Twitter is struggling on many fronts, and quite a few people believe a buyout is the best possible option left for the micro-blogging firm. To such investors, Jim Cramer says that there are many dangers in waiting for a takeover.
Fundamental holds the key
Detailing on the dangers, Cramer said the real reason to buy the stock is its present fundamentals, and not the possibility of a takeover bid.
“If you aren’t happy with the fundamentals, the odds are the acquirer you are dreaming of isn’t happy with the fundamentals either, and if you don’t know the fundamentals what is the point of owning the stock to begin with?” Cramer said.
The “Mad Money” host said that every day he is flooded with questions over when Twitter will be acquired by Facebook, Google or Apple. Cramer feels such questions would have made sense if the micro-blogging firm was doing all right, but for now Twitter is a total disaster with lack of user growth, constant brain drain, no permanent CEO and a falling stock price.
Twitter may end up like Zulily?
Cramer fears a Zulily like situation for Twitter. Zulily was once a red-hot Internet apparel retail stock that lost momentum, and was eventually acquired by Liberty Interactive for a price below its IPO pricing. But Zulily was a small company with an acquisition price of just $2.4 billion while Twitter’s current market cap is $19 billion. Cramer feels that the current $28 stock price may not attract buyers, but that $24 a share would be a good price level to tempt potential buyers.
Cramer believes Twitter will attract many bidders once it goes down, but warns investors, who currently own the stock, that they are betting on a bad company to get better, which is a big ask from a disorganized company like Twitter.
Some of the small oil companies are also facing similar acquisition speculations. To this, Cramer says their strained balance sheets and falling crude price is enough to keep potential buyers away. Cramer also gives a few exceptions to his view. Giving examples, Cramer says Netflix and Rite Aid would have been bought by someone when it had the chance as these are well-managed companies, and it makes sense to own them.
To investors who are still hoping for a Twitter takeover to better their portfolio, Cramer says to think twice.