No one has any idea if Twitter Inc will stay an independent company or not. Since forever or it seems like it, speculations about a sale have circulated, and have never been cleared. However, one thing is certain that the direction of the stock of Twitter is closely linked to takeover rumors.
Stock driven by takeover hopes
Twitter’s stock price gains 4.8%, or more, once every six trading days on average or 24 market sessions out of 169. As per a Bloomberg Gadfly analysis, 50% of those pops are likely related to reports, dreams, hopes and rumors that the firm might be acquired, or might become the target of activist shareholders. These takeover speculations were not exactly certain, but it is all which is keeping the market value of the social network afloat these days.
The analysis by Bloomberg may not be fully accurate, as it is difficult to find the reason why a stock price increases or decreases any given day. But, it should be accepted that there is no other company like Twitter that is often talked of being an acquisition target.
After Twitter Inc went public nearly three years ago, some were hoping that it would grow as huge as Facebook one day. However, it is certain that it would not happen, given the grim user growth, and the cooling advertising revenue growth. Against such a discouraging backdrop, the investors are hoping for a takeover as the best option.
Who can buy Twitter?
It would make sense for only around half dozen companies – with deep pockets – to acquire Twitter, notes Bloomberg. For instance, if Microsoft gave the 50% premium to the micro-blogging site that it agreed to pay in its LinkedIn purchase, then it would imply a takeout value of around $19bn – nearly 27 times of Twitter’s anticipated EBITDA for 2016.
“If that type of Twitter deal valuation didn’t give a potential buyer pause, perhaps questions over whether the company’s earnings are propped up by its aggressive non-GAAP accounting and its willingness to throw stock pay at employees might,” notes Bloomberg.
If Facebook or Google acquire Twitter Inc , then they can easily hide its financial results, and include it into their existing “advertising sales machines.” But it is not certain, if either of the two are interested in buying Twitter now, or they are waiting for the platform to get even cheaper.
In the absence of takeover bids, speculations that an activist investor will demand the sale of the micro-blogging site has kept the company running. This notion got particular attention when CNBC reported that Twitter’s board is “well aware” of the threat of an activist shareholder. However, it does not mean that one is going to actually get involved here. It is quite difficult to see how an activist would make much more value beyond Twitter’s expensive multiple if it is not going to get sold, notes Bloomberg.
So, there is no clear way where the company is heading, and all they have presently is takeover hopes, which we believe will continue.
Disclaimer: The above should not be considered or construed as individualized or specific investment advice. Do your own research and consult a professional, if necessary, before making investment decisions.