It’s finally #Takeover Time for Twitter Stock
It’s going to be a hashtag bullish fall season for Twitter Inc. (NYSE:TWTR). Never before has the company that made the “hashtag” (#) term (once the preserve of accountants and pencil pushers) cool enjoyed such bullish prospects. Twitter stock, whose value has stagnated in 2016, as the good folks at Profit Confidential, had expected, surged on rumors of a takeover.
Some thought that investors were going to drop Twitter stock like some Isaac Newton gravity experiment. But have no fear, for Alphabet Inc (NASDAQ:GOOG)—aka Google—is here. Right behind Google is the IT group Salesforce.com, Inc (NYSE:CRM), and both have indicated a serious interest in taking over Twitter. (Source: “Twitter begins discussions to explore a sale: source,” Reuters, September 23, 2016.).
If all goes smoothly (because as credible as the takeover rumors are, nobody has confirmed them), Twitter could see its best days since going public in 2013. After losing about 30% year-to-date (YTD), TWTR stock has managed to gained over 20% in a single day. Speculation about a takeover (intensified in the wake of the Microsoft Corporation (NASDAQ:MSFT) purchase of LinkedIn Corp (NYSE:LNKD) has shown just where investors think the company should be heading.
The bullish factor now is that Twitter, the social network, could be close to being sold and that it is considering formal offers. TWTR soared to an intraday high of $22.89. This still falls short of the $26.00 initial public offering (IPO). But it points out the direction that Twitter shares might take if and when the rumors of a takeover materialize in a formal deal.
Twitter May Have Reached a Turning Point
Twitter warned that the sale does not seem imminent. While all that we know is that Twitter has been negotiating with Google and Salesforce, investors did get some evidence that there is substance behind the rumors. Nobody has confirmed it yet, but Salesforce boss Vala Afshar—rather appropriately—tweeted nothing short of an admission of interest.
In a tweet entitled “Why Twitter”, Afshar made a concise but powerful case why SalesForce would want to acquire the company. (Source: “Twitter stock skyrockets on report that Google and Salesforce are interested in buying the company,” Business Insider, September 23, 2016.)
To avoid spilling too many beans, Afshar said he was merely expressing an opinion, but the timing is suspect.
The true test of whether TWTR deserves the bullish sentiment pointing in its direction, is whether it has a compelling investment argument beyond the takeover gossip. Twitter has certainly endured some tough times this year, even if it has managed to increase the number of its users. This is a key performance indicator for social media companies in a way not unlike increasing passenger numbers raises an airline’s visibility.
The problem is that while users are increasing the rate at which this is happening, that fact has failed to enthuse the market on TWTR stock. That seems to be the biggest issue, and this slowdown has been happening for eight consecutive quarters. Since CEO Jack Dorsey took over the leadership of the group in 2015, when Dick Costolo left the company, he has tried to reinvigorate Twitter.
Twitter’s Slow Growth Seemed to Be Turning for the Better
Dorsey has found new sources of revenue by adding the number of activities that can draw advertisers. The Twitter CEO has adopted key innovations to bring in more users. None of these has yet to produce the intended results. Adding to these woes is the fact that for the current quarter, the sales outlook is less than spectacular. Twitter expects revenues of between $590.0 million and $610.0 million. But analysts expect higher figures, at $678.0 million.
Finally, Twitter appears to have fallen behind some competitors, including “Instagram” and “Snapchat.” Perhaps this is what has drained investment away from TWTR stock. In such a light, it’s clear that Twitter cannot remain independent for long. Indeed, some see that as a fault. Like the Facebook Incs (NASDAQ:FB )of the world, not long ago Twitter was touted as one of those long-term companies that would grow and gobble up the competition. Instead, it has become the target.
But Twitter is a cultural phenomenon even more than it is a company. As big as Facebook has become, it has not altered the language. People use Facebook as a verb ironically: “I facebooked you”. But, “to tweet” is an actual verb. The spellcheck in my writing software does not flag “to tweet” as a grammar mistake. It does underline “To facebook” in the red of embarrassment. So Twitter has not failed.
Certainly, Twitter could end up delivering bullish returns for many of its investors if and when the takeover materializes. Apart from that, recent revenue-generating activity through the adoption of live video streaming of sports and political events has proven successful. Therefore, even if the takeover rumors fizzle, TWTR may yet deliver some bullish returns.