Twitter Stock: Here’s Why You Should Be Bullish Again on Twitter Inc

Twitter StockTWTR Stock Has Social Media Appeal

In the past three weeks, coincidentally after Microsoft Corporation (NASDAQ:MSFT) paid a platinum price for LinkedIn, Twitter Inc (NASDAQ:TWTR) stock has attracted considerable attention from analysts and investors alike. Indeed, Twitter stock has gained more than 13% in the past month. That’s the kind of courtesy that a stock enjoys ahead of a major buyout.

Indeed, this is a special period for social networks and Twitter in particular. Twitter stock has started to react, as the company has long been seeking new areas of development. Microsoft spent more than $26.0 billion to acquire LinkedIn, a network dedicated to professionals, and it represented Microsoft’s largest acquisition to date. It also marked the largest sum any company has ever paid for a social network.

The acquisition price was all the more flamboyant as it included a 50% premium to LinkedIn’s closing price on the day prior to the announcement. LinkedIn posted earnings of more than $160 million for 2015. This combination of factors will probably have Twitter shareholders salivating at the prospect of an equally great deal, as it becomes clearer that an acquisition might be what’s best for Twitter Inc.

Nevertheless, Twitter has a rather different model from LinkedIn. This may also work in Twitter stock’s favor, should no buyer materialize. Indeed, if anything, the Microsoft-LinkedIn deal has highlighted the importance of what visitors can do to the value of social media companies. What is clear, also, is that now that LinkedIn has moved under Microsoft’s wing, Twitter is left standing as the single largest independent social network—with the exclusion of Facebook, which is an entity unto itself and too large for any single buyer to digest in one bite. In short, Twitter is an ideal acquisition target.

Twitter has some 300 million active users worldwide. The company has struggled to grow lately, even if major world events like the Orlando nightclub shooting and Euro 2016 soccer championship have highlighted how Twitter has established itself as a pillar of social media culture. Those potential buyers will look to Twitter to complement their businesses and boost growth; they will not want to re-tool the company to transform it into something else.

For the time being, Twitter remains an appetizing target but buyers will likely sit on the fence until they find a way to exploit it to complement their other activities. Alternatively, should Twitter experience a surge in user numbers, the buyers will start to come out of the shadows. I would expect Alphabet Inc (NASDAQ:GOOG) or even Apple Inc. (NASDAQ:AAPL) to be the kind of companies in search of a social network at a good price.

Ultimately, the buyout question for Twitter is just what kind of value—that is, actual concrete revenue—it adds? Twitter, however, can help as a distraction. Trip Chowdhr, an analyst at Global Equities Research, said that “Twitter is a site very attractive to celebrities and politicians but it offers no value and does not attract the greatest number.” (Source: “After LinkedIn, Is Twitter Takeover Next?,” Khmer Times, June 16, 2016.)

Still, there’s no denying that Twitter stock has certainly recovered some optimism, which few expected since the Microsoft-LinkedIn deal. If any proof was needed, the British referendum over the Brexit was kind enough to confirm this. TWTR stock lost seven percent in the two days immediately after the U.K. voted in favor of leaving the European Union, but the stock gained back all of its lost value, ending the week that started on June 27 approximately 5.5% higher.

Indeed, whether or not someone comes forth with a nice offer for Twitter, the company has already made changes to improve its valuation. Anthony Noto, Twitter’s CFO, admitted that Twitter remained a mystery to many potential users, who simply have no idea why or how to use it. (Source: “Twitter’s CEO Jack Dorsey on Q2 2015 Results – Earnings Call Transcript,” Seeking Alpha, July 28, 2015.)

Companies also use Twitter to launch new products. More importantly, media companies use Twitter to launch new movies. Walt Disney Co (NYSE:DIS) issued its main trailer for the Star Wars: The Force Awakens blockbuster through Twitter.

Twitter also started to add video capabilities and, without altering the 140-character limit that makes it unique, it has excluded links, images, and other features from the character limit. This has added appeal and flexibility, which have clearly attracted more users. Indeed, from Q1 2015 to Q1 2016, Twitter welcomed five million new users, which is about a three percent increase. (Source: “Twitter Q1 2016 Shareholder Letter,” Twitter Inc, April 26, 2016.) As for video, it makes it possible to attract more advertising, which translates to advertising revenue to the benefit of Twitter’s bottom line and, ultimately, Twitter stock.