Walt Disney Co (NYSE:DIS) signaled a bid on Sept. 26. Within two trading days, the stock lost about 2%. Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is off about 2% since it was rumored to be a potential buyer on Sept. 23.
Salesforce.com, Inc. (NYSE:CRM) was part of those Sept. 23 rumors, too, then speculation had them back out and now back in the running. CRM shares are off more than 5% in see-saw fashion.
Twitter stock, of course, has gone in the opposite direction. It’s up more than 25% since rumors surfaced, tacking on $3.5 billion in market cap.
TWTR has become the stock market’s Dracula. So why are all these necks lining up to get bit?
What Twitter Brings
I use Twitter. I’m a journalist. It’s a good way to follow other journalists, to get a line on stories and to engage (at a reasonable distance) with celebrities I care about. It is a bad habit, a cheap fame high, a form of pot for those who want to be heard and who think they are when someone retweets their words.
But Twitter can be much, much more.
A journalist-friend named Marshall Kirkpatrick created an analytical tool for Twitter, mainly to help him reach people and do better stories. It became Little Bird and he’s now a CEO, rather than a journalist. I say good for him.
There are other great analytic tools for Twitter, and many of them are free. TWTR is a great data source, and that’s how the management is selling it to potential acquirers, as something they can use to build their own brands or see their competitors’ actions in real-time.
The question becomes: What price does all this command?
What Is Twitter Stock Worth?
Many of the analytic tools listed above are free. You don’t have to buy the company to get value from it. Buying the company might even destroy the value, as competitors will see it as captive and avoid the tool.
Thanks to the sale rumors, the market values Twitter stock at more than $17 billion, all told. If an active auction is underway, it could cost someone up to $25 billion to take the prize.
What would they be getting? Well … a company that may do $4.8 billion in revenue this year, but one without a profit, and a growth rate that has slowed to 10% per year as TWTR has saturated its marketplace.
Buying a troubled Internet company like Twitter is not always the cure to corporate problems.
Verizon Communications Inc. (NYSE:VZ) announced in July it was buying Yahoo! Inc.’s (NASDAQ:YHOO) operating units for $4.8 billion. That business was about as big as Twitter is. How could Twitter possibly be worth five times more?
Since the Yahoo deal was announced, Verizon is down roughly 7%. That’s a loss of more than $15 billion in market cap — three times more than it paid for YHOO.
TWTR Is a Trap!
Twitter is a little like a sports franchise. It has enormous value because of its relative rarity.
But U.S. franchises are also worth a lot of money because U.S. sports is run on the basis of socialism. Most revenue is shared, and TV contracts are mainly negotiated by a central authority.
Corporations like Twitter live in a more brutal, capitalistic world — one more akin to European soccer clubs. And European soccer has something called “relegation.” If you don’t keep investing in the club, it could finish at the bottom of the league, and have to play in a lower, less-lucrative league.
That’s the real model for Twitter. Its present valuation is a chimera, a product of its rarity rather than results.
For those who are bidding on Twitter stock, it’s a trap.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he was long DIS and GOOG.