TWTR Stock: Is Twitter Inc a Takeover Target?

This Could Be Bullish for TWTR StockThis Could Be Bullish for TWTR Stock

Twitter Inc (NYSE:TWTR) might be trading almost 20% lower year-to-date, but that statistic fails to capture what’s happening to Twitter stock. In reality, it has gained almost 30% since the start of May. Over the past week, almost as if by stealth, Twitter shares have seen an especially bullish display. What is propping up Twitter stock?

One possible explanation may be that a former Microsoft Corporation (NASDAQ:MSFT) executive has allegedly expressed interests in acquiring Twitter. (Source: “A rumor that Steve Ballmer wants to buy Twitter drove the stock up 9%, but an analyst says it won’t happen,” Business Insider, August 3, 2016.) Speculation that Twitter would become a buyout target intensified after Microsoft bought LinkedIn. Indeed, such an occurrence would be both plausible and auspicious. But how reliable are the rumors?

Steve Ballmer Is Going to Buy Twitter, You Say?

Twitter shares have certainly dropped significantly compared to last year. The social network continues to accumulate losses and is struggling to attract new users—a situation that has led to speculation about a possible takeover of the company, which was founded and is still led by Jack Dorsey. While analysts have cited corporate entities such as Google (a.k.a. Alphabet Inc [NASDAQ:GOOG]), Apple Inc. (NASDAQ:AAPL), or even Facebook Inc (NASDAQ:FB) as the likeliest of buyers, there are certain individuals that should not be ignored. These are people who have the means to do so and who already own stakes in TWTR stock.

Such candidates would certainly include Steve Ballmer, former CEO of Microsoft, as the rumors are indicating. They would also include the likes of Saudi Prince Al-Waleed bin Talal. Both individuals already have several millions of dollars invested in Twitter shares. Steve Ballmer, who owns nine percent of the social network, has indeed never hidden his interest in Twitter.

However, for SunTrust analyst Robert Peck, this transaction is very unlikely to occur. The analyst says it is highly unlikely that Twitter itself would agree to be sold at this time. (Source: Ibid.) Having said that, the same analyst also said he would not be surprised to see Twitter being sold in 2017. The main point is that Twitter is certainly an acquisition target for the next little while, not simply in the next six months or less. Come New Year’s Eve 2016, watch out—all bets will be loose on TWTR stock.

Scott Kessler, an S&P Global Market Intelligence analyst, is also skeptical of this rumor. According to him, if Twitter were to agree to a buyout, it would prefer a company or an activist investor. (Source: Ibid.)

For the time being, whether the rumors have a solid foundation or not, that has not stopped TWTR stock from gaining almost 10% in just less than a week on the rumors.

Are Rumors Enough to Be Bullish on TWTR Stock?

You might be wondering, though, if there might be anything else aside from the rumors propping up Twitter’s recent gains—something that is a little more tangible than allegations with many modal verbs (“would,” “might,” “could,” etc.) about its potential as a takeover target. Twitter, as a social media outlet, must show growing user numbers as evidence of its overall growth. It can then generate more advertising revenue.

If Twitter can combine the two—users and advertisers—it’s even better. To explain: if more users tweet about brands, then those same brands would increase their advertising on Twitter. To that effect, in 2016, Twitter started to offer a conversational ad format, whereby a tweet can include a branded hashtag. All advertisers will get access to this feature now, incentivizing more people to send marketing-loaded tweets. Ultimately, Twitter hopes this will get more advertisers on board, especially those that have complained that Twitter’s ad fees are too high. (Source: “Twitter’s newly incentivized conversational ads could help its pricing problem,” Marketingland, August 4, 2016.)

Twitter, apart from merger and acquisition rumors, which will certainly continue—and, in my opinion, eventually materialize—continues to find ways to build its userbase and advertising revenue. There’s little else it can do. User numbers are the biggest asset that a social media company can exploit for revenue generation.

Twitter stock will likely sustain some of its gains over the next few weeks, given that the Olympics in Rio have begun. Additionally, Twitter has secured rights from major sports leagues like the North American Basketball Association (NBA), the National Football League (NFL), Major League Soccer, and Turner Broadcasting (Time Warner). In other words, Twitter plans to live-stream sports events on its platform. The sports ambitions and the predictably higher use of the social media platform during the Olympics should help Twitter increase its user numbers—sustaining higher TWTR stock valuations.

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