Round and round Twitter Inc. goes. Where it stops, nobody knows.
The social media company is back under the spotlight onM&A rumors, this time with a wider cast of suitors than during previousappearances. But despite the expanded opportunities for tie-ups, analystscovering potential bidders cannot agree on an appropriate home for the companyor if one even exists.
Considering the skepticism, it seems that this cycle ofchatter could end up much like the rest, with Twitter still on its own,grinding out double-digit revenue and profitability growth but unable todeliver the one thing social-media investors really want: user growth.
On the other hand, analysts and investors covering Twitterseem ready for a sale of the company, something to turn around its uninspiringgrowth prospects. Whenever rumors of a potential deal proliferate, shares ofthe typically beleaguered stock launch upward. Most recently, that both and enterprise cloudcompany Salesforce.com are interested in a bid, along with perenniallyspeculated buyer AlphabetInc., flung Twitter shares up over 27% between Sept. 22 and Sept.27.
Those gains have been sustained despite increasingbearishness that a deal will be completed. Salesforce was roundly punishedby its investors after it was named as a potential acquirer. The company’sstock dropped over 5% on the day the news of its interest in Twitter broke, andanalysts following Salesforce piled on to decry the strategy and to “imploremanagement” to move away from a deal.
IDC analyst Scott Strawn echoed that hesitation.
“Salesforce is a weird one, I have to say,” he said.
He acknowledged that, while Salesforce provides an array ofcloud-based tools to support enterprise, it does not facilitate interactions ina broad way, and Twitter has become increasingly a professional networkingplatform. Further, MicrosoftCorp.’s recent deal with LinkedIn Corp. could add merit to a Salesforce socialmedia bid. But that still only partly taps Twitter’s potential value, Strawnsaid.
“Among the most valuable things Twitter has is its audience,and how Salesforce would leverage that audience, is not [obvious]. I see howGoogle does that. I see how Disney does that. Salesforce, I don’t know, that’sa bit of a stretch,” Strawn said.
Pivotal Research Group analyst Brian Wieser saw someadditional opportunities for Salesforce, whereby it could leverageTwitter’s data, but ultimately he said that Salesforce may be smarter to gainaccess to Twitter through a partnership than buy the platform outright.
The deal would be a little more practical for Disney,analysts agreed.
As Strawn pointed out, Twitter’s audience could be valuablefor Disney, which depends on audience engagement across its various mediaplatforms, including ABC(US), ESPN(US), Marvel and Pixar. Twitter’s audience is already primed for apotential tie-up with ABC or ESPN considering that a large part of Twitter’sgrowth strategy has involved becoming the social hub for both news and sportsmedia. For example, the platform recently streamed its first “” NFLgame, and Strawn pointed out that “Twitter really is the news.”
“To a kind of ridiculous extent, the news media … is gettingtheir news from Twitter,” he said. ABC could leverage that dynamic.
L.E.K. Consulting analyst Dan Schechter also pointed outthat Disney would have access to Twitter’s advertising inventory — digital adspace it could fill with its own marketing initiatives.
“There is an argument that a major studio can monetize itsunsold inventory better than most,” he said in an interview.
He also noted that Jack Dorsey, Twitter co-founder and CEO,is on the board of Disney, so there is likely a more coherent flow ofinformation between the two companies than among other potential suitors.
However, other analysts, like Alan Gould at Brean Capital,are pessimistic thatDisney would write the kind of check required to purchase Twitter. Gould notedthat Disney’s biggest deal yet was Pixar at $6 billion, which synergized neatlywith its existing business.
“We assume DIS looks at all major acquisition opportunitiesin the media space, and with both Jack Dorsey and [ COO] Sheryl Sandberg onits board, has to be interested in social media; but we don't see TWTR as theright fit for the price being asked,” Gould said in a Sept. 27 note, whichlabeled the social network a $15 billion-plus "fixer upper."
The markets were also not particularly enthusiastic about aDisney tie-up, with shares of the media company dipping over 1% after it wasnamed as a potential acquirer.
Perhaps more than Disney or Salesforce, still makes a fair degreeof sense, analysts agreed. The company may want a social platform to replaceits underperformed Google+ strategy. Such social and social-marketing datarepresents a hole in the company’s otherwise expansive consumer data collectionand analysis efforts. And the social sphere represents the last bastion ofdigital advertising Google has left to conquer.
But more expansively, Twitter represents one of the lastbastions of digital advertising available at all, which could be the key to theinterest in the company as a target. There are very few scaled digital andsocial advertising opportunities left after Verizon Communications Inc. scooped up AOL andYahoo! Inc., Wieserpointed out. Any company that wants to play in that space without building outits own platform is essentially left to consider Twitter.
“They’re not going to compete with Google and Facebook, butthat’s not the point,” Wieser said in an interview. “The point is where do yougo next? Pandora [MediaInc.]?”