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Dorsey to take reins at Twitter as Costolo steps down as CEO

Aaron Pressman

Embattled Twitter (TWTR) CEO Dick Costolo decided it was time for a change, agreeing to step down as head of the famed social sharing service. Twitter shares, which have lost 31% since late April, immediately jumped 8% in afterhours trading.

Costolo, who has served as CEO since 2010, will be replaced by co-founder and chairman Jack Dorsey effective on July 1. But Dorsey is CEO of mobile payments startup Square, so he's taking the top role at Twitter only on an interim basis until a permanent replacement can be found, the company said in a filing with the Securities and Exchange Commission.

"The Board is fully committed to running a thorough process to identify the right CEO to lead Twitter into its next phase of growth," lead director Peter Currie said in a statement. "In the meantime, we are fortunate to have Jack – one of our founders – step back into a management role and help lead Twitter as we continue executing on our strategic priorities."

Costolo said he decided to step down after discussing the company's situation with the board of directors last week. "There's never, ever a perfect time for a transition like this," Costolo said on a conference call after the SEC filing.

Searching for a new CEO while he was still running the company would create too many distractions, Costolo said. "Scrutiny of the company would intensify if I remained," he said.

Dorsey thanked Costolo for his efforts and denied that the outgoing CEO had been pressured to leave. "There is no connection with our near-term results," he said on the call. Dorsey said he would split his time between Square and Twitter until a permanent CEO was selected.

"We're looking for someone who uses and loves the product in every single way," Dorsey said when asked about the CEO search. That could help get Twitter on track, as a recent survey by The Guardian found that a majority of the company's top executives tweeted less than once a day.

Growth stall

Twitter is one of the most popular platforms in the world for sharing news and short messages, with more than 300 million monthly active users at the end of March. But user growth has slowed dramatically since Twitter went public in November, 2013, and investors have grown increasingly dissatisfied with Costolo's leadership.

Those fears exploded on April 28, when Twitter's first quarter results leaked prematurely and failed to meet Wall Street analyst expectations for revenue growth. Twitter shares, which had been trading around $52, plummeted below $40. The shares closed at $35.84 in regular trading on Thursday before the afterhours jump. 

Possible candidates as a permanent replacement include Twitter's current head of revenue Adam Bain and CFO and former Goldman Sachs (GS) banker Anthony Noto. Outsiders mentioned for the job in recent months have included Instagram CEO Kevin Systrom and Yahoo (YHOO) CEO Marissa Mayer. Yahoo is the parent of Yahoo Finance. Twitter co-founders Biz Stone and Evan Williams have also been mentioned as candidates.

Just a few weeks ago, Costolo said he wasn't paying much attention to calls for his ouster from Wall Street.

"The board and I are totally in sync about what we need to do," Costolo said in an interview at the Recode conference. "We have a very clear strategy that we've articulated and that we're following. I don’t worry about whether I’ll be there at the end of the year."





But criticism of Costolo has been increasing, particularly after early Twitter investor Chris Sacca published a lengthy critique of the company's strategy in an 8,500-word blog post on June 3. "Twitter can afford to build the wrong things," Sacca wrote. "However, Twitter cannot afford to build the right things too slowly.”