Twitter CEO is Gutting the Top Ranks as User Growth Slows

CFO Is Fourth Top Lieutenant to Be Replaced

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Twitter CEO Dick Costolo.
Twitter CEO Dick Costolo. Credit: Patrick T. Fallon/Bloomberg

Twitter CEO Dick Costolo is gutting the company's top ranks as he seeks to build an executive dream team that can restore momentum.

The microblogging service yesterday named a new chief financial officer, the former Goldman Sachs Group banker Anthony Noto, who took the company public in November. It's the fourth major change among Mr. top lieutenants this year, after the exits of Twitter's chief operating officer, head of engineering and vice president of consumer products.

Mr. Costolo, 50, is facing pressure to improve Twitter's growth after a slowdown in new users has caused the stock to tumble 34% this year. The changes leave Mr. Costolo with more power over the product road map and with a new, well-connected ally to reach out to Wall Street, but they don't solve the company's underlying problems, said Robert Peck, an analyst with SunTrust Robinson Humphrey.

"He's shaking it up now so that over the next six months he can hopefully show traction," Mr. Peck said. "If Dick doesn't fix this problem, there could be questions about whether he can continue to be CEO."

The turnover at the top of Twitter is akin to the churn at other web companies that went public and then saw their stocks beaten down in the past few years. Zynga and Groupon shares plummeted after their 2011 initial public offerings, leading to executive exits and ultimately costing then-Groupon CEO Andrew Mason his job, while Zynga founder Mark Pincus stepped aside as CEO last year.

Stable Facebook
By contrast, even though Facebook's shares dropped by more than half in the months following its May 2012 IPO, CEO Mark Zuckerberg mostly held onto his top lieutenants during the stock's decline, losing only his chief technology officer.

"Companies when they become public may have some rough sailing and things don't turn out as planned," said David Larcker, a professor at Stanford University's Graduate School of Business. "They're taking fairly drastic actions and betting that that will resolve what their problems are."

Jim Prosser, a spokesman at Twitter, declined to make executives available for comment yesterday.

For Mr. Costolo, the changes are designed to surround him with handpicked deputies to help stem two straight quarters of slowing user growth, said a person familiar with the matter. Twitter's board, which includes co-founders Jack Dorsey and Evan Williams, has raised questions about member growth and user engagement.

Mr. Costolo has also been concerned about building a stronger culture at Twitter and has been asking others for advice, one person familiar with the matter has said.

Power moves
In April, Costolo hired Google Inc. maps executive Daniel Graf as VP of consumer products, followed by the May appointment of a new engineering chief, Alexander Roetter, who was already at the company. Last month, COO Ali Rowghani resigned after a power struggle with Mr. Costolo over responsibilities, people with knowledge of the matter have said, and the role is going unfilled.

Twitter's membership in the first quarter rose 25% from a year earlier to 255 million, decelerating from 30% growth in the prior period and 39% in the third quarter of 2013.

The decline has dragged the stock down 43% from a post-IPO record on Dec. 26. Twitter gained 2.6% to $42.05 at the close in New York yesterday.

Noto jumps
Mr. Noto, 46, left his position at Goldman Sachs in May to join hedge-fund firm Coatue Management, yet never started the job there, according to people familiar with the matter. A representative from Coatue declined to comment.

Mr. Noto began at Twitter yesterday, sealing a deal for a $250,000 salary and a one-time stock award of 1.5 million restricted shares vesting over four years, worth about $64 million at current prices. The new CFO, who lives in New York, hasn't decided whether to move his family to San Francisco, where Twitter is headquartered, said one of the people.

Noto has support from and good relationships with some of Twitter's largest investors, including Rizvi Traverse Management, which owns almost 15% of the company, according to a person familiar with the matter.

Mike Gupta, who was CFO, is staying at Twitter to be head of strategic investments, the company said.

Mr. Noto spoke about the CFO's role at the TechCrunch conference in New York in May 2013, saying the job requires "somebody you trust, that can truly be your partner, someone that can tell you you're wrong."

"The only way people can really be excellent is with truth, so you have to have a CFO who will have the intellectual capacity and conviction to tell you you're wrong, and try to support that with data," Mr. Noto said at the conference.

~ Bloomberg News ~

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