While mobile may be growing fast, it hasn’t helped investors in Twitter Inc (TWTR), who have watched their holdings in Twitter stock fall almost 40% this year.
Interestingly enough, one of the biggest sellers is the company’s CEO, Dick Costolo.
But has Costolo really lost the faith?
Insider selling actually is normal for IPOs — after all, a large portion of employee compensation comes from equity grants, so when companies go public, workers sell off stock to get paid. However, Costolo has sold enough stock to prompt some worry in TWTR.
According to Bloomberg, he has unloaded about 75% of the TWTR stock in his family trusts (this has occurred during the past year). The stake went from 556,920 shares to 141,730 shares.
Dick Costolo was certainly not the only executive to dump Twitter stock. During November, TWTR saw close to $50 million worth of insider sales, according to Forbes.
Now it’s true that Costolo still has stock options for 8.5 million shares of TWTR. Yet the recent sales should still be a red flag for investors. Let’s face it, if Costolo thinks there is lots of growth potential, why sell now — especially after the stock has taken a big hit?
After all, a few weeks ago he gave an extremely upbeat presentation at the TWTR analyst day meeting. He noted that revenues could soar to $11 billion within five to eight years and that the user base could hit 2 billion.
While Twitter stock jumped on this, the gains were quickly erased. The reason? Costolo was vague on how to reach these goals.
In fact, the main problem has been his lack of a clear vision. It’s an image that was the focus of recent piece in the The Wall Street Journal, which showed Costolo as modern version of Hamlet, unsure what he needs to do. Here’s just one of the nuggets:
“Interviews with current and former Twitter employees and others close to Mr. Costolo and his company describe the former improv comedian as a reactive thinker who bounces from one idea to the next.”
Yikes! But then again, when you listen to an interview with Dick Costolo or hear one of his earnings calls, it is downright tough to figure out the core message.
Perhaps this is why there has been wrenching drama in the C-suite at TWTR. For the year, some of the notable departures include: Daniel Graf, vice president of product; Ali Rowghani, chief operating officer; Mike Gupta, chief financial officer; and Chris Fry, senior vice president of engineering.
Given this, it would be tough for even the most experienced CEO to manage a company, especially one that is growing at a rapid pace and must deal with a dynamic industry.
All this is in stark contrast to how Facebook Inc (FB) dealt with after its shaky IPO. To get things back on track, CEO Mark Zuckerberg laid out a clear message of conquering mobile. This involved building a much better app as well as creating a sophisticated infrastructure to better target ads. He also implemented the highly successful app-install system, which has be key catalyst for powerful revenue and profit growth.
Oh, and he did not sell any of his shares.
In the case of TWTR, Dick Costolo should really just look at Zuck and follow his script. The main priority should be to fix the product, making it much easier to use and more engaging. Costolo should also be laser-focused on the core advertising business and app install system.
But so far, there are no signs of this. As seen this week, TWTR continues to take a scattershot approach to business, as seen with its launch of a coupon platform styled after Groupon Inc (GRPN)!
Basically, until Dick Costolo comes up with a clear message — and sticks to it — it’s probably best to avoid Twitter stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.