U.S. Markets open in 21 mins

Twitter's latest shake-up won't help Twitter's investors

Aaron Pressman
Technology Reporter

There is a lot of news about the struggling social network Twitter ( TWTR) today, as new CEO Jack Dorsey shakes up the executive ranks three months into his tenure. But there is only one key change that will make or break Twitter, and until investors sense it's fixed, expect continued weakness in Twitter's share price.

Already down 37% since Dorsey took over through Friday, the shares were down another 5% in premarket trading on Monday.

More departures alone obviously won’t fix what’s ailing Twitter and that’s the news of the day. Top executives leaving include head of engineering, Alex Roetter, top advertising emissary to global brands Katie Stanton, HR chief Brian “Skip” Schipper and Jason Toff, who oversees video service Vine.

Analysts largely yawned at the changes, with some seeing it as a sign things were getting worse, not better. "While we may not be the sharpest tools in the shed, we don't see how the departure of the heads of three major business divisions can be viewed as a positive in the middle of an attempted business turnaround," analysts at Stifel Nicolaus wrote. "We downgrade Twitter shares to Hold. Sorry."

But it's the loss of Kevin Weil,  the fifth head of "product" at Twitter to depart in the past six years, that should get more attention. 

That's because most of Twitter is doing just fine. Ad sales have been rising smartly, deals with big ad players signed with regularity and even the service's unreliable technical platform has stabilized (for the most part -- there was an outage last week). But the real problem at Twitter is that user growth and engagement have stagnated. Far more people have tried Twitter and abandon it than currently use the service on a regular basis. And thanks to early comparison to Facebook (FB) and its 1.5 billion users, Twitter’s 320 million active users remain quite the disappointment.

Last year, Facebook’s popular photo sharing service Instagram even passed Twitter as it racked up 400 million users. Once upon a time, CEO Dick Costolo expected Twitter would hit the 400 million user mark by the end of 2013. But since Twitter hit 200 million users at the end of 2012, growth has slowed dramatically. The 320 million active users at the end of September represented just 11% growth over the prior year.

Under Weil, who took the top product spot under Costolo in October 2014, Twitter has introduced a host of new features meant to make the service easier to learn and use and more relevant around breaking new events, both serious and silly. But as the fifth head of head of product in a five-year period, Weil was reworking well-trod ground as he sought and failed to ignite user growth. 

Weil's recent initiatives included changing the favoriting symbol from a star to a heart akin to rival Facebook. Meanwhile Facebook continues to encroach on Twitter's turf by adding features to encourage more real-time discussion of news and sports events. Under Weil, Twitter also added a curated selection of top tweets and videos related to trending news events dubbed Moments. Though early days for the revisions, none seem to have a sparked much growth, while competitors like Snapchat and Facebook pull away.

Dorsey's management changes leaked out in the all-too-typical and messy process that's plagued Twitter for years. Re/Code reported most of the departures on Sunday citing unnamed sources, followed by other outlets, Tweets from some of the executives involved and eventually, a lengthy statement posted on Twitter by Dorsey himself.

"I'm sad to announce that Alex Roetter, Skip Schipper, Katie Stanton and Kevin Weil have chosen to leave the company," Dorsey wrote. "All four will be taking some well-deserved time off. I'm personally grateful to each of them for everything they've contributed to Twitter and out purpose in the world."

All of the functions were redistributed to two of the top remaining executives, chief operating officer Adam Bain and chief technology officer Adam Messinger, but Dorsey will likely be appointing new recruits to fill the old jobs shortly.