Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) remains the odds-on favorite buyer for Twitter Inc (NYSE:TWTR). Not just because GOOGL can afford to do a deal, but because that pairing makes the most sense.
Walt Disney Co (NYSE:DIS) has now thrown its hat into the ring of companies reportedly mulling a Twitter buyout, followed by reports today that Microsoft Corporation (NASDAQ:MSFT) was joining the fray.
The race is heating up, and it’s getting crowded.
And yet, in all the hoopla surrounding Disney — in addition to whether salesforce.com, inc. (NYSE:CRM) could even afford Twitter — one important reality has been buried: Alphabet Inc is the right buyer for Twitter.
And yet, a merger isn’t an outright slam dunk for the value of GOOGL stock.
Why GOOGL Should Buy TWTR
There are several reasons owners of GOOGL stock might want to see Alphabet scoop up Twitter while it can (provided the price per share of TWTR needed to make it happen isn’t outrageous). But the most superficially logical one is also the most correct one: Alphabet doesn’t have a social networking presence, and Facebook Inc (NASDAQ:FB) is on the verge of turning its social media venue into a modest alternative to Google.
Not everyone realizes it yet, but Facebook’s search tool isn’t just a means of finding other Facebook users. Late last year, FB began indexing posts, and now adds those posts to its search results. More recently, it added a “Buy Now” button to Messenger, and it’s no big secret that Facebook dominates the messaging space despite Google’s efforts to attract users to Google Hangouts and its new Allo. Let’s also not forget Facebook is stepping up its game as a digital video venue.
None of those things in and of themselves pose an immediate threat to Google. All of them, however, open the door to an effort that could turn into a threat that slowly chips away at Google’s relevance to the average internet user.
That’s not to say Twitter in its current format could upend Facebook as the king of social networking, but most GOOGL investors have little doubt that Alphabet could tweak Twitter enough to turn it into an outright destination rather than a mere diversion.
Let’s also not forget that Twitter serves up a ton of detailed data, not just about its users, but about what’s hot on the web right now. Google loves data, as it can be converted into improved targeted ads.
On the flip side, it’s not as if Alphabet wouldn’t face a few headaches if it were to bring Twitter into the fold.
Why Alphabet Inc Wouldn’t Want Twitter
For starters, while “a few tweaks here and there” might turn Twitter into something better than what it is right now, to fully unlock the potential of the microblogging platform would require a deeper integration into the Google framework.
That could be tricky for logistical as well as perception reasons. Internet users are a fickle bunch. Some changes they like, but most changes aren’t easily digested.
Although Twitter only has a small crowd of a little more than 300 million regular users, they’re a very loyal crowd … to the platform as it stands right now. Even the mere perception of change could send them packing. Problem is, to get the most out of Twitter, someone would have to make at least a couple of key structural changes to the interface.
One of those changes is (considerably) longer tweets that allow members to get on their proverbial soapbox. Another change that may do some good is developing topical-based discussions rather than letting Twitter remain nothing but a digital free-for-all.
In other words, Alphabet may feel compelled to answer the question “what is Twitter supposed to be?” without fully knowing the answer. There’s no clear picture of how users would respond to such paradigm shifts.
There’s also the not-so-small matter that Alphabet has tried social networking before, and failed.
That failure is Google Plus. It was a technically sound platform. But, in true Google fashion, it felt clinical. If Alphabet can’t maintain Twitter’s charm and personality and pushes too hard with any monetization effort, an acquisition may well make matters worse.
Bottom Line for GOOGL Stock
Regardless of the risks, most fans and owners of GOOGL stock seem to support buying Twitter, and understandably so.
Alphabet has more to gain from such a pairing than any other rumored bidder, if only because it has the technical wherewithal and existing web audience — not to mention advertisers — that Twitter and other potential buyers can’t muster on their own.
Now let’s see if Alphabet CEO Larry Page sees it the same way.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
