By Yoree Koh and Rachael King 

Twitter Inc. was left at the altar on Friday after Salesforce.com Inc. walked away from pursuing a combination, all but extinguishing hopes for a near-term sale of the social-media company as it struggles to accelerate revenue growth.

A reversal by Salesforce Chief Executive Marc Benioff, who previously had signaled interest in a tie-up, calling Twitter an " unpolished jewel, " follows the departure of other prospective suitors, including Walt Disney Co. and Google parent Alphabet Inc.

The withdrawal of business software provider Salesforce sent Twitter shares, already battered by diminishing expectations for a sale, down another 5% to $16.88 at 4 p.m. in New York trading on Friday.

While interest from another company could still emerge, Twitter's fate, at least for now, will rest on the shoulders of CEO Jack Dorsey, who so far has failed to prove he can revive growth in a way that can propel advertising revenue. In the second quarter, Twitter added just 1% more users to give it 313 million, and its revenue growth shrank for the eighth straight quarter to under 20%.

Some analysts expect Twitter, whose loss topped $100 million in the second quarter, will need to make sharp staffing cuts or sell parts of its business to survive.

Twitter's next test is Oct. 27 when it reports third-quarter earnings. A Twitter spokeswoman declined to comment.

Mr. Dorsey, who returned as Twitter's permanent CEO a year ago, has resisted making drastic changes to the business, save for laying off 8% of the workforce when he started.

He has focused on recruiting senior managers and board directors, shutting smaller side projects and rolling out incremental changes to the service such as adding "stickers" to photos.

He also is running out of goodwill among employees who believed the co-founder could quickly reverse the company's prospects, according to some current and former workers. Mr. Dorsey has tried to rally workers recently with upbeat pronouncements, but employees want a specific turnaround plan, these people say.

Twitter's biggest hope is its bet on streaming video after signing deals with sports leagues and media companies to broadcast live events. The effort is designed to attract mainstream viewers and premium advertising rates.

On Thursday, Twitter announced an exclusive deal with online media company BuzzFeed Inc. to stream TV-style coverage of the presidential election night on Nov. 8.

Its crown jewel may be a $10 million deal signed in April for the rights to live-stream 10 Thursday night National Football League games. Twitter has offered NFL sponsorship ad packages ranging from $1 million to $8 million for the season.

It is too soon to tell whether the strategy is a success or failure with only a few Thursday games so far. Twitter has averaged about 252,000 viewers a minute for the first three games, compared with an average of about 15 million people watching the games on CBS or the NFL Network.

Investors are losing faith too, sending Twitter's stock down about 33% since Oct. 5 after reports surfaced that potential suitors might pass on bids.

Analysts have said that the uncertainty around Twitter could quickly snowball, making it harder for the company to recruit employees and seal long-term business deals.

The company is seeking a head of product, a vital position where the average tenure at Twitter has lasted roughly a year.

"As long as the core metrics continue the wrong way, it's going to be difficult for [Twitter] to do this in the public spotlight," said SunTrust Banks Inc. analyst Bob Peck. He said Twitter may face a formal auction process next year or undergo serious cost cuts if the company fails to show much improvement in the fourth quarter.

Mr. Peck estimates the company could save up to $100 million a year by cutting up to 10% of employee expenses. Of the 190 U.S. tech companies with at least $1 billion in revenue in the last 12 months, Twitter had the second-highest stock-based compensation costs as a percentage of revenue at 26%, according to S&P Global Market Intelligence data.

As pressure mounts for a turnaround, Mr. Dorsey may also face scrutiny over his decision to split his time with the other company that he runs, financial-payments firm Square Inc., Mr. Peck said.

Other analysts say Twitter's core issue will remain growth. "It's still a product challenge," said Wells Fargo analyst Peter Stabler. "The pressure on Twitter is to demonstrate they have a strategic plan to increase and drive engagement and usage."

At Salesforce, investors were concerned about a mismatch in business models, said UBS Group analyst Brent Thill. Twitter generates the vast majority of its revenue from advertising, while Salesforce makes money selling companies subscriptions to its software, which customers access via the internet.

Salesforce has spent more than $3.8 billion this year buying other companies, but Twitter would have been far more expensive: Even after its recent stock decline, the company is valued at nearly $12 billion.

If Twitter can't turn things around, it could follow a path similar to Yahoo Inc., the internet portal that never regained its footing after it was eclipsed by Google and Facebook in digital-ad sales.

Twitter and Yahoo each command less than 2% of world-wide digital-ad revenue, according to eMarketer.

Yahoo CEO Marissa Mayer's attempts to refresh the company around video and search didn't generate meaningful revenue growth, compelling activist investor Starboard Value LP to pressure the company into a sale.

Yahoo in July agreed to sell its core web business to Verizon Communications Inc. for nearly $5 billion.

Write to Yoree Koh at yoree.koh@wsj.com and Rachael King at rachael.king@wsj.com

 

(END) Dow Jones Newswires

October 14, 2016 19:19 ET (23:19 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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