Twitter Inc (TWTR) Has Unsound Business Model, Says Harvard Professor

Twitter Inc (NYSE:TWTR) doesn’t have a sound business model, Harvard Business School Professor Bill George told Carl Quintanilla in a discussion about the battered social network on CNBC.

Twitter Inc (NYSE:TWTR), according to George who was also the former chairman & CEO of Medtronic, is struggling because of its business model and leadership. It’s not necessarily because of the company’s product.

“I don’t think they have a sound business model. The problem is, they lost $175 million last quarter. They’ll lose probably as much as they did last year, $645 million. So, how long can the street stay with them with those kinds of losses? They’re losing $0.50 on $1 and so their stock is down 50%,” George said.

When rivals like Facebook Inc (NASDAQ:FB) which is up 50% are included in the picture, George implied, Twitter Inc (NYSE:TWTR) pales in comparison.

One thing George says Twitter Inc (NYSE:TWTR) can do is to replace its CEO Dick Costolo. Even though the professor admits he loves the company’s product, he thinks the leadership is not up to par with those of other industry giants.

Costolo has been rumored to be on the chopping block next year. Some observers, however, are sympathetic to the CEO. Some also say that observers are judging Twitter using an incomplete set of metrics. Not George, however.

“I think it’s time for him to go. […] We talked a few weeks ago about Larry Page and Mark Zuckerberg. He’s just not in the same class and they need that leadership. It’s a great app but they haven’t gone anywhere. They’re stuck,” George said.

He also pointed out that he noticed the site’s user base is slowing down. He attributes this partly to Costolo being “inflexible,” lacking creativity and unsatisfactorily handling advertising.

George said that for Twitter, it’s a question of leadership. Costolo, he said, is not a product guy like Larry Page or Mark Zuckerberg but more of a consultant-type executive. The professor said that Costolo keeps on changing his team when it’s likely the problem lies with him and not his team.

Steve Cohen’s Point72 Asset Management owned about 2.37 million Twitter Inc (NYSE:TWTR) shares by the end of the third quarter, a 38% increase in its holdings in the social media company quarter-over-quarter.