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Will Disney's Acquisition of Twitter Suit its Portfolio?

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Media behemoth, The Walt Disney Company (DIS - Free Report) has emerged as one of the contenders to acquire popular microblogging site Twitter, Inc. (TWTR - Free Report) , per media reports. The company is working with a financial advisor to evaluate a possible bid. Following the news, Disney’s shares fell more than 1%, while that of Twitter increased 3.3% yesterday. Other technology companies, which are vying to acquire Twitter include, Inc. (CRM - Free Report) and Alphabet Inc. (GOOGL - Free Report) .

Twitter whose shares have declined over 7% in the past one year is plagued with a lot of problems. To start with, Twitter has only 313 million users which is far less than Facebook, Inc.'s (FB - Free Report) over 1.7 billion active users. Further, the company is yet to earn profits in its decade long existence. To add to its woes, the performance of its brand advertising businesses hasn’t been as expected in the last two reported quarters, primarily affected by increasing competition.

What Impressed Disney?

Now the obvious question arises why Disney is contemplating acquiring Twitter despite the latter’s recent problems. We believe this social networking site’s focus on live streaming sports events has impressed Disney. To fight the odds, Twitter has been focusing on “live” and recently live streamed a NFL match garnering over 2 million viewers at its peak. This year, it has signed a variety of streaming deals with the likes of NHL, NBA, Bloomberg, Cheddar, CBSN, and more. Moreover, to bring in more users for its NFL live stream, the company launched an app for Apple TV users worldwide and in select markets for Amazon Fire TV and Xbox One users.

Twitter’s stringent focus on sports programming could act as a catalyst for struggling ESPN as the former will provide a sturdy distribution platform for video content.

Disney’s primary cash cow – ESPN – has come under a lot of pressure as the Pay TV landscape continues to alter owing to migration of subscribers to online TV. Falling subscriber base and higher programming costs of these businesses have been worrying investors for quite some time now. As per Nielsen data, since 2013, ESPN has lost 9 million subscribers.

Most of the media companies are failing to cope with "cord cutting" as consumers do not want to pay for large bundles of channels. Disney is leaving no stone unturned to bring about a turnaround in ESPN’s fortune. In an effort to attract online viewers, the company has inked a deal with video streaming, data analytics as well as commerce management company BAMTech. As per sources, the value of the deal stands at $1 billion. Disney also has the option to acquire majority of the stake in BAMTech in the future.

Bottom Line

The acquisition of Twitter may provide a lifeline to ESPN. However, it is also to be noted that not all of its past acquisitions have provided desirable results to Disney. The company’s acquisition of online social network game developer, Playdom in 2010 turned out to be an unprofitable investment as the popularity of the social games fell sharply. Disney has also struggled after the acquisition of Maker Studios, an online video producer in 2014.

Disney currently holds a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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