Today, shares of Twitter Inc (TWTR) went up on reports that there were possible bids for the micro-blogging site. Shares of the company were up as much as 10% in NYSE trading on Monday and closed up 6.55% to $17.90. However, the details about the bid are incomplete and there have been numerous rumors about Twitter “about to be bought” over the past few years. Analysts were also skeptical of the news and the future of the company whether purchased or not.
Barclays analysts note that “there are three types of deals that could be considered by third parties with interest in Twitter: a) strategic public acquisition, b) PE cash flow story, and c) strategic private investment. As for a strategic public acquisition, we are skeptical that one of the other large Internet players would be interested in making a bid. Our sense, from recent history, is that companies like FB or Alphabet are focused on acquiring technology or user growth. They look for businesses that can either accelerate a product or business they already invest in or one that has rapid user growth (think Instagram). They aren’t usually in the game of buying struggling assets and trying to turn them around. ”
However, Barclays noted that all three types of transactions would run into issues which makes them wonder whether a deal would take place at all. Specifically the analysts note:
Regarding A. We actually could see Twitter fitting into a traditional media company, from a strategic perspective, but the dilution from any such deal, even at current levels, would make it highly unlikely.
B. CF – his is not unreasonable, but we don’t believe the company is thinking about themselves in this way at all
c. While both a PE deal and/or a strategic private deal are often talked about, the reality is they happen infrequently.
Canaccord does not address the buyout issue but in a note today downgrades Twitter Inc stating:
Twitter stock is down ~27% YTD and ~46% since it last reported earnings in October. The move was exacerbated by last week’s management shake-up, and clearly our BUY rating has been wrong during this period. Further, with continued management turnover and declining engagement metrics in Q4, it is tough to gain any conviction that key user metrics will gain traction in the near term (and we are fairly certain it didn’t happen in Q4). Very slow user growth remains the primary negative, and our checks suggest this continued in Q4. Engagement also declined during Q4 on a minutes/user basis for the sixth straight quarter.
We are reducing estimates significantly, including what seems like a fairly pessimistic outlook on user growth and monetization improvements.We also lower our price target from $38 to $25 based on 32x our 2017 EPS estimate of $0.77 (down from $1.08).
Finally, Stifel opines on Twitter Inc:
We are returning our rating on Twitter shares back to where it should have been all along – Sell. Twitter is a product that has never fully developed into a sustainable public company due to either poor strategy, poor execution, or that it was never destined to be one. Twitter ended 3Q:15 with 320 monthly active users (MAUs), which some suggest is a significant figure and one of the factors that makes Twitter a strategic asset. Yet, Yahoo! still reports 1B MAUs across its network and carries a much lower implied market value for its core business. In addition, AOL’s final public disclosure in 1Q:15 prior to its acquisition by Verizon still showed nearly 200M unique visitors. If Twitter is in the early stages of following a similar path to ex-growth as AOL and Yahoo! experienced before it, as seems to be the case, then there is likely more downside for
TWTR common stock.
More recently, Groupon and Zynga were notable Internet companies that quickly rose to prominence followed by a rapid decline in their share prices. Although these companies are not at Twitter’s scale, both still have ~50mm “users” and once had many more.