With next week’s earnings report from Twitter Inc. (NYSE: TWTR) expected to be dismal, the stock looks unlikely to reverse to the upside, and it could easily continue its downtrend since its initial public offering back at the end of 2013. Twitter currently trades at a little over $16 a share — 69% off 2015 highs and 77% off all-time highs — and the company’s inability to effectively monetize its user base is leading analysts to question its future. Specifically, whether the company would benefit from being bought out and, if so, who would make the ideal suitor?
Is a buyout possible? In a word, yes. Twitter shareholders are putting pressure on the company to deliver, and this is limiting the company’s ability to experiment with alternative revenue sources. If Twitter were part of a larger organization, it could shift its focus from advertising, a space in which it is already reaching top end barriers, and focus on things like data monetization or commercial licensing.
So what would be a good company to take Twitter under its wing?
One of the most widely touted suitors is Alphabet Inc. (NASDAQ: GOOGL). Alphabet has enormous cash reserves, $73 billion at latest count, and could afford to pay a 100% premium without breaking a sweat. Many will argue that Twitter has no real value for Alphabet since the social network is very unlikely to catch up to Facebook on almost any metric, and Google already fought, and lost, in the social media space with Google+.
In reality, however, Twitter’s strength isn’t as a social platform; it’s in its ability to aggregate data. Real-time access to the data that Twitter creates could seamlessly integrate with Google’s tailored advertising approach.
Another controversial suitor is Facebook Inc. (NASDAQ: FB), but again, there is a data driven argument for the company’s interest in Twitter, and again it is rooted in data. Facebook generates its revenues from display ads, but as these become increasingly overlooked (due to banner blindness, ad blocking, etc.), it may need to diversify its approach. One way to do this is through data packaging and selling.
Facebook paid $19 billion for Instagram, and it has since expanded the platform to more than 400 million users. However, images are difficult to aggregate into any usable and sellable form of data. It also has plenty of information on who people are and what they are doing, which can be used. If it buys Twitter, it will pick up a host of different data types that it can package and sell when ad revenues start to plateau or slide. Stock market info and sports reporting spring to mind, but these are only two of many possible applications.
Finally, a less likely but perfectly reasonable third suggestion is International Business Machines Corp. (NYSE: IBM). IBM is going big on big data, and there are few if any companies in the world that could aggregate, analyze, package and sell Twitter’s data more efficiently. IBM could buy Twitter and license its data to third parties. We’ve already seen this happen with this IBM/Twitter agreement, and a buyout would just be an extension of this dynamic.
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