Twitter's Revolving Door Spins Again

By Vindu Goel and Mike Isaac, The New York Times | Updated: 2 July 2014 09:22 IST

Twitter's chief executive, Dick Costolo, has replaced virtually every crucial executive at the company in the last few months as he has struggled to figure out how to get more people using the service.

The chief operating officer? Gone. The head of product? Out. The top engineer? Fired.

On Tuesday, Costolo again spun the revolving door, bringing in Anthony J. Noto, the star Goldman Sachs banker who helped Twitter sell its initial stock offering last fall, as the chief financial officer of the microblogging company.

While Noto is respected on Wall Street, he probably will not be much help with Twitter's fundamental problem: How to make a niche service, with its quirky abbreviations like RT and MT and endless flow of 140-character text messages, into something that appeals to the masses.

Twitter had 255 million monthly users globally in March, up 5.8 percent from the end of December. Analysts had hoped to see more than 260 million. Growth at the end of last year was even slower.

That has disappointed investors who bought shares after the company's initial public offering, believing that Twitter had the potential to become as big as Facebook, which has five times as many users.

(Also see: Twitter COO Ali Rowghani Resigns Amid Lacklustre Growth)

"How do you convince my mom she needs to use Twitter? Facebook is obvious. Everyone likes to share pictures and message their friends," said Richard Greenfield, a media analyst at BTIG Research. "If they want to reach everybody in the world like Facebook does, the product is going to have to change pretty significantly."

The continuing turmoil in the executive suite, a hallmark of the company throughout its eight-year existence, suggests that Twitter is struggling to find its footing as competition from Facebook stiffens.

"It's unusual to have this kind of management shuffle and turnover so soon for a public company," said Mark Mahaney, an Internet analyst at RBC Capital Markets. "It just highlights there is still a lot of management risk here. They wouldn't be making all of these shuffles if they were perfectly jelling."

Twitter declined to comment beyond its securities filing announcing the leadership change.

One thing Twitter has gotten right so far: It has become a household name.

Twitter's great strength is bringing people together around events, whether it is to follow news updates and eyewitness reports during a tragedy like the bombing at the Boston Marathon in 2013 or to commune electronically with millions of fellow Super Bowl fans each winter as the game unfolds.

The company has worked with media outlets, television networks and advertisers to make its brand ubiquitous during those moments.

The resulting publicity - remember the selfie that Ellen DeGeneres posted on Twitter when she hosted the Oscars this spring? - prompts a large influx of new users to check out the service.

The challenge is in getting those newcomers to stay. To get real value out of the service, a user has to invest a lot of effort up front, be it deciding which accounts to follow or determining how to sift useful bits of information from the irrelevant chatter that can easily fill up each person's feed.

"If Twitter made a dime after every time someone mentioned it on TV, they'd be where they want to be," said Nate Elliott, a technology analyst at Forrester Research.

At the World Cup soccer tournament, Twitter has experimented with changing the user sign-up experience. Newcomers are prompted to follow the Twitter accounts of players and teams participating in the matches. The idea is that if new users can easily follow Twitter discussions about the popular games, they will understand the value of the service and keep returning long after the last goal is scored.

(Also see: Facebook, Twitter, Google Score During World Cup 2014)

At the very least, Twitter's global marketing campaign around the World Cup matches is likely to pump up the company's user numbers for the month of June. Outside analysts expect the tournament to generate more posts than any other event in the company's history.

And the presence of Noto, who will be the company's chief liaison to investors and potential acquisition targets, could help placate shareholders, who have grown impatient and sent the company's stock down sharply from its December high of more than $73 a share.

"There are probably very few people outside the company who know the company, the people at the company, that know the industry as well as Anthony does," Mahaney said.

News of Noto's appointment pushed Twitter's stock up more than 2.6 percent on Tuesday to close at $42.05.

Noto replaces Mike Gupta, who had been Twitter's chief financial officer since December 2012. Gupta will be moving to a new role overseeing the company's strategic investments in startups.

Noto will be paid an annual salary of $250,000 and received a one-time award of 1.5 million Twitter shares, worth about $63 million. He will also receive options to buy 500,000 shares.

The management shuffle caps several months of executive drama at the company.

Twitter's No. 2 executive, Ali Rowghani, stepped down last month, after Costolo pushed him aside and decided to personally take control of the company's growth and product strategy.

Earlier, Costolo had hired a Google executive, Daniel Graf, to lead product development, and promoted Alexander Roetter, who worked on Twitter's innovative ad products, to run the entire engineering team.

He also appointed Gabriel Stricker, the company's marketing and communications chief, to oversee media partnerships at Twitter. That spurred the tweet-by-tweet resignation of Chloe Sladden, vice president of media, who had built many of the company's valuable partnerships with the television, film and music industries over the last five years.

Noto, a former securities analyst who was previously the chief financial officer of the National Football League, speaks the language of Wall Street.

And given his central role handling Twitter's public offering, he will be well suited for "selling the hopes and dreams" of Twitter, said Alan Johnson, a compensation consultant who works with banks. "If your valuation is a gazillion times your earnings, relationships with Wall Street are probably pretty important."

In the first quarter of this year, Twitter's revenue was up 119 percent to $250 million, from $114 million in the year-ago quarter. But the company remains unprofitable; it posted a net loss of $132 million, compared with a loss of $27 million in the year-ago quarter.

Until recently, Noto, who left his position at Goldman in May, planned to start a job at Coatue Management, where he would have helped the hedge fund make connections with hot Silicon Valley startups.

But when his departure from Goldman was made public, Costolo, who spent a great deal of time traveling with Noto on Twitter's road show for its public offering, reached out to gauge Noto's interest in a position at Twitter, according to two people familiar with the matter who spoke on condition of anonymity.

Noto was supposed to start at Coatue this week. He took the job at Twitter instead.

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