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 15, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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