age­ment, though he be­lieved Dorsey would make a ca­pa­ble in­terim CEO.

The changes need to be dra­matic to re­verse the com­pany’s course, said El­liot of For­rester Re­search.

“This has to be the start of a pe­riod of in­no­va­tion for Twit­ter,” he said. “All the prob­lems they face to­day stem from a lack of in­no­va­tion. They have done too lit­tle to im­prove or ex­tend their user ex­pe­ri­ence.

“The bot­tom line is if you signed up for Twit­ter the first day it was avail­able, and you slipped into a coma and woke up to­day, you’d rec­og­nize it. That shouldn’t be hap­pen­ing.”

Cos­tolo owns 822,545 shares of Twit­ter, ac­cord­ing to a May fil­ing with the Se­cu­ri­ties and Ex­change Com­mis­sion; based on Thurs­day’s closing price, those shares are worth about $29.5 mil­lion. He made nearly $5.1 mil­lion af­ter sell­ing 140,352 shares of com­pany stock in Jan­uary.

De­spite dis­ap­point­ing Wall Street, Cos­tolo was well-liked, in­tro­duced in­no­va­tive prod­ucts such as Periscope and guided Twit­ter through its IPO.

“In un­der five years as CEO, @dickc grew Twit­ter from a $3b val­u­a­tion to a $23b val­u­a­tion. Credit where credit is due. Thanks, Dick,” Sacca tweeted Thurs­day.

Cos­tolo is known for his quick wit sharp­ened by a back­ground in im­pro­vi­sa­tional com­edy.

His first tweet af­ter join­ing Twit­ter as chief op­er­at­ing of­fi­cer in Septem­ber 2009 was: “First full day as Twit­ter COO to­mor­row. Task #1: un­der­mine CEO, con­sol­i­date power.”

Euro­pean Pressphoto Agency

DICK COS­TOLO’S f iveyear ten­ure at the helm of Twit­ter will end July 1.

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