The tough realities of a Twitter turnaround

If you’re like most people, you don’t see the point of Twitter — and that’s a big problem for the company.

Twitter’s top executives acknowledged recently that despite huge name recognition for its social network, the vast majority of potential customers did not understand how or why to use the service, stunting its growth. And even among regular users, less than half check it daily.

Jack Dorsey, the company’s co-founder and interim chief executive, pledged to change that, although he said results would take time.

“You should expect Twitter to be as easy to use as looking out your window,” he said during a conference call to discuss the company’s second-quarter financial results.

The social network should be so simple for users that “they don’t need to consider what Twitter is, just what they are there for,” he said.

Many on Wall Street and in Silicon Valley believe Twitter will eventually name Jack Dorsey, the company’s chairman and co-founder, as its new chief executive. Mr. Dorsey — who was fired once as chief executive in 2008 — has already been named interim chief.

Dorsey’s candid assessment of Twitter’s failures overshadowed the company’s financial performance in the second quarter, which exceeded Wall Street’s expectations. Twitter reported a 61 percent increase in revenue and a narrower net loss than a year ago.

Twitter’s stock fell as much as 11 percent in after-hours trading, as Dorsey and Anthony Noto, Twitter’s chief financial officer, laid out the challenges still facing the company.

“What shocked the stock after hours is that despite all of the product improvements, people were less active now than they were seven months ago,” said Richard Greenfield, an analyst with BTIG Research. “Engagement is falling despite all of the changes they made.”

User numbers rose by only two million over the past three months, to 304 million, although Twitter said an additional 12 million people in developing countries used text messages to gain access to the service.

The quarter, which ended June 30, was the last under the leadership of Dick Costolo, who resigned as chief executive effective July 1 after months of complaints by investors who were disappointed in the company’s performance.

Twitter has experienced a steady stream of management departures, and two more people announced on Tuesday that they were leaving, including Christian Oestlien, the vice president for product management.

Some analysts have high hopes for Project Lightning, a set of changes due in the fall that will make it easier for dedicated Twitter users and casual visitors to find the most important posts about breaking news and live events.

Sarah Hindlian, a software and Internet analyst with Brean Capital, said that the company’s other recent changes were “playing catch-up, as opposed to really innovating.”

Project Lightning, she said, will genuinely improve the user experience by making it easier to find curated live content.

Dorsey said the company was re-examining all of its fundamental assumptions. “You will see us continue to question our reverse chronological timeline and all the work it takes to build one,” he said.

But Twitter’s longer-term strategy remains in limbo as the board of directors searches for a permanent chief executive, a process that could stretch into the fall.

Dorsey, who is also chief executive of Square, a payments start-up that has filed for an initial stock offering, is splitting his time between both companies.

“It’s not either/or for me,” he said in an interview, declining to comment on which company he would lead over the long haul. “I’m going to do whatever it takes in whatever role to make both companies successful.”

Much as people used to flock to cable news channels during major events, traffic on Twitter’s network spikes during events like the World Cup and new episodes of popular television shows. The company has been working on ways to take advantage of that surge in interest.

Recently, Twitter announced new tools to help advertisers of all sizes find relevant events and direct their messages to people tuning into them. For example, a restaurant can now advertise Mother’s Day dinner specials to men and women ages 20 to 40 who live nearby, Ameet Ranadive, Twitter’s senior director for revenue products, said in an interview.

“The main thing that we’re doing is trying to make it easier for marketers to connect with consumers around live events,” he said. But whether that’s enough to satisfy impatient investors remains to be seen. “We’re still just in a waiting game for new features,” Greenfield said. “Hashtag #goodlucktwitter.”