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Twitter Acquisition Talks in the Air: Stock & ETFs Gain

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Talks are rife that Twitter will be vended by the end of this year. The popular social media site has been reeling under pressure for long. This year, themicro-blogging site has delivered mixed results, beating on the bottom line but missing top-line estimates in the first two quarters. Its user growth is stagnating and advertising sales have been slowing (read: Twitter Crashes Post Q2: Should You Sign Out of These ETFs?).

The company has been struggling to generate profits. Its second-quarter 2016 loss per share (adjusted for stock-based compensation expense and other one-time items) was 11 cents. The company also issued a soft guidance for Q3.

Against this backdrop, it is no surprise that Twitter is trying to set itself up for sale. Reportedly, numerous technology or media companies have shown interest in the company, which is expected to receive an official proposal soon. As of now, salesforce.com (CRM - Free Report) , Alphabet (GOOGL - Free Report) and Verizon (VZ - Free Report) are the likely suitors, as per an article published in Reuters.

Market Impact

The news pushed Twitter shares up 21% on September 23, 2016. On the other hand, most of the possible acquirers lost on the bourses. Salesforce.com shed over 5.6% in value while Alphabet saw a 0.12% dip in share price. However, Verizon shares nudged up 0.40% on September 23, 2016.

Expected Bidding Price

Morningstar sees about $22 per share as Twitter’s bidding price. Analysts are seeing Google in a more strategic position than the other likely suitors for the Twitter acquisition. As per another Zacks analyst, “under the Alphabet Inc. umbrella, there are already several outlets that would work well with Twitter integration. Take YouTube, for example. Twitter has been working hard over the past year to ramp up its video streaming efforts, so any cooperation with a platform like YouTube would make sense right now.”

Investors should note that there were some bullish points in the Twitter story. Prudent implementation of growth initiatives, including the proper execution of live-streaming video and enhancements to its periscope app may help the company to score better ahead.

Plus, the industry that the company operates in is presently in the top 23% of the Zacks Industry Rank universe. So, investors having a strong stomach for risks can play this acquisition rumor by investing in Twitter. Though the stock is definitely not a value play, it has a compelling growth score of ‘A’, at the time of writing.

ETFs to Watch

For those with less appetite for risks, we suggest a basket or an ETF approach. The ETF route will help investors to mitigate one company’s average or downbeat performance with stellar results of other companies and lower company-specific concentration risks.

Twitter does not have a sizable exposure in the overall ETF world except for a handful of funds primarily into the social media and internet spaces. Below, we outline those funds that could be in focus in the days to come. We also note that the fate of these funds in the near term largely depends on the performance of the entire social media pace, not just Twitter (see all technology ETFs here).

Global X Social Media Index ETF (SOCL - Free Report)

This fund is the pure play in the global social media space. Twitter takes the top spot with about 10.66% exposure. Investors can also get a glimpse of Alphabet (as it is one of the most prospective buyers of Twitter) in SOCL as the company takes about 4.48% of the fund. SOCL added over 1.1% on September 23 (read: 5 Millennial Friendly ETF Investing Ideas).

Sprott Buzz Social Media Insights ETF

As the name suggests, this new fund is also into the social media space. In-focus Twitter takes the top spot with 3.64% weight. Alphabet Inc. Class A takes about 3% of the basket (read: Time to Buy These Tech ETFs?).

SPDR S&P Internet ETF

The fund looks to follow the investment results of the S&P Internet Select Industry Index. The fund invests just 2.12% in Twitter. The fund was up over 0.3% on September 23.

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