The bubble in shares of Twitter Inc (NYSE:TWTR) popped overnight Wednesday and into Thursday’s regular hours in a wave of denials. The many companies who were said to be preparing bids for the social media company all pulled out of the trade, and Twitter stock sunk like a rock.
TWTR opened at $20.46 on Oct. 6, after closing at near $25 each on Oct. 5. It should be pointed out that Twitter’s first trade was for $26 per share in November 2013.
Rather than lining up for a quick profit on a takeover, traders are now repositioning themselves for earnings on Oct. 27. Twitter will be reporting third-quarter earnings — for which it has offered weak guidance. Analysts are expecting a loss of 15 cents per share of Twitter stock on revenues of $605 million. That is insufficient to support the $17 billion in market cap TWTR had before the latest rumor collapse.
The rumors may remain alive for some time, but if the company does announce there will be no sale, Twitter stock is certain to fall even more.
The Rumors Seemed Real
Rumors of a sale began on Sept. 23, with the shares at around $18, and peaked a few days ago with The Wall Street Journal writing that it would field bids this week. Those reports fueled the stock toward its Oct. 5 high.
If the rumors were unfounded, and can’t be brought back to life, then the stock is likely to fall quickly back to its earlier level, if not below it.
Twitter sources had previously told investors it expected to conclude a sale this month. Among the companies said to be on its short list of partners were Salesforce.com, Inc. (NYSE:CRM), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Walt Disney Co (NYSE:DIS).
There were reasons for all the names to be on the list. Salesforce was said to want Twitter’s data to help drive sales for its marketing clients. Google would see Twitter as a great social media fit with its search products. Twitter CEO Jack Dorsey has been on the Disney board since 2013.
The rumors were fed by a continual stream of TV interviews, with former Yahoo! Inc. (NASDAQ:YHOO) CEO Ross Levensohn speculating that Apple Inc. (NASDAQ:AAPL) might be a buyer, and our James Brumley writing that a deal seemed certain as recently as Oct. 3.
But overnight all the bidders seemed to disappear. Sources told ReCode that Apple, Google and Disney had all decided against making a bid on Twitter stock. Salesforce CEO Marc Benioff said “we have to look at everything but we pass on most things.”
If a deal happens at this point, it’s likely to be at a much lower valuation than the stock was trading on earlier this week.
What Is Wrong With Twitter Stock?
Before the rumors of a sale got going, most of the talk around Twitter concerned a revolt against CEO Dorsey, who returned to the company a year ago and had been trying to restart growth with live streaming of events like NFL games and Presidential debates.
Live streaming was a stretch for the company, which began by offering 140-character “tweets” no longer than the SMS messages popular on feature phones during the last decade. TWTR had gradually lifted that rule during 2016, so that links and then graphics were not counted against the cap.
All this seemed like fun, but it failed to reignite growth, and it was growth that was the key argument for Twitter stock bulls. Twitter is useful for reporters and people who want to advertise themselves, but it has a growing problem with trolls who attack celebrities and machine-made accounts with no one behind them. As many as one-third the Twitter “followers” of the two presidential candidates may be computer-generated bots.
In some cases, the two negative trends have combined, with Politico reporting on an “army” of fake pro-Trump accounts trolling supporters of his opponent.
The Bottom Line
The bottom line is the bottom line, and the bottom line at Twitter is not good. Revenues for June were down $100 million from their peak in the December quarter, the user base is not growing and top executives continue to head for the exits.
It is very possible that Twitter stock will not stop falling when it reaches its pre-rumor level. If a big company is interested in buying TWTR, it may then get a bargain.
But whether or not a sale happens, those speculators who followed the stock’s rise and didn’t get out are going to be burned.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in GOOGL, AAPL and DIS.
