Twitter, Twitter, Twitter (going, going, gone?)

Fred McClimansGuest Post by Fred McClimans. Fred is Partner, Head of Equity Research at Samadhi Research Partners, LLC.  You can connect with Fred on LinkedIn or Twitter.

Twitter is awash with tweets and retweets on the possibility that Twitter Inc. (TWTR) might actually be in the midst of discussions to sell itself off and finally deliver some solid value to shareholders. About time.

The idea of Twitter-as-an-Acquisition isn’t new – its core users have long been wanting for a big brother to take it under wing in the hopes the company would finally be able to figure out who, or what, it wants to be when it grows up, find a business model that actually generates profits, and attract (more?) new active users.

Twitter co-founder and board member Evan Williams stated during an interview with Bloomberg TV (31 August 2016) that he felt Twitter was in a strong position and has to “consider the right options.”

We’re not sure we agree about the “strong” position, but they do need to consider options. While Twitter is one of the great creators of user and consumer data, and a driver of the growing “digital trail” of online and offline consumer behavior (a key trend we see shaping the value proposition of SaaS and social companies), we regard Twitter as one of the great missed opportunities of the social/tech boom.

The question now is just who is willing (if anybody) to put an offer in 140 characters that is acceptable to both TWTR shareholders and Twitter users? Here are a few of the rumored suitors:

  • Salesforce (CRM) is a name that has been tossed about a good bit over the past few years, but we think this is an unlikely play. While CEO Marc Benioff and company certainly have the size to make this deal happen (TWTR’s market cap is ~$13b), we just don’t see enough synergy or value for Twitter as a data source (e.g., feeding Salesforce social ingestion tools) or marketing venue. If Salesforce does acquire TWTR, it would make us less bullish on Salesforce overall.
  • Alphabet (GOOG) has been rumored as an interested party, but given the massive data sources GOOG presently has at its disposal, and abysmal record of success with Google+ (although YouTube has been a success), we think this is one search that doesn’t return results unless GOOG can figure out a way to better program and monetize “channels” on Twitter.
  • Disney (DIS), home of family oriented theme parks and a global entertainment brand, could actually make sense, if it can find a way to resolve the “Twitter Troll” issue (and we don’t mean Shrek). Yes, there are financial issues with Disney taking on the less-than-stellar Twitter, (while revenue in the most recent quarter was up, earnings were, again, down) but this one has potential and could provide both purpose, direction and management stability for Twitter (which it sorely needs at this stage in its business cycle).
  • Microsoft (MSFT) has also been cited as a potential acquirer, but we’re inclined to discount that option given its previously announced (undigested) acquisition of LinkedIn and questions of fit with Microsoft’s overall strategy.

There may be others interested, and we’re not writing off the possibility that Twitter could become the target of a PE firm (though we rate that at less than 20%). At this point, we don’t see many viable options for Twitter. Under increasing pressure to deliver value to shareholders, it has few options unless it can attract and keep “active” users, increase advertising revenue, improve its ability to deliver core “data insights” to clients, and (most importantly) articulate who Twitter is — and will be — to the market.

Of the key players rumored to be “in play” with Twitter, Disney is the standout from a synergy and value perspective, in our opinion. Disney already counts Twitter founder, Jack Dorsey, as a member of its board of directors, and there could be solid value found in the melding of Disney’s media and content strategy with that of Twitter, who continually misses the mark on advertising and video execution. However, this doesn’t mean a deal truly makes sense, or can be justified given the overly high valuation of TWTR, just that it makes more sense than most other options on the table.

Please note the author and/or their affiliates may have positions in stocks mentioned and/or traded in these names as of today.