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 Twitter Inc's announcement that Dick Costolo would exit as CEO on
July 1 was long on plaudits but offered few clues on how the company
will tackle its biggest problem: user growth.
Twitter' shares were down 0.6 percent in early afternoon trading on
Friday, after rising much as 3.9 percent just after the opening, as
investors assessed the company's prospects.
Analysts said Twitter has an uncertain future unless it can reverse
slowing user growth by introducing new features that will help it
win a bigger chunk of the digital advertising market from rivals
such as Facebook Inc.
Some also wondered whether Twitter, with its 300 million users,
could be takeover target.
"Prospective buyers have been interested in purchasing Twitter in
the past, and during the interim (CEO) search period we believe the
opportunity for acquisition is heightened," Jefferies analysts wrote
in a client note.
Twitter's current market value is about $23.5 billion, suggesting a
bid would have to be pitched at around $30 billion.
Google Inc is often mooted as the most likely suitor. However,
SunTrust Robinson Humphrey analyst Robert Peck said a deal was
unlikely in the near term as that would have been an attractive
alternative to a CEO change.
For now the main issue for investors is the lack of clarity on the
company's prospects, Macquarie Research analysts wrote.
"We believe there limited visibility into TWTR's potential, limited
understanding of catalysts to drive fundamental improvements, no
expectations of a change in strategy, little reason to think
financials will reaccelerate (near term), and limited valuation
support," the analysts wrote in a client note.
"We certainly agree that TWTR has unmet potential and that a new CEO
could help, but it is unclear if the company can reach its potential
based on its current strategy and trajectory."
Twitter had a 1.6 percent share of the $50.7 billion U.S. digital
advertising market in 2014, compared with Facebook's 10.4 percent,
according to research firm eMarketer.
WHO'S NEXT?
Analysts said the new CEO - co-founder Jack Dorsey will take over on
an interim basis - will need to put monetization of the product on
the backburner to focus on user growth.
"We believe that a replacement CEO may be able to better define
Twitter as an event-driven platform, attract larger branded
advertisers, and respond more rapidly to changes in the
marketplace," Brean Capital analyst Sarah Hindlian wrote.
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Much will depend on who that CEO turns out to be.
The new CEO needs to be product expert, said James Cakmak, an
analyst at Monness, Crespi, Hardt & Co.
"Not a sales background, not a financial background. A product
background. That is essential to kind of setting the company up for
the next stage of growth," Cakmak said.
Dorsey, who was ousted as Twitter's chief executive in 2008, is
staying on as CEO of mobile payments startup Square Inc for now, but
analysts said he could well take the Twitter job on a permanent
basis.
Other possible candidates, according to SunTrust Robinson Humphrey,
include former Yahoo Inc CEO Ross Levinsohn; Mike McCue, the CEO of
newsreader app company Flipboard; Instagram founder Kevin Systrom;
and Evan Williams, CEO of blogging website Medium.
Williams, who helped to launch Medium in 2012, is a co-founder of
Twitter and a director of the company. Costolo took over from him in
October 2010.
Several analysts also mentioned Adam Bain, Twitter's head of global
revenues and partnerships, as a potential candidate.
Costolo took Twitter public in November 2013, and the stock closed
at $44.90 on its first day of trading. Up to Thursday's close, it
had fallen about 20 percent since then, and it has lost about half
its value from its peak in late 2013.
(Additional reporting by Supantha Mukherjee; Editing by Ted Kerr)
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