TWTR Twitter Inc

By Yoree Koh 

In January, Twitter Inc.'s managers gathered at the San Francisco headquarters for a leadership summit days after four executives abruptly resigned as the company's stock price plunged to new lows.

When one manager asked Chief Executive Jack Dorsey and his lieutenants about takeover rumors, finance chief Anthony Noto replied that Twitter didn't need another company to come fix its problems, according to employees with knowledge of the meeting. "It's just f---ing us!" he said, a statement that quickly became a company rallying cry.

Now, on the first anniversary of Mr. Dorsey's return as CEO, Twitter is exploring the possibility of a sale. It is working with Goldman Sachs Group Inc. to evaluate offers as soon as this week from companies that could include Salesforce.com Inc., Walt Disney Co. and Alphabet Inc., according to people familiar with the matter.

Twitter's turnabout illustrates the cloud over Mr. Dorsey's leadership of the company he co-founded. With a market value of about $17 billion, Twitter remains an enticing acquisition candidate to media and tech companies interested in valuable data and marketing opportunities created by its 313 million monthly users. But Mr. Dorsey's efforts so far have failed to reignite flagging user and revenue growth, leaving the company vulnerable to a takeover.

Some high-ranking managers now say they are losing faith in Mr. Dorsey. Despite some progress making the service easier to use and improving safeguards against offensive tweets, they say new users are still largely unwilling to try the 10-year-old service, while existing members complain that Twitter accommodates online harassment. Twitter added just 1% more monthly users in the second quarter, while its revenue growth shrank for the eighth straight period to under 20%.

Twitter declined to make Mr. Dorsey available for comment. A spokeswoman said Mr. Dorsey has delivered on his goals laid out to investors, including executing product changes more quickly and simplifying the service. "We're seeing the direct benefit of recent product improvements, " which have driven user growth and usage, she said.

Twitter's stock has whipsawed under Mr. Dorsey, falling about 29% until late September, when acquisition reports pushed the shares back up by nearly the same dollar amount.

Mr. Dorsey, who turns 40 next month, has expressed optimism about meeting his priorities. He has touted nearly a dozen new live-video partnerships, including a promising one with the National Football League that lets people watch 10 Thursday night games on Twitter. The company has rolled out incremental changes that have simplified tweeting and helped curb abuse. Twitter plans to report third-quarter earnings on Oct. 27.

"He's the kind of guy who thinks in decades and not quarters, so he's been making the moves he needs to make in order to get the outcomes he wants much later," said Biz Stone, a Twitter co-founder who now runs question-and-answer service Jelly. Mr. Stone says he is holding on to his shares.

Mr. Dorsey's permanent hiring a year ago Wednesday spurred optimism among employees who believed only the man credited with inventing the tweet could save Twitter.

In his first months, Mr. Dorsey recruited senior managers and brought on directors, including Google veteran Omid Kordestani as executive chairman. He shut side projects like Twitter Alerts, which let users notify others during an emergency. And he endorsed making the service less confusing, expanding the 140-character limit and adding "stickers" to photos.

Other senior managers believed Twitter needed bolder moves. Mr. Noto, a former Goldman Sachs banker and NFL financial chief, barreled ahead with plans to sign premium live-streaming content deals with sports leagues including the NFL. He theorized that live events, Twitter's strength, could lure new users and premium advertising.

Soon after the leadership summit in January, Twitter employees jammed an auditorium for a biweekly meeting. Mr. Dorsey -- in a white T-shirt and $1,000 orange high-top sneakers -- gave a rousing speech about how Twitter is the underdog and that they will succeed as one team.

Employees then professed their love for the company on Twitter, punctuated with "#oneteam." Someone taped a blue sign in an elevator with Mr. Noto's earlier profanity-laced battle cry.

The euphoria didn't last. In February, Twitter reported it lost two million users in the fourth quarter, the first time that happened. The ratio of people who checked into Twitter daily -- roughly half of its monthly users -- continued to tick downward, according to a person familiar with the matter. Twitter has said daily active users is its most important metric, though it doesn't disclose that figure.

Around that time, Twitter brought in a financial adviser to evaluate cost structures that support different user-growth scenarios, according to people familiar with the conversations. The possibility of bringing in a strategic investor or a buyer was also discussed, one of these people said.

In the spring, Twitter began trimming some costs, curtailing meal-service hours and discontinuing brand-name exercise classes such as CrossFit, according to a person familiar with the matter.

Twitter's personnel costs remain unusually high. Of the 190 U.S. tech companies with at least $1 billion in revenue in the past 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.

Some senior Twitter managers have questioned Mr. Dorsey splitting time with the other company he runs, financial-payments firm Square Inc. Mr. Dorsey often left meetings with vague instructions, leaving engineering and product teams in the lurch while he went back to Square, according to some former employees. As a result, projects like Twitter's ranked timeline got delayed by months, they said.

Other projects stalled. When Facebook's photo-sharing app Instagram began letting users ban certain words from appearing in comments under their photos, Twitter employees who work on user safety felt like they had been punched in the gut. They had toiled for the past year on a similar anti-abuse filter, but the effort floundered due to a lack of engineering attention and resources, according to people familiar with the matter.

The fact that Instagram's feature was released under the direction of product manager Kevin Weil, one of the executives who left in January, added salt to the wound.

"After two or three business cycles of [founders] hitting their heads against the wall, the realism of what is financially sustainable in the marketplace more often than not takes hold," said Francesco Barosi, managing director at global consulting firm AlixPartners.

Write to Yoree Koh at yoree.koh@wsj.com

(END) Dow Jones Newswires

October 05, 2016 11:43 ET (15:43 GMT)

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