Since Microsoft Corporation (MSFT) announced its huge $26 billion buyout of LinkedIn Corp (LNKD) on June 13, Twitter Inc (TWTR) stock is up 15.5% on market speculation that it will be the next big buyout.
TWTR Users Are Not LNKD Users
First of all, it’s important to understand what MSFT got in LNKD. Yes, LinkedIn and Twitter are both social media companies with massive user bases. LNKD has roughly 433 million users and TWTR has about 1.3 billion registered users.
Unfortunately, only about 310 million of those Twitter users were classified as monthly active users (MAUs) as of Q1.
Still, that’s a lot of potential exposure for a buyer.
But not all social media subscribers are equal. In fact, LNKD and TWTR stock represent the opposite ends of the spectrum when it comes to generating advertising revenue.
Social media is all about advertising, as FB has proven. Each active LNKD user generates roughly $8 in ad revenue per year. The average Twitter user, on the other hand, generates less than $2 per year in ad revenue.
TWTR Stock Has Little to Offer
TWTR stock has very little to offer a potential buyer in terms of value. Yes, if a buyer only needs subscribers, TWTR can provide eyeballs. But the reasons that TWTR stock is down 59% in the past two years don’t all disappear because LNKD was acquired.
Any potential Twitter stock buyer will be well aware of the problems. MAU growth is stagnant. The company can’t hold on to top-level management. Despite strong revenue growth, TWTR still hasn’t turned a profit.
The market hasn’t forgiven these issues, so why should a buyer?
Microsoft gets access to a high-revenue, professional user base in LinkedIn. MSFT sells business technology products and services. It also had no major social media platform to speak of prior to buying LNKD. It’s a match made in Heaven.
AAPL, FB and GOOGL Aren’t Interested in TWTR
Twitter stock may have its own match out there somewhere, but the idea that it will be one of these three large tech companies seems highly unlikely.
While it’s true that Apple, Facebook and Google all could afford TWTR at its current market price, each company could also spend its money in much wiser ways.
FB is most obviously off the table. Facebook is already the market leader in social media and has finally cracked the advertising revenue code. Why would it buy out its failing competition? The only good reason would be to prevent a competitor from entering the space.
GOOGL and AAPL already have massive installed user bases. But they both also have much higher priorities than social media.
Both are working on breaking into the auto technology business. Although both companies are secretive about their projects, they are both believed to be working on driverless cars. In that sense, a buyout of Tesla Motors Inc (TSLA), Mobileye NV (MBLY) or another auto technology company would be a lot more reasonable.
Artificial intelligence is another top priority for GOOGL and FB that likely would fall much higher on the buyout priority list than social media.
Bill Campbell, former AAPL board member and long-time friend of Google CEO Larry Page, explicitly says GOOGL has “zero” interest in TWTR.
TWTR has some strengths, and it may eventually find a buyer. It just won’t be GOOGL, AAPL or FB.
As of this writing, Wayne Duggan had no positions in any of the stocks mentioned.