Twitter Inc. (TWTR - Analyst Report) plunged nearly 10% in the aftermarket session yesterday after a twist in its ‘takeover’ tale. Media reports indicate that Alphabet (GOOGL - Analyst Report) may not be in the reckoning to acquire Twitter and hence may refrain from placing a bid.
Google’s parent Alphabet was viewed as the most probable suitor owing to its diverse platform, which could have made the integration of Twitter easy. Plus, Alphabet could make a big splash in the social media circuit with a brand like Twitter. However, Alphabet is apparently not mulling a bid at all.
Even other contenders like Apple Inc. (AAPL - Analyst Report) and The Walt Disney Company have also pulled out of the race as per a Recode report. Even Salesforce (CRM - Analyst Report) is reportedly a little less interested now despite CEO Marc Benioff calling Twitter an “unpolished jewel” that has tremendous prospects in advertising, e-commerce, which bodes well for Salesforce's next stage of growth earlier on.
At Salesforce’s Dreamforce conference yesterday, Benioff seemed to have moved away from his earlier stance. Media reports quoted Benioff saying "I think it’s a great brand and I just wish Jack very well...good on his company, that’s how I look at it today." The reason behind the reversal of his stance might be Salesforce’s shareholders who have disapproved of the Twitter acquisition right from the beginning.
Twitter’s acquisition will cost Salesforce upwards of $16 to $20 billion, which could dent its valuation, something that shareholders are wary of. Already, Salesforce, so far this year, has shelled out more than $4 billion for acquisitions.
Plus, Twitter will come with its own set of challenges for any buyer. Despite being a world renowned brand, Twitter is currently at crossroads. Yes, its valuable data (for a stagnant user base of 300 million plus users) can be leveraged by many tech giants but then profitability issues ($100 million plus in quarterly losses), a severely under monetized platform, and the infamous trolling can be too much to handle for any company.
Where Does this Leave Twitter Now?
A year into Jack Dorsey’s return as the company’s CEO, the stock has disappointed sorely. Shareholders are pushing for the company’s sale, much to Dorsey’s displeasure who apparently wants to remain independent. At last month’s board meeting, Dorsey led Twitter bargained for more time for the “turnaround”. Dorsey is trying hard to monetize the platform by adopting user friendly changes as well as going full throttle with “live”, especially sports live streaming, to bring in users and advertisers.
But investors have lost patience and no one can blame them given the stock’s abysmal trajectory and an ever elusive turnaround. Reportedly, the rumors of Salesforce bid moved Twitter to action. In September, Twitter hired Goldman Sachs Group and Allen & Co. to review prospective buyers. Twitter is planning to close negotiations for a possible sale before it reports its third quarter 2016 earnings on Oct 27. Reuters observes that the timeline for receiving bids as “hugely ambitious in the context of most mergers and acquisitions, given that Twitter began mulling a sale only last month.”
Notably, the talks of a possible sale gave the stock a much needed boost, sending it up 27% in the past one month. With most of the expected contenders pulling out of the race, shares could drop considerably.
At present, Twitter carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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