Twitter: What is it, Who wants it, and Why?

There is an old proverb about an elephant and a group of blind men, who are asked to reach out, touch the creature, and describe what they feel. To the man who grasps the tail, it is like a very thick rope; to one who feels a leg, like a tree trunk; and to one who touches an ear, like a huge fan… None are actually incorrect, but no one can agree on what the creature actually is.

Twitter (TWTR) is like that: “What the heck is it?” It is..

  • a utility which allows you to catch the latest headlines?
  • a way to engage potential buyers or clients?
  • a gold mine of data about millions of consumers?

And what is Twitter worth, anyway? Valued at $16 billion, is the company actually worth more even though it is losing money? Have recent innovations such as video-streaming made it pricier, or are these “too little, too late”?

An Uncut Jewel or a Garage Sale?

Now that the “For Sale” sign is out, Twitter is at the center of today’s most fascinating investment dustup. How this came to be is quite a saga: this one-time social media star, beloved by celebrities and lauded as trendy, now struggles for relevance. Does it offer something which other social media platforms do not? If so, why are competitors like Snapchat surging ahead while Twitter’s user-base growth remains anemic?

A veritable “Who’s Who? of corporate titans were thought, until recently, ready to launch a bidding war for the decade-old social media platform. But even that is murky: a company reputed to be a suitor one day is declared uninterested the next.

At various times, all of these have been mentioned as possible buyers: Apple (APPL), Facebook (FB), Disney (DIS), Google (GOOG), Microsoft (MFST), Verizon (VZ) and Salesforce (CRM). But if all the conflicting news reports are to be believed, the list of potential buyers is actually much smaller: it appears Apple, Facebook, and Google, for example, will not submit offers after all.

What a difference a few days make! Awash in rumors the last days of September and first days of October, Twitter stock jumped 25%. Then came a pullback: Investopedia (October 6th) cited a report from tech publication Recode that Twitter stock had a 16.28% slump in premarket trading.

Too Little, Too Late?

Until Jack Dorsey returned as CEO last year, Twitter was slow to innovate, and its branding as a 140-character-maximum vehicle ultimately limited its appeal. However, there have been encouraging signs lately, especially “NFL on Twitter”: a new deal with the NFL allow games to be video-streamed. That generates some buzz: “Could the way we watch sports be about to change?”

There are also plans to allow much longer tweets, perfect for people who want to have serious conversations. But what took so long for Twitter to unveil something new and exciting? Perhaps the only person who could accomplish it was co-founder Dorsey. On the other hand, given Twitter’s foray into live-streaming, it’s no coincidence that Twitter CFO Anthony Noto is the former CFO of the NFL. (By some accounts, Noto’s internal influence now matches Dorsey’s.)

But if such streaming is a breakthrough, why is it unclear whether Disney will move forward? Disney may be the most logical buyer (a 9/27/16 MarketWatch article says as much). After all, Disney wants to be digital and cool (it owns Hulu, Vice, and BAMTech), yet its biggest holdings are aging properties like ESPN and ABC, out of favor with younger audiences (think YouTube or Snapchat). On the other hand, maybe Disney’s reluctance is just an unsubstantiated rumor… Who knows?

Time Is Running Out..

Anyway, there has been some sizzle lately, but still not a lot of steak–at a time when the company’s P/E ratio is negative. Twitter’s flat user-base growth means flat revenues, which investors dislike. And not just everyday investors, but heavyweights such as former CEO Ev Williams, who publicly called for Twitter’s sale over Dorsey’s objections. It was Twitter’s board, not Dorsey, who retained Goldman Sachs to advise the company on potential sales options.

If there is a “white knight,” it must be Salesforce CEO Marc Benioff, who told Jim Cramer that Twitter “is a great product, … but obviously the business has a lot of challenges, very severe challenges.” Benioff has been on an acquisition spree this year, having bought Krux for $700 million. Another bidder, Microsoft, has also been shelling out money lately: witness its purchase of LinkedIn.

But what would any of these buyers actually do with Twitter, and how would that support its market strategy? Who knows?

Written by Ali Bakir, Co-Founder and Director of Business Development at Peeptrade

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