Investors Are Lining Up To Call For An End To Dick Costolo's Reign At Twitter

Yesterday we told you that Robert Peck, an analyst at Sun Trust, doesn't think Twitter CEO Dick Costolo will keep his job much longer. "We think there's a good chance he's not there in a year," he said on CNBC.

That story rather understated the matter, however. Peck is not the only investor who thinks Costolo is not helping the company. Peck begun his interview with CNBC by saying of Costolo's presence, "It's the No.1 question I get when I talk to institutional investors." Ouch.

It gets worse:

Peck is now the third investor to say that Twitter might be better off without Costolo. One Twitter shareholder previously told Business Insider's Jay Yarow "He shouldn't be running the company anymore."

Before that, back in November, Walter Price of Allianz Global's Technology Fund told the Wall Street Journal: "People are losing confidence in him." Price has been selling Twitter stock.

It's not that Costolo has done anything specifically, spectacularly bad. He did stabilise the company when it was a chaotic startup and take it through its IPO. That was not an easy task, and Costolo deserves credit for it.

But since then, Twitter has only suffered from comparisons to other social media apps. It doesn't have the audience growth of Facebook. It whiffed on the messaging boom that was captured by Whatsapp and Snapchat. And it missed the photo-sharing explosion that has propelled Instagram.

There are three main reasons why investors want Costolo gone.

1. The stock price has collapsed.
2. No one understands the story Costolo is trying to tell investors about the company.
3. There has been a huge amount of management churn under Costolo, and not much progress to show for it.

Let's take the stock price first. Here is TWTR, year to date. It's horrible:

That speaks for itself - investors want stocks to go up, not down.

Secondly, Costolo seems to have lost his grip on the Twitter narrative (a point we made back in May). The company gets bad press because its monthly active user (MAU) growth is so anaemic. It has been overtaken by Instagram in terms of users - and Instagram doesn't even let users link out to their own websites. Costolo has been trying to make the case that Twitter has a massive logged out audience that exists in a series of "eccentric circles" around Twitter's core base of 283 million MAUs. There are two problems with that: The fact that the audience is logged out (valuable audiences are the ones that are logged in, as with Facebook); and the phrase eccentric circles is confusing. He said it twice on his last earnings call. Does he mean concentric circles?

Oddly, Twitter's revenue growth has been healthy. Its revenue was up 114% in Q3. And Twitter owns a lot of revenue generating businesses and Big Data products that have huge sales potential. Costolo deserves a lot of praise for this. Yet Costolo has spent the entire year trying to convince investors that increasing the user base is Twitter's core mission. It may be time to admit that Twitter's story needs to change: This is a company with great financials, and investors hate it. Costolo needs to take some responsibility for that.

Lastly, Costolo's management suite has been a revolving door. In the last year he has lost or replaced five execs who report directly to him, including the CFO and the product chief. Brian O'Malley, a partner at venture capital firm Accel Partners, which owns Twitter shares, said earlier this year, "If someone's gotten divorced once, you really don't know who's to blame ... But if someone's gotten divorced five times, there may be a pattern there."

Lastly, look at what happened to TWTR yesterday after Peck went on CNBC to suggest that Costolo should disappear in 2015. It went up:

The fact that investors cheer after someone suggests that Costolo leaves is galling. That's how bad it's getting. And I should know ... here's my disclosure:

The author owns TWTR stock.