Last year Facebook was the sensation and almost surprised everyone in the tech world by spending $1 billion on Instagram, unfortunately its IPO failed. It would be interesting to speculate if giants like Apple or Microsoft would be interested in buying Facebook or the competition Twitter, who would they go for? Facebook might belong to someone else but Twitter is natural to Apple.
Forbe’s Eric Jackson put Twitter’s price tag at $10 billion and he is firm that Apple Inc. (NASDAQ:AAPL) will buy Twitter. I’m not sure if Apple Inc. (NASDAQ:AAPL) will buy Twitter or not but there is a high probability that it could happen and it certainly can.
Continued from part one... Q1 hedge fund letters, conference, scoops etc Abrams and his team want to understand the fundamental economics of every opportunity because, "It is easy to tell what has been, and it is easy to tell what is today, but the biggest deal for the investor is to . . . SORRY! Read More
Apple’s Cash Reserves
Apple Inc. (NASDAQ:AAPL) has a lot of cash available for buying social platforms. Estimates put the number around $120 billion; looking at this number, Apple could buy more than just Twitter.
No matter what Apple decides in terms of acquiring social media platforms, their treasure of $120 billion is overseas. Unfortunately, if they bring all that money to U.S. it will be subject to heavy taxes.
Last year, Apple Chief Financial Officer Peter Oppenheimer said: “We do not want to incur the tax cost to repatriate the foreign cash at this time.” This comment highlights, like many other big corporates, Apple hates heavy tax cuts and this will play a major role in their decision of owning a social media platform.
Apple’s Biggest Problem
Apple has awful web services. Apple Inc. (NASDAQ:AAPL) engineer Patrick B. Gibson posted on his personal blog: “Almost anything Apple does which involves the internet is a mess.” A purchase like Twitter might help them make it better.
Is LinkedIn a possibility?
Market Cap of LinkedIn is estimated near $11 billion. Would purchasing Linkedin Corporation (NYSE:LNKD) make it to Apple’s shopping cart? Only time will tell. LinkedIn is a different league, putting it in the same basket as Twitter and Facebook Inc (NASDAQ:FB) won’t be fair.
Facebook Inc (NASDAQ:FB) is valued somewhere around $75 billion (estimates do fluctuate, New York Times puts the figure somewhere around $104 billion), which would take a huge chunk out of Apple’s savings if it is added to the shopping cart. The question is, should Apple buy it? What if there is a comparison between Twitter and Facebook, which dough will Apple choose to make the pie?
If Apple Inc. (NASDAQ:AAPL) wants to making big time money from advertisements, they should buy Twitter. Ads on twitter get more clicks than Facebook – there is more productivity in advertisement business on Twitter.
Twitter has another advantage, it is mobile in the truest sense. Facebook is bulky in comparison with Twitter and in fact doesn’t look very elegant on a small screen. Twitter on the other hand fits perfectly in mobile devices. And as everything is becoming mobile, Twitter has a better chance of beating Facebook (of course it also depends how Facebook trims its ‘website’ to make it fit snugly on small screens).
Apple won’t and can’t buy everything. They do have a lot of cash but it’s not lying around ready to spend. Facebook is too expensive (at around $75 billion) and its IPO was a disappointment for its investors. Facebook can be very profitable but when it comes to ROI and the option (Twitter), the latter has a better chance.
But there are some problems with Apple buying Twitter. I give you both perspectives; you decide if Apple should buy Twitter or not.
Although Social platforms like Twitter, Facebook and Google+ make a lot of money, they simply can’t compared to the millions made selling iPhones, iPads and laptops. Apple doesn’t have an extensive history of expanding unnecessarily. They are masters of their craft and this can mean that they might not even invest in a social platform in the first place.
Collaboration/integration is one thing, owning is quite another. Apple successfully integrated Twitter back in 2011 but it doesn’t mean that they will buy the whole thing.
Having said that, Apple and Twitter do share a special relationship; Scott Forstall’s presentation last year in June was clear evidence that Twitter has a special place in Apple’s empire. Moreover Twitter is perfect for iPhones and iPads, users simply love it. The bond seems natural.
Here is the debate, if Twitter and Apple have a agreement and they continue along the yellow brick road hand in hand then probably it won’t acquire Twitter. On the other hand, looking at how Apple opted out of Google Maps and crafted their own Apple maps, they probably would do the same thing here – own something than to rent it.
The Deciding factor
Personally I’d love to see Apple buy Twitter. This can put Twitter in a better footing to compete with Facebook Inc (NASDAQ:FB). Ads on Twitter are much more profitable in revenue generation than on Facebook, which makes Twitter ideal for Apple, but…
This argument is largely based on what will happen in future. Will Twitter really be able to compete with Facebook? Moreover, eMarketer estimates put Twitter’s revenue for 2012 at $259.9 million, which is nothing compared to what Apple makes. So the argument that Apple would be buying a cash machine in the form of Twitter doesn’t is not very strong. Besides Apple has its own ads business iAds (which probably not many are familiar with).
People who think Apple Inc. (NASDAQ:AAPL) is missing the social tool, should also look at how social platforms are doing in terms of profitability. Facebook Inc (NASDAQ:FB) remained clearly unimpressive with its IPO and then its declining revenues; this puts us back to square one, why should Apple buy Twitter in the first place? Isn’t Apple better off partnering with them and not owning 100% risk?
Many would disagree but I personally think that Apple should (and probably will) buy Twitter. The price tag on Twitter is not huge. Apple bought NEXT for $404 million back in 1997 which was a huge purchase for Apple back then, and then AuthenTec for $356 million last year. Now with all the available cash, Apple is in much better position to buy Twitter.
If Apple Inc. (NASDAQ:AAPL) can figure out a way of keeping their cash transaction away from tax cuts, there is a good chance we will see ‘iTwitter’ soon.