Twitter CEO Dick Costolo to step down

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 co-founder 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 co-found 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.”

david.pierson@latimes.com

tracey.lien@latimes.com

Pierson reported from Los Angeles and Lien from San Francisco.