When it comes to Twitter Inc (NYSE:TWTR), investors have been hoping for a buyout … and it looks like a deal may come soon.
So of course, on the buzz, Twitter stock is up over 20%.
But this may not necessarily be good news for the potential suitors. Hey, just look at Salesforce.com, Inc. (NYSE:CRM). This cloud giant appears to be at the top of the list, and Wall Street is far from happy about it.
Consider that CRM stock is currently down about 5.7%.
Why the skepticism? Well, let’s take a look at three factors:
Salesforce.com, Inc. Needs to Manage Its Latest Deals
It’s important to note that CRM has bought 11 companies since December — for a total of over $4 billion. While some are small, there are others that are probably taking up a lot of managerial bandwidth to integrate. For example, Demandware (which CRM paid $2.8 billion for) has over 900 employees.
If CRM does buy TWTR, there will be even more complexity. The number of employees at TWTR is over 3,800.
Let’s face it, the tech industry is rife with examples of where companies got too aggressive with M&A and could not properly meld the different cultures — as seen with Cisco Systems, Inc. (NASDAQ:CSCO) and HP Inc (NYSE:HPQ). So in light of this, it should be no surprise that CRM stock is getting hit.
TWTR Is Lagging … Big Time
Twitter CEO Jack Dorsey has been taking steps to boost the user growth — such as with live video streaming. But nothing seems to be working. During the past year, Twitter has added a mere 9 million MAUs (monthly active users), while Facebook Inc (NASDAQ:FB) has snagged over 164 million.
As a result, the company is having a tough time attracting ad dollars. During the latest quarterly report, the top line churned out a mere 20% increase in revenues — and the current quarter is expected to be around 5%.
Now for CRM stock, the big attraction has been its consistent growth path. But by adding Twitter, this could easily be in jeopardy, as there will likely need to be substantial investments to get the company back on track.
CRM Stock + TWTR Stock = Weirdness
It’s certainly the case that M&A is critical for tech success, but it needs to be highly focused. No doubt, an excellent case study is FB. The company has been disciplined in buying companies that have added value to its social networking core, such as WhatsApp and Instagram. Interestingly enough, FB would probably be worth much less if these acquisitions were not made.
But regarding a CRM-TWTR combination, the synergies are, well, elusive. Salesforce sells sophisticated cloud applications to businesses and Twitter is focused primarily on consumers — making money by selling advertising.
Seriously, why would CRM want to get involved with handling streaming of NFL games or presidential debates or dealing with cyber bullying?
In other words, how is Twitter really strategic to CRM?
I’m really not sure. Instead, a better approach would be to expand the existing licensing agreement (which allows for accessing Twitter data analytics).
In the meantime, the CEOs at FB, Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Snapchat should be encouraged if a deal happens. After all, that will probably make it even easier to take marketshare away from Twitter, as it will likely get bogged down in a morass of being absorbed into a very different kind of company.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionTaxes.com, which provides interactive tools for those who have employee stock options (pre and post IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.