Twitter on the block? CEO's departure spurs speculation

Twitter on the block? CEO's departure spurs speculation
Twitter CEO Dick Costolo in 2014. (Jae C. Hong / Associated Press)

A day after embattled Twitter Chief Executive Dick Costolo announced that he was stepping down, analysts were speculating whether the microblogging service could be an acquisition target for a deep-pocketed company like Google.

In the past, Twitter turned down offers from Google and Facebook, choosing instead to compete with them for ad dollars and users. But advertising never became as lucrative as investors wanted and user growth has slowed; for months now, the San Francisco company has been under intense pressure to prove its relevance.

Now, with the company in a state of flux as its chief executive of five years prepares to step down July 1, Twitter could be ripe as an acquisition target.

“Prospective buyers have been interested in purchasing Twitter in the past,” analysts Brian Pitz and Brian Fitzgerald wrote in an investor note. “And the lack of a CEO successor signals to us the potential for acquisition.”

Pitz and Fitzgerald didn't name any potential suitors but said the likelihood of a deal is “heightened” as Twitter scours internally and externally for a new CEO. Come July 1, co-founder and Square CEO Jack Dorsey will take the helm on an interim basis.

A sale “could plug some holes for a larger company,” said Robert Peck, managing director and Internet equity analyst with SunTrust Robinson Humphrey.

“Google for example doesn't have strong social,” he said. “Twitter is also highly mobile, and everything is on mobile now. It's also moving towards video, and having video postings and video ads. These are the big trends on the Internet ... and Twitter has all those things.”

Investors, too, are calling for a buyout.

Last week, major Twitter investor Chris Sacca posted a nearly 8,500-word essay on how to improve Twitter. He then took to CNBC to proclaim that Google and Twitter would be an “instant fit.”

A Google spokesperson did not respond to a request for comment.

There is precedent for the two companies working together. In April, Google agreed to help Twitter sell and measure promoted tweets paid for by advertisers. Last month, Google began showing tweets in its search results. That means if you do a search on, for example, Justin Timberlake, you'll see his most recent tweets along with the related news, biographical information, songs and movies that would typically show up. A Google search for #GameofThrones brings up fan tweets concerning the HBO franchise.

That was a win for Twitter, which now has its content seen by many more people — including non-Twitter users — as a result of the deal.

In a conference call Thursday regarding his departure, Costolo said Twitter's board would “carefully evaluate” any offer while Dorsey indicated that the company would not change direction.

The next day, when asked whether a potential takeover of the company was on the table, Dorsey and Costolo told CNBC that they believe they can “maximize value” best as an independent company.

Dorsey, meanwhile, described the “fundamentals” that the company is building right now as “extremely strong and beautiful.”

But they didn't rule out a takeover entirely. And Dorsey might not even be the one to make that decision: Adam Bain, Twitter's president of revenue and global partnerships, has already emerged as the front-runner to take over the CEO position permanently.

Some observers cast doubt on a potential sale, arguing it would have happened in lieu of a CEO transition. Others say Twitter just needs better management at the top.

“I'd be surprised to see Twitter get acquired by another company,” said Betsy Sigman, professor of social media and information systems at Georgetown University.

Sigman said recent changes introduced to Twitter, such as the removal of a character limit in direct messages and the launch of the Periscope mobile app, could help the company.

That said, if Twitter were to be acquired, Sigman said, Google would be an obvious candidate because it lacks its own robust social network. “They've never done as well as Facebook with Google Plus.”

Regardless of whether a takeover is on the table, analysts agree Twitter has a slew of problems it needs to quickly address — and not just its lackluster ad revenue but a user experience that struggles to attract a mainstream following.

“Twitter is a niche business,” said Steve Sarracino, founder of Activant Capital.

As it is, Twitter hasn't evolved much since its launch nine years ago, and it has a steep learning curve for newcomers unfamiliar with its at times clunky user experience. Sarracino said Twitter needs to develop or acquire complementary products to expand.

“A good analogy is Facebook's purchase of Instagram,” he said. “Twitter needs to find another delivery model beyond tweets and a Twitter feed.”

Twitter shares closed at $35.90 on Friday, up less than 1 cent.

Lien reported from San Francisco and Pierson from Los Angeles. Times staff writer Andrew Khouri contributed to this report.