When a stock loses half its value in less than half a year, disgruntled investors typically start calling for the CEO's head.
Then there's Twitter.
Twitter was the epitome of a hot momentum stock that seemingly could not disappoint. After its November IPO, its shares soared as high as $75. But traders who piled in after the public offering moved out just as quickly when Twitter's first earnings reports earlier this year raised concerns about decelerating growth. Twitter shares now trade in the mid-to-high 30s range.
Despite the stock's turbulent ride, there's little sign of pressure to dump chief executive Dick Costolo. "My sense is that Costolo is doing a good job," said Gartner analyst Brian Blau.
Even with the sour market sentiment -- something that Blau says might otherwise have derailed a CEO's long-term plans to transform the company -- Costolo still has the trust of Twitter employees. "The company's performance, while not stellar, is still fairly good," Blau said, "It seems like they are moving in the right directions under his leadership."
Twitter declined to comment for this story.
Costolo replaced Twitter co-founder Evan Williams as CEO in 2010 after a short stint as the company's COO. He was hired after co-founding the digital content syndication platform FeedBurner, which Google bought in 2007. At Google, he served as the group product manager on the Ads team that ran social media ads. As of today, @dickc, as his 1.185 million Twitter followers know him, has tweeted 7,776 times, with his latest post, yesterday, congratulating the Vine team for their "beautiful new site!"
In February, Costolo candidly acknowledged that Twitter's experience for new users was potentially confusing and that the company was finding it hard keeping new users. At the time, he said Twitter planned major initiatives to make things easier for new users from the moment they join. Earlier this week, in its second earnings report as a public company, Twitter said it added 14 million users, bringing the number of monthly active users -- a key measure of success -- to 255 million. That was a relatively small 5.8 percent increase and it helped explain why Twitter's shares fell more than 10 percent after the Costolo announced that sales more than doubled on better-than-expected earnings.
The new message is that change is going to take time.
"It's incumbent on me as the CEO to help the rest of the world understand the value of the broader platform," Costolo said in an interview with Bloomberg after delivering the earnings results.
Part of Costolo's challenge will be to more closely align Wall Street's expectations with his vision for the company. The recent shift in Wall Street's sentiment isn't a reflection of dissatisfaction with Costolo's management as much as it reflects disappointment among some investors who believe Twitter is failing to live up to its potential as a true Facebook rival.
Twitter and Facebook are the two biggest companies in social networking and some of their businesses overlap. For instance, Twitter operates a mobile ad exchange called MoPub, while Facebook's just announced Audience Network, a mobile ad network that the company has tested with select clients since January. Meanwhile, Twitter recently redesigned its profile pages in a way that made its pages more closely resemble Facebook's, with a tile layout for images and friends.
How Twitter is 'incredibly mainstream'
Still, the companies for the most part operate two very different businesses and as Costolo resets expectations, he's out to present Twitter as a "mainstream" social network that can syndicate and repackage all that content.
"We had 3.3 billion views of tweets just about the Oscars in the 48 hours after the Oscars," Costolo said during the this week's first-quarter earnings conference call. "Now that's a big number. If you think about that in the context of something like YouTube, where you've got YouTube content networks with thousands of channels, some of the biggest of which that will achieve over 3 billion views a month -- I think we'd all consider YouTube a mainstream platform, and we saw that around the Oscars in just 2 days."
"So Twitter as a platform," he added, "is already incredibly mainstream. And now what we need to do is help that world of users who already experience Twitter every day understand the value, the increased value of the log-in experience."
Without getting into specifics, Costolo also hinted at plans in the current quarter to offer more tools to help content creators, publishers and advertisers better exploit the real-time data that comes over the Twitter transom as they navigate a shift from desktop to mobile.
If Costolo can execute on that promise, investors should warm up to the company again. But figuring out the size of that potential business is tricky.
Post-earnings research issued by several analysts shows they're scrambling to recalibrate their interpretation of the kind of financial machine Twitter really is. Four firms that issued reports revised their estimates for the stock's worth to an average of $41.75, down from an average of $53.25 beforehand.
"The service by its nature addresses a much more narrow audience than the market believed it could," said Hudson Square Partners analyst Daniel Ernst, "and I think the results of the last two quarters have helped underscore our thesis. They're not a (broad, mainstream service) like Facebook."
For his part, Ernst thinks that Wall Street simply put too much emphasis in trying to compare Twitter to Facebook, a comparison he doesn't think has ever been valid. Since the two services take different approaches, Twitter's leaders shouldn't shoulder all the blame for Wall Street's misapprehension of its utility. "Management is doing a great job," said Ernst, who "loves the service." Even so, he doesn't yet recommend buying Twitter stock.
Among people close to Twitter, there's also still a lot of affection for Costolo, and some feeling he is the right CEO for the job, despite the stock's slide. It is trading still well above the IPO strike price of $26.
"My view is that it's for sure the right team," said a former senior Twitter executive who asked to remain unidentified. "They have a really good team of people who have done this at scale in large companies."
But the former executive also said that if Wall Street has trouble understanding Twitter's true potential, some of the responsibility for not properly getting that message out falls on management. In other words, Costolo.
During his day-after television interviews with CNBC and Bloomberg, Costolo was more animated than on the earnings conference call, where his detailed answers sometimes wandered. Still, it was a better showing than during his first appearance as CEO of a public company in February, which was panned as a disaster. At the time, Wedbush Securities' Shyam Patil said Costolo's answers left investors "confused." Blau noted that Costolo "seemed to have this excitement in his voice that maybe didn't necessarily match the situation that's going on with Twitter."
That's why Twitter's success or failure as a stock -- and Costolo's future tenure -- may hinge on the message. As the company pushes out in different directions and tries to find its way in the social networking constellation, it will be on Costolo to help Wall Street better understand Twitter's unique, media and network-centric business. As the former Twitter exec noted, "Wall Street isn't going to figure it out on their own."