Twitter Stock Price Could Be Too High to Keep Buyers’ Attention
In a period of less than a week, Twitter Inc (NYSE:TWTR) has experienced a complete roller coaster ride. Twitter stock hit a year high of $24.87 on October 5, only to drop to $17.56 on October 10.
The problem is that Twitter has entered a puzzling—some might say Catch-22—phase. Twitter stock could simply have become too expensive. Or has it? Indeed, a buyer is still lurking and there’s still reason—not just hope—to be bullish on TWTR stock.
Twitter stock moved last week amid a frenzy of buyer interest. The latest to join the Twitter takeover party was Salesforce.com, Inc. (NYSE:CRM), adding to the likes of Walt Disney Co (NYSE:DIS), and even Alphabet Inc (NASDAQ:GOOG), ie Google. Eager investors could be forgiven for thinking that interest from so many players would fuel TWTR stock to rise. In a sense, investors got exactly what they were expecting.
So, has Twitter stock priced itself out of the game? The irony is that never before has Twitter been so popular with users. As investors worry just how low TWTR stock has to drop before someone will pick it up, Twitter users have showed why it’s such an important social media tool.
Stars, Media, Politicians and Millions of Followers Love Twitter
Twitter has become an invaluable sounding board for celebrities of all types without parallel. During the second presidential debate between Hillary Clinton and Donald Trump, users posted some 17 million tweets. Clearly, someone will find this kind of social media power enticing.
So far, Disney, Salesforce and Google have openly expressed interest in the Twitter file, studying the potential acquisition deal with investment bankers. They have defected and, on October 10, TWTR stock tumbled, losing 11% in New York. Considering last week’s performance, Monday’s performance means that TWTR has fallen 30% in five sessions.
This means Twitter’s value might not be worth tweeting about, considering it’s now worth $12.0 billion, which makes it $2.0 billion cheaper than at the initial public offering (IPO) three years ago.
But a logical argument can still be made to suggest that not all is lost with Twitter. Interest in TWTR stock may have waned, but it still exists. Its popularity and ubiquitous—dare one say it—necessary role in modern society is deeply entrenched. It’s part of politics and popular culture alike. This means it still has value and buyers aren’t simply going to abandon it.
Twitter Must Simply Get the Right Price
How else to explain the sudden about-face of the potential buyers?
Twitter has not made sufficiently high profits to justify its price, according to some analysts. They say Twitter wants between six and eight times its estimated 2016 earnings. Its price is particularly high, and it’s lagging behind its competitors. Moreover, they quip that Twitter has not established itself like Facebook Inc (NASDAQ:FB), and it lacks the rapid growth rates of social media apps such as Snapchat. (Source: “Twitter rises as reports say Salesforce still considering deal,” The Fly, October 11, 2016.)
But not all felt this way. If anything, the presidential debates have shown that Twitter is more relevant than ever. This is how Salesforce.com must feel, because, despite the October 10 rumors, it’s still interested in buying Twitter. Indeed, TWTR stock was moving higher today, gaining well over two percent. Those in the know are sure that Salesforce.com has not dropped the Twitter file. (Source: Ibid.)
Should the rumors translate into actual news and an offer, Twitter stock should rebound nicely. Salesforce.com, which is in the business of designing customer relationship management (CRM) solutions, sees Twitter as a useful tool in expanding its business.
So, despite reluctance from some shareholders, credible sources suggest that Salesforce continues to negotiate. But it’s not just a buyer problem. Twitter founders and managers want Twitter to remain independent. So there is a bit of an internal battle between Jack Dorsey, CEO of Twitter—who is open to a sale, provided that it preserves the integrity of the product—and other board members, who want the social network to stay independent.
In this case, even if just a single interested buyer is left, the offer must be strong enough to win over the internal opposition at Twitter itself, leaving sufficient upside to TWTR stock to keep it in your considerations.