Alphabet Inc (GOOGL) Looks to be Best Fit For Twitter (TWTR) Acquisition

Twitter Inc (NYSE:TWTR) Walt Disney Co (NYSE:DIS)

Alphabet Inc is yet again in the news for something to do with social media. Cantor top analyst Youssef Squali presents a case for why Alphabet Inc would be a viable contender for acquiring Twitter. This is captivating media curiosity from those like Bloomberg. The latter has been reporting which bidders are seeking to take hold of “this valuable prize”.

From Squali’s view, this “acquisition would be most synergistic for Alphabet”. As such, the analyst reiterates a Buy rating on shares of GOOGL with a $1,000 price target. This represents just under a 25% increase from where the stock is currently trading.

Twitter Inc (NYSE:TWTR) Offices

Alphabet Inc Should Buy Twitter to Fight Facebook

First, Squali underscores Google’s first-party data gains. The tech giant could maximize on a TWTR acquisition to better target users across the globe. This would then “enrich the search giant’s algorithm”. The way Squali sees this advantageous, potential deal, long-term, GOOGL’s relevance and ad pricing would both see significant boosts.

Second, Squali notes that news is already an integral part of Google’s search results. So, a TWTR acquisition would better incorporate even more “real-time news” for “unique” and “fresh” content.

Third, Squali notes that Alphabet’s weakness is in its messaging platform, in which GOOGL rival FB outclasses the giant. Yet, with TWTR, GOOGL has the capacity to change that. It can then fight to win back that considerable share of the market. The analyst contends, “We believe that owning Twitter and expanding its messaging service would make Google more competitive longer term”.

As Squali assesses the prospective bidding situation, “Among potential buyers, Google would be the one to realize the biggest cost synergies, in our view, as it reduces much of Twitter’s S&M and G&A, considering its own access to substantial organic traffic and millions of advertisers”. Moreover, the analyst believes GOOGL could stand to be the highest bidder. “Other bidders may be able to reduce Twitter’s operating costs under different scenarios. But, none would have as many synergies as Alphabet Inc , in our view (except perhaps Facebook),” Squali concludes.

As per TipRanks, top five-star analyst Youssef Squali has achieved a high ranking of #4 out of 4,193 analysts. Squali upholds a 71% success rate and yields 14.9% in his annual returns. When recommending GOOGL, Squali garners 12.6% in average profits on the stock.

What can Google do With Twitter’s Traffic for Ads?

During the Q2 2016 earnings release, it was reported that Google’s paid clicks jumped 37%. For the second quarter in a row, Google’s paid clicks on ads across its sites and advertising network rose 29%. This was as compared with the same period a year ago, the firm had reported. Let us look specifically at paid clicks on Google-owned sites, such as its search engine and YouTube. There, the rise is even more pronounced, growing 37% year over year. The average cost per click on a Google ad decreased 7% compared with the same period a year earlier. On Google sites alone, the cost per click fell 9% year over year. The cost per click on Google Network Members’ websites dipped 8%.

Among the ad units driving the biggest gains for retailers are Google’s Product Listing Ads. These are expected to account for over half of the retailers’ paid clicks by the end of the year. This is as per a report released a little before the earnings call, by performance marketing agency Merkle Group Inc. The report found that PLAs accounted for 46% of retailers’ Google paid search clicks in the second quarter. This is a three percentage point increase from the first quarter. The report also noted that Google’s push to eliminate ads from the right side of search results helped a lot. It boosted PLA click volume 73% year over year in the second quarter, outpacing the 43% growth in PLA spending. The cost per click fell 17%.

“The strength of the quarter is all about mobile,” said Sundar Pichai, Google CEO, in the conference call with analysts. “It’s transformed the way that people consume information. Google’s products have become a central and much-loved part of their experience. Our investment in mobile now underlines everything that we do today, from search and YouTube to Android and advertising. Mobile is the engine that drives our present. And now to our deep investments in machine learning and AI. There, we are building the engine that will drive our future.”

Google recognizes that mobile devices blur the lines between online and offline. This is why it introduced new display ads for Google Maps in May. “Thanks to our strong intent signals, particularly on mobile, Google continues to offer great opportunities for direct response marketers. They can reach potential customers, whether they are visiting your website, calling your business or walking into your store. They could even be downloading your app,” he said. He pointed to Walgreen Co. as an example. The latter used Google ads across search, Google Play, and the search engine’s Display Networks to promote its app. In a single month, the ads helped the retailer increase its app downloads 87% from the previous month.

For the quarter, Alphabet Inc , Google’s parent firm, reported that Google’s traffic acquisition costs rose to $3.975 bn, up 17.7% from $3.377 bn. This is what Google pays to websites that host Google ads. For the first half of the year, the firm reported that Google’s traffic acquisition costs rose to $7.765 bn, up 15.4% from $6.727 bn.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.


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