Twitter Inc (NSYE:TWTR) is starting to gain fuel again as the latest round of speculation begins to swirl regarding a takeover. This is not the first go-around for TWTR stock, as we have heard this story before. It’s the same thesis. Twitter stock is struggling to find itself and cannot operate as an independent, so a private equity or major technology company like Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOG), or even Facebook Inc (NASDAQ:FB) has to step in.
TWTR stock recaptured the $20.00 level last Thursday for the first time since August 17, on the renewed takeover speculation.
Chart courtesy of StockCharts.com
The focus was on a Bloomberg interview in which Twitter co-founder Evan Williams suggested that the company would have to look at the “right options.” Depending on how you interpret the comment, the question is centered on whether Twitter CEO and co-founder Jack Dorsey is thinking in a similar manner.
My thinking is that Twitter’s new strategy to broadcast live sports and other events is picking up interest on Wall Street and among investors. The concept could translate into more viewership and advertising streams for TWTR.
Twitter stock cannot play in the same playground as Facebook and it needs to differentiate itself, which is why this strategy makes sense. Now, whether TWTR can pull it off is a different story.
Twitter is working hard to a make the streaming of National Football League (NFL) Thursday Night Football a success. The company has signed on the person who put together Major League Baseball’s (MLB) fantastic MLB.TV stream to help with the NFL stream. The MLB platform is great to watch games on and has won awards for its innovation in technology, which makes the NFL stream intriguing.
Success with the NFL could open up more live streaming opportunities for Twitter stock and help drive TWTR stock higher, including attracting takeover speculation.
Twitter has deals to stream some content for the National Basketball Association (NBA), MLB, and the National Hockey League (NHL).
There are also live concerts; major events, such as the election debates; and a platform that can be used for news.
In China, Twitter stock just aligned itself with the financial news network Yicai to allow for live news regarding financial and economic events in China. (Source: “Yicai Partners Twitter as Springboard for Global Expansion,” Yahoo! Finance, September 1, 2016.) In my view, this is an intriguing collaboration that makes sense for TWTR and companies like Yicai.
Twitter Could Vault Higher
The market cap of TWTR stock is around $13.5 billion as of September 1. The balance sheet has a net cash of close to $2.0 billion.
TWTR stock trades at a price/earnings to growth (PEG) ratio of 0.94, which—while attractive—is also similar to the PEG for Facebook.
Paying two times the projected earnings growth rate for TWTR stock would not be a stretch for any interested party. This implies a $40.00 bid. I know it is probably way too ambitious, but it indicates that there is great upside for Twitter stock if a bid does surface. Even a PEG of 1.5 would mean a $30.00 target, which is a 50% move from the current level.
In the options market, we are seeing a jump in premiums paid for TWTR stock call options on the takeover speculation. The implied volatility is also rising, which means potential large moves expected at this time for TWTR stock.
The bottom line is, however, that Twitter stock appears to be on better footing now than it was a year ago.