Twitter Stock Could Double by the Time This Bidding War Is Over
Twitter Inc (NYSE:TWTR) is up for grabs. Twitter stock is enjoying a major rally as the number of suitors keeps growing. It’s been a long slide for Twitter stock since it reached a peak of $69.0 per share in January 2014. The slide showed few signs of reversing in 2016, but that has changed over the past few days.
While we had expected Alphabet Inc (NASDAQ:GOOG) to make an offer sooner or later, given its need to boost social media and properties, few could have foreseen such companies as salesforce.com (NYSE:CRM) getting into the contest, much less Walt Disney Co (NYSE:DIS), which is the latest company to join the lineup of pretenders for Twitter stock.
If anything, Disney’s interest should have had set aside any doubts about Twitter’s desirability, not to mention TWTR stock’s potential. It’s true that when a company puts itself up for sale, there is an element of failure. But, under the circumstances, a takeover is the best possible outcome for investors now.
Google Could Definitely Lose Twitter to Disney
As to the buyers, the usual suspects like Google may lose out to an outsider like Disney. That’s good for TWTR shareholders. Indeed, the Googles of this world may not have expected to be bidding against the likes of a Disney. There are plenty of hints that an outsider, Disney or salesforce.com—or another unlikely company that has been lurking in the background—might be the one to bite.
So why would Disney, for example, want to buy Twitter? First, let’s consider the recent events leading up to the breakout of the Twitter sale. In recent weeks, Twitter’s board mandated Goldman Sachs Group Inc (NYSE:GS) and Allen & Co. LLP to get a sense of the appetite among potential buyers of a majority stake in TWTR stock. No official reason emerged, but clearly its stagnating stock-market performance offers enough of a hint that Twitter’s directors have grown tired of the scent of deterioration.
Twitter stock’s performance suggests that Wall Street has never really liked it. Investors may have grown weary of Twitter’s apparent lack of strategic vision. The social media company, despite having changed culture itself, has failed to develop a business model that can compete with more profitable social media networks like Facebook.
Nobody is surprised by the fact that after the initial enthusiasm that drove TWTR shares to over $66.00, they started to drop consistently. Twitter shares are trading at just over half of the initial public offering (IPO) value. So by all accounts, this is the best time to sell. There are so many companies, that—for various reasons—can benefit from buying Twitter. Google, for example, is the first one that comes to mind, given the obvious affinities.
Executives at the Google headquarters in Mountain View, California would love to get their hands on what can be presented as the missing link it needs to truly compete. A purely business-to-business (B2B) company like salesforce.com, meanwhile, might use Twitter to target communities. But Mickey Mouse and Snow White may have something of their own to say.
Will Disney Make an Offer Twitter Can’t Refuse?
Disney is ready to make an offer for Twitter. (Source: “Disney Is Working With an Adviser on Potential Twitter Bid,” Bloomberg, September 26, 2016.)
It merely sounds like a surprise move, but closer analysis reveals good reasons for the idea. Anybody interested in acquiring Twitter wants to enhance its ability to distribute content online. Twitter has a large audience of well over 315 million members. It has also introduced platforms to deliver any type of content.
Disney would use Twitter to enhance, or even revive, its media distribution system. After all, Disney has been around for a lifetime compared to Twitter. A new purely social-media property can rejuvenate Disney, which has already made big moves, as Bloomberg points out, toward cable. (Source: Ibid). Disney already owns the Disney Channel, ESPN, and the ABC network.
But online streaming services like Netflix, Inc. (NASDAQ:NFLX) are challenging traditional entertainment platforms. Disney would benefit from the growing advertising revenue flowing to social media sites. Nobody ever said that Facebook has to conquer all.
Oh, and then there is the friendship between Twitter CEO Jack Dorsey and Disney CEO Bob Iger, who is widely regarded as Dorsey’s mentor. Dorsey has never hidden his admiration for Iger (Disney’s CEO since 2000), who has shown a liking for shopping. Iger was the one who managed Disney’s largely successful acquisitions of Pixar brands (2006), Marvel Entertainment, LLC (2009), and Lucasfilm (2012). (Source: Ibid.)
Disney’s participation in the race for TWTR stock is ultimately best for Twitter shareholders. Disney has apparently come in from left field, raising the stakes. Where could Twitter stock end up before the sale is made? Twitter now finds itself in a position to reject low-ball offers. The ultimate winner will have to bid generously. It’s not unreasonable to suggest even a doubling of the current market cap of $16.0 billion. Do I hear $30.0 billion? Yes, it could happen.