Twitter Searches for Suitor Amidst Continued Struggles

Potential buyers include Apple, Google, Salesforce.com, and Disney, among others

Online social networking and micro-blogging site Twitter Inc. (NYSE: TWTR), founded 10 years ago and having completed less than three years since its much talked about stock market debut, appears to have lost its magic formula that made it a stock market darling. After a rotating change of CEOs and executives over the past few years, Twitter has been left with little direction for reviving growth. Once seen as the future of the internet, Twitter has grappled with slow user expansion and shrinking revenue growth. In July 2015, Twitter brought back co-founder Jack Dorsey as its CEO after some investors lost confidence in former CEO Dick Costolo’s ability to revive growth.

t1To add to its woes, Twitter has added just 9 million monthly active users (MAUs) and only 1 million in the U.S. ever since Dorsey returned as interim CEO in July 2015. In comparison, rival Facebook Inc. (NASDAQ: FB) has added more than 164 million MAUs in the same time. In Q1 FY16, Twitter for the first time reported nil user growth. In Q2 FY16, Twitter’s revenue rose 20% to $602 million, its smallest gain and the eighth-straight period of declining growth, as advertisers continued to shy away from the platform. Twitter, which has consistently disappointed the market with its poor user growth, added just 3 million net users in Q2 FY16, reaching 313 million MAUs. It also reported a GAAP net loss of $107 million during the second quarter, while its Q3 FY16 guidance portrays that the Company is not doing well.t2

Twitter has been facing angry investors for its inability to add users at a rapid pace. With around 140 million daily active users (DAUs), Twitter has been struggling to add users compared to other social media sites like Facebook, Instagram, and Snapchat. What is worrisome is the fact that Twitter’s MAUs has stagnated for the past year, compared to its rivals.

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Who would be the best suitor for Twitter?

It comes as no surprise that Twitter’s board is considering finding a suitable buyer that would kickstart the Company’s growth engines. Twitter is also considering selling units like MoPub or Vine or Fabric that do not directly impact its bottom-line or stock price, to emerge a more leaner and focused company, adding to the possibility of finding a suitable buyer.

Twitter has been the subject of numerous takeover and acquisition rumors over the last few months; possible suitors are said to include cloud computing pioneer Salesforce.com (NYSE: CRM) and Alphabet Inc.’s (NASDAQ: GOOGL) Google, Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT) and even media mogul Rupert Murdoch, either via 21st Century Fox (NASDAQ: FOXA) or News Corp. (NASDAQ GS: NWS), and more recently, The Walt Disney Company (NYSE: DIS) and Verizon Communications Inc. (NYSE: VZ).

t4On September 23rd, 2016, Twitter’s shares rose 21%, their highest level in 2016, amid reports that Google and Salesforce.com are mulling offers. On September 26th, 2016, they climbed another 3%, with market value surpassing $20 billion, after Disney joined the fray.

A buyer for Twitter would have to pay over about $18 billion, which industry experts believe is a steep price tag for a company that has had stagnating growth and recurring losses. While Twitter is trying to improve its performance and cut costs through layoffs, it still had 3,860 employees as of June 30th, 2016 and paid out $168 million in stock-based compensation in Q2 FY16, an amount equal to roughly 28% of its quarterly revenue. In comparison, Facebook’s stock-based compensation was just 12.5% of its Q2 FY16 revenue. Despite a number of promising efforts, Twitter has been facing major challenges related to safety and tools to combat user abuse.

What is Twitter’s USP?

Despite its many problems, Twitter is still considered to be an attractive asset. Apart from being an invaluable tool for news gatherers, celebrities, world leaders, activists, and marketers, it has a huge amount of untapped data, which could appeal to companies like Google and Salesforce. Even with its relatively small base of active users, Twitter undeniably wields some amount of power and influence among social media startups.

Salesforce.com, which is seen as a forerunner in the race to acquire Twitter, could benefit from the huge trove of data generated by Twitter’s social network of 313 million monthly users. Increasingly, messaging services like Twitter are being used to communicate directly with companies and with the public about customer service. Buying Twitter could keep that company’s data out of the hands of Microsoft and other Salesforce rivals, including Oracle Corp. (NYSE: ORCL) and International Business Machines Corp. (NYSE: IBM).

For Google, which has struggled to gain traction in social networking, buying Twitter would give it an advantage to challenge Facebook. There is also potential to integrate Twitter with other Google services, particularly YouTube, which is being challenged by the likes of Facebook and Snapchat in streaming video. Twitter has made great efforts in live video in recent months, and would give YouTube an extra social outlet.

For Disney, Twitter would be an avenue to reach viewers online as its traditional cable business declines. While Twitter would not be a strategic fit for the likes of Microsoft, Twitter is seen to fit in with Verizon’s plan to effectively build a digital advertising challenger to Google and Facebook. For Apple, Twitter and its music service could fit in well with properties like Apple News and Music.

Twitter shuts down engineering operations in Bangalore, India

t5Twitter has been slashing its workforce in an effort to save costs and streamline its operations in a run-up to finding a suitable buyer. On September 20th, 2016, Twitter announced that is shutting down its engineering operations in Bangalore, India, and laying off around 20 engineers in the process. Twitter employs over 3,800 people internationally. Twitter will continue to operate three offices in the country, in Delhi, Mumbai, and Bangalore, with only the engineering team out of Bangalore impacted by the layoffs. Twitter took a big plunge into India when it acquired a startup called ZipDial in January 2015, as part of a strategy to capture global revenues by offering more localized services, and to pick up more talent in India.

The Company could likely strike a deal to be acquired by the end of the year; it seems that Twitter has come crashing to the ground after its much-hyped flight and shaky trajectory.

Stock Performance

t6Twitter’s stock ended the day at $23.72, gaining 1.50%, at the close on Tuesday, September 27th, 2016, having vacillated between an intraday high of $23.98 and a low of $22.90 during the session. The stock’s trading volume was at 64,201,789 for the day. The Company’s market cap was at $16.79 billion as of Tuesday’s close.

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