The just maybe unsinkable Dick Costolo
The thing about investment conferences is that they're staged events staged by people who have no business even trying. There are awkward moments aplenty, long pauses in Q&As, and – above all – unrehearsed statements intended to be clever but that fall flat. It's improv done by people whose performative gifts die outside of the conference room.
In one such clumsy conference moment Wednesday, Goldman Sachs analyst Heath Terry was talking with Twitter CEO Dick Costolo, and the audience of analysts and investors fell into a disquieted hush while the first questioner wended his way around tables toward a mike. Costolo said to Terry, “You have a very soothing voice, by the way. You could do midnight radio.” “I might need to,” Terry shot back.
This rare moment of financial spontaneity was brought to us by Costolo, a veteran of comedy improv. His own performative instincts have, somewhat unexpectedly, been winning over Wall Street this month. As he talked at the Goldman conference, Twitter's stock shot up 3.5 percent in after-hours trading. One week earlier, Twitter's reported earnings and its stock tumbled 7 percent to $38. But after Costolo began talking on the conference call, the stock rebounded to $48 a share, largely on the CEO's comments about the company's future.
These recent rallies mark an abrupt reversal of what Twitter saw in 2014, when the stock fell 40 percent in a year when the Nasdaq Composite rose 15 percent. So far this year, Twitter is up 33 percent while the Nasdaq has remained flat. To some, that's a sign that Twitter is, like Facebook was once, ready to take off after a less-than-impressive first year as a public company. Suddenly, there seems to be a renewed faith in Costolo's ability to lead the company.
There may even be a once-bitten-twice-shy effect going on in the Twitter rally. Facebook's stock slumped after its IPO amid investor concerns that it wasn't going to be able to monetize mobile ads effectively. In that case, Facebook CEO Mark Zuckerberg said that the company was focused relentlessly on this goal, and once it became clear that its plans were working its stock shot up so quickly investors who blinked missed their chance to get in on the rally.
Twitter has been going through a similar dynamic. The question is whether it will be able to pull off such a nice hat trick. As Twitter's stock slumped in the wake of its highly publicized IPO, Costolo worked to stabilize an unsteady management team and outline a plan to address the main concerns: sluggish user growth and wringing new revenue out of its service.
At the company's analyst day in November, Costolo outlined several plans to boost user growth, engagement and revenue: make sponsored tweets 5 percent of user feeds, up from 1.3%; give new users an instant timeline to simplify the work needed to make Twitter useful; use Fabric and other initiatives to make Twitter an indispensable platform.
Investors shrugged. Twitter's stock fell 17 percent in the month following its analyst day, culminating in predictions from SunTrust analyst Bob Peck and Harvard professor Bill George that Costolo would be fired. But sentiment seems to have shifted in the last two months. Maybe the skeptics are wrong. Maybe Costolo's plans, which which will take a year or two to play out, are already showing signs of working. Maybe that ballsy chart CFO Anthony Noto showed about billion-dollar companies taking off wasn't so crazy after all.
Since then, Costolo has stuck to the script laid down in November. But there are a few encouraging tweaks, outlined more clearly in the past week or so. Now that Twitter is courting, rather than disregarding, logged-out users, Google's search engine becomes an invaluable partner. Vine, Costolo said at Goldman, will be a big part of its video strategy. And messaging on Twitter, which could never compete with private apps because of its public nature, has untapped potential as a CRM interface.
Beyond that, Costolo hasn't been saying much that's been new. And in a way that may be the most persuasive thing. He's sticking to the plan. Twitter, the company that flailed its way into a successful business model and then for years spun away executives like a whirlwind, was sticking to a long-term strategy.
The big problem with Twitter – and it really is a big, big problem – is that it's still printing red ink well into its second year as a public company. Forget the internal, Happyland accounting Twitter dishes up. By standard accounting measures, the company has been losing money for a long time. Also, the stock may be overvalued. It also doesn't help Costolo's case for long-term tenure that he and his family trusts have been shedding Twitter shares. Taken together, those factors are things bears will point to for a long time.
So which is it? Is Costolo the “consultant” that Harvard's George dismissed him as, or is he what Twitter's founders consider the best hope Twitter has of connecting its origins with its future - the mysterious element that made Twitter irreplaceable with the future that will be, finally, profitable? Is Costolo another blurred figure in the revolving door that has been Twitter's management? Or is he the grounding element that gives the company the energy needed to move ahead?
If I had to guess, I'd go in favor of Costolo. After listening to him speak today, I thought about his PandoMonthly in December 2013. When the Q&A of that session began, the first question came from a skeptical investor who asked if he should “option out.” Costolo (around 1:47:30 in the video) allowed himself this infinitely short chuckle, performed the rare anti-eyeroll, put down his bottle of bottled water, and said,
Here's the deal. We have - and I said this the morning of the IPO on CNBC – we have an enormous amount of work to do. We have an enormous amount of work to do. And the team understands that, you know, and I've told the team, we all know what we can and should become and we have an obligation and a responsibility our users san those who do not yet use Twitter to fulfill that responsibility. But we labor under no illusion that we don't have anything less than an enormous amount of work to do to fulfill that potential. And that's the way I would answer that question.It's a pretty good moment, worth watching in retrospect not just because of what Costolo said but because of the way he said it. He's genuinely exasperated, and he retreats into the CEO gambits of power hand gesticulations and vocal confidence while his eyes retreat inward the way they do with someone who says what he really thinks. I remember watching it then and thinking - well, we'll see if that's true.
We still haven't seen whether Twitter will attain those obligations. Yet everything Costolo's done since then is consistent with the goal of meeting them. And the plans he's been outlining recently are little steps toward that goal. Costolo may be a great improvisor, a skill that can serve a CEO quarter to quarter, but there's this long-term thread running through his actions, as if the satisfying punchline is lying years down the line.
Not to belabor this comedy metaphor, but there was another moment in that PandoMonthly that has stayed with me. Costolo told a story about how he was invited to a benefit at the Lucile Packard Children's Hospital, where Steve Carell was the speaker. Costolo and Carell had been members of the Second City comedy troupe in the 1980s but hadn't talked in years.
“I brought one of the old reviews of our group in 1985, and he didn't know what I was doing now,” Costolo recalled. “And I showed him the review, and he patted me on the back and said, 'I'm really sorry it didn't work out for you.'” And therein lies an uneasy punchline for those calling for Costolo's head. There are few careers harder than comedy. The guy running Twitter has shown he can improvise. Who else do you want fulfilling the company's potential?
[Illustration by Brad Jonas for Pando]