Is TWTR a Good Investment to Consider Now?
If investors time-traveled from 2015 to now, they wouldn’t believe how much social media stocks have changed. Back then, Twitter Inc (NYSE:TWTR) was stuck in Facebook, Inc.’s (NASDAQ:FB) shadow, whereas now Facebook is drowning in the Cambridge Analytica scandal and our TWTR stock forecast is on the rise.
Does this make Twitter an acquisition target?
Rumors of a buyout have followed the company for years. Potential buyers spanned the likes of Google (now Alphabet Inc (NASDAQ:GOOG)), salesforce.com, inc. (NYSE:CRM), and Microsoft Corporation (NASDAQ:MSFT). However, no one was willing to take the plunge.
Twitter was simply too risky. User growth had stalled, revenue was flat or negative, and there was a definite lack of vision. The whole company seemed lost in the woods. At one point, the company fired its chief executive in order to re-hire its founder, Jack Dorsey, despite the fact that Dorsey was running another company called Square Inc (NYSE:SQ).
With all these factors dragging the TWTR stock price down to $14.00, investor sentiment was very, very low. Oh, how far we’ve come since then…
Chart courtesy of StockCharts.com
These days, the Twitter stock price is more likely to be above $30.00.
Market sentiment completely flipped, in part because Twitter tweaked its platform, and in part because it could make a profit this year. Real profit, too; not the “adjusted” earnings that companies manufacture with dark accounting wizardry.
Put another way, Twitter is an amazing takeover target. But which companies have enough cash to buy it?
Five Potential Buyers
If you don’t use Twitter, you might be wondering why anyone would pay $23.7 billion for a social media company.
Think about it from the point of view of an advertising executive. Put yourself in the shoes of an account manager at Ogilvy & Mather Worldwide, Inc., Grey Group, or another of the advertising giants. Imagine that you’re a modern Don Draper in charge of big-name clients like General Motors Company (NYSE:GM) or Ford Motor Company (NYSE:F).
Both clients have advertising budgets of $100.0 million, but they want to spend it differently. GM wants to run commercials on television; Ford wants to try some online advertising. Which ad campaign does better?
In 2008, traditional commercials would have won.
But in 2018, in the age of Twitter and Facebook, when online advertising brings you right into everyone’s smartphones, online advertising wins by a landslide.
So, in our example, Ford made the right decision by giving $100.0 million to Twitter. Over time, GM would notice that traditional ads were getting crushed by their social media counterparts, which would force the company to make a shift in how their ad budget is deployed. They too would covet new media.
In other words, Twitter is worth nearly $30.0 billion because it has more than 300 millions users who open the app on a regular basis. That’s a lot of eyeballs, attention, and data.
With this in mind, let’s take a look at who could potentially buy Twitter.
1. Google: A Data Grab and Social Media Play
Google has roughly $101.9 billion in cash and cash equivalents, meaning it could buy Twitter outright without hurting its rainy-day fund. More to the point, it could make serious use of the Twitter data licensing business.
Data is digital gold to technology companies, as you might remember from the $26.2-billion Microsoft-LinkedIn Corp (NYSE:LNKD) deal. Data is the only reason Microsoft bought LinkedIn.
If Google is going to compete against Microsoft, with its “G suite” and cloud computing services, buying Twitter could go a long way to leveling the playing field.
2. Facebook: The 800-Pound Shark
To social media users, Facebook is an “old” platform. It’s the one that middle-aged people use while their kids are busy on “Snapchat” and “Instagram.” To advertisers and content publishers, however, Facebook is a terrifying social media empire that either buys or crushes its rivals.
Facebook bought Instagram and “WhatsApp” for $1.1 billion and $19.0 billion, respectively. Then the company bullied Snap Inc (NYSE:SNAP) by copy/pasting its Snapchat features straight into Instagram.
Plus, despite the recent FB-Analytica scandal, Facebook currently has $41.7 billion in the bank. It could easily afford to buy Twitter with a mix of cash and Facebook stock.
3. Apple: Real-Time News
Have you ever used “Apple News?” It’s terrible. Apple Inc. (NASDAQ:AAPL) never managed to crack the social media code, but it doesn’t really need to; it just needs to buy Twitter. Money is absolutely no obstacle in this case, since Apple has more money than most countries. It has $215.0 billion tucked away in Irish bank accounts.
4. Comcast: Keeping Up with the Joneses
Last year, Verizon Communications Inc. (NYSE:VZ) bought the core assets of Yahoo! Inc., blurring the lines between Internet companies and telecom giants.
As a result, I wouldn’t be surprised if Verizon’s biggest competitor, Comcast Corporation (NASDAQ:CMCSA), snapped up an Internet offering of its own. Twitter fits the bill.
There’s also the fact that Twitter owns “Periscope.” Comcast could use this live-video streaming service to broadcast TV over smartphones and tablets, thereby strengthening its push against Netflix, Inc. (NASDAQ:NFLX).
5. Private Equity: Getting Back to Basics
The TWTR stock price struggled between 2013 and 2017. Why? Because Twitter was saddled with too many reckless acquisitions, pet projects, and competing visions. In such cases, a private equity firm might swoop in for the kill.
One of the big firms, say Silver Lake Partners, could pull Twitter off the stock market, strip it down to its bare essentials, then flip it for profit. With this scenario, Twitter still might end up in Apple’s or Google’s hands, but only after some financial mercenaries pull it apart.
Is Data Privacy a Potential Roadblock?
What we’ve learned from the FB-Analytica scandal is that social media data is like a map of the human brain. You can understand exactly how people behave, which in turn shows you exactly how to sell them a product. That’s the value of data.
But this data comes at a cost: your privacy.
Three years ago, no one would have imagined that Congress would haul Facebook CEO Mark Zuckerberg up to Capitol Hill to grill him about data privacy.
I mean, sure, we all knew that Facebook was growing more powerful and that it might require a little regulation down the road, but somehow it seemed immune from harm. Not so, apparently.
Facebook stock lost $50.0 billion worth of value in just two trading sessions at the end of March, proving that investors are capable of anything, including turning on a cash-positive company with robust topline growth.
Chart courtesy of StockCharts.com
If this could happen to Facebook, couldn’t it also happen to Twitter?
After all, Twitter and Facebook run on the same business model. So does Google, in fact. They take your attention and sell it to advertisers, meaning their fates are intertwined.
So yes, the sudden concern about data privacy is dangerous for social media companies. It could hurt TWTR’s quarterly performance, but the fact that regulators aren’t moving quickly makes it a very small threat.
TWTR Stock Forecast: Is $50.00 Possible?
Twitter is definitely a better takeover target now than it was in 2016. However, the growth of the TWTR stock price is making an acquisition increasingly expensive. Anyone who wants to buy the company should move quickly.
But let’s assume that Google and the rest of them don’t pull the trigger. Does Twitter stock rise in that scenario? Or do investors get depressed?
I personally think that Twitter stock would continue its upward trajectory. Regardless of whether the company receives a buyout offer, Twitter’s fundamentals are improving. The company has growing sales and profit, meaning that TWTR’s quarterly performance would eventually have other legs to stand on.