Twitter (NYSE:TWTR) enjoyed a modest rally on Thursday after the company said that COO Ali Rowghani is leaving the company. Media executive Chloe Sladden also resigned, but Rowghani's departure was the real story. He had joined Twitter in 2010, and was recently put in charge of growing Twitter's user base. User growth is exactly the department that investors have been disappointed in recently, as shares have been cut in half from all-time highs near $75. Rowghani unloaded 300,000 shares of Twitter after the lockup expiration, which created internal tensions. He had also reportedly been disagreeing with CEO Dick Costolo on a number of issues.
Reports suggest that Twitter had been targeting 400 million users by the end of 2013. At the end of the first quarter, Twitter had just 255 million, far short of its goal. Twitter will not seek a new COO, and will instead split up Rowghani's responsibilities among remaining executives. The rally shows that investors are optimistic that user growth will return, but Twitter still lacks the mainstream appeal that larger rival Facebook (NASDAQ:FB) enjoys.
Investors should not assume that Twitter can ever grow its user base to the same size as Facebook's, which is 5 times as large. That doesn't mean the company can't build a successful advertising business though. Instead, investors should reset their growth expectations on Twitter's long-term potential. Even now, Twitter trades at a premium compared to Facebook, which could be misplaced.
In this segment of Tech Teardown, Erin Kennedy discusses Twitter's executive shakeup with Evan Niu, CFA.