Twitter Stock: No, It’s NOT a Perfect M&A Target

Perfect stock to short? Maybe. Buyout candidate? Absolutely not.

Twitter (TWTR) stock is in the doldrums. What’s new?

twitter twtr stock not a buyout candidateAfter a pessimistic conference call in which co-founder and interim CEO Jack Dorsey slammed his own company’s pathetic user growth numbers, shares plunged nearly 15%.

TWTR stock is now off 18% in 2015 and down 32% in the past year, but the steep descent — instead of serving as a warning sign for bulls — has only given diehard Twitter believers another “potential catalyst” to point to as justification for their own beliefs.

The catalyst? A Twitter buyout, which is increasingly being brought up by hopeful investors as TWTR stock languishes.

Why No One Will Buy Twitter

The closest thing to a buyout we’ll see with TWTR stock already happened — in the form of a fake takeover bid that sent shares briefly soaring on July 14.

That day, a fake Bloomberg story reported that TWTR received a $31 billion buyout offer; some traders believed it, and shares enjoyed an 8% spike before the story was outed as a hoax. Even at the peak of that day’s euphoria, Twitter stock traded for $38.82, a far cry from the $46.15 per share the $31 billion buyout would’ve suggested.

You can understand why Wall Street might’ve been skeptical: A social media website with stagnant user growth that relies on non-GAAP earnings to appear profitable, all while competing for ad dollars against the likes of Google (GOOG, GOOGL) and Facebook (FB). If you ask me, that’s not exactly the description of an ideal M&A target.

Ironically, the two companies eating Twitter’s lunch — GOOG and FB — are also most frequently mentioned by delusional TWTR investors as the most likely acquirers.

We’ll get into the “logic” behind that line of thinking in a minute. First, let’s look at the numbers. How low would the TWTR stock price have to go for it to make mathematical sense for Facebook or Google to make an offer?

Bloomberg broke it down in a recent article:

“In order for Google’s 2016 earnings to benefit from an acquisition, Twitter’s price would have to drop to $11.16 a share, according to data compiled by Bloomberg. For Facebook’s earnings to benefit, Twitter shares would only need to drop to $20.78.”

In other words, the TWTR stock price would have to fall another 29% before it started to look attractive to FB, and another 62% before GOOG would entertain the thought.

By definition, any stock that still needs to fall 30% to 60% before realistically becoming a buyout candidate is NOT a good buyout candidate.

So a TWTR buyout is still a pipe dream on paper, and it doesn’t really make sense strategically for FB or GOOG. What do they gain? They each have better data and advertising platforms than Twitter. They’re each profitable on a GAAP basis.

Moreover, Facebook unveiled a “trending” sidebar to its homepage recently, and GOOG and TWTR are already working together to show tweets in Google search results.

So no, just like no one ever really wanted to buy Yelp, no one really wants to buy Twitter.

And you shouldn’t either.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at

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