Speculating with potential buyout bait is always risky, just ask anyone who bought Twitter Inc (NYSE:TWTR) on a possible takeover. Since Oct. 5, TWTR shares have plunged about 33%, because there was little enthusiasm from potential bidders. Even Salesforce.com, inc. (NYSE:CRM) — whose CEO recently described Twitter as an “unpolished jewel” — has pulled out of the bidding.
Yet all this should not be a surprise. As I noted in a recent post for InvestorPlace, CRM looked like an inexplicable choice for TWTR. What would be the clear-cut synergies between an enterprise cloud computing operator and a consumer mobile app?
Not much, really. Hey, Wall Street passed a stark judgment on this as well, with investors pummeling CRM stock on the buyout buzz. So as for today, Benioff has said Twitter isn’t the “right fit.”
But this isn’t the main worry for Twitter stock holders. Let’s face it, Twitter CEO Jack Dorsey — who splits his time as the CEO of Square Inc (NYSE:SQ) — has had mixed results with trying to improve the user experience and adding new features.
The most telling indication of this, of course, is the meager user growth. For the past year, TWTR added 9 million MAUs (monthly active users).
If anything, the service looks more like a niche, not a must-have for advertisers. Already there are scary signs that this is taking a toll, with revenues up only about 20% in the latest quarter. What’s even worse, the increase is only expected to be 5% in the current quarter. No doubt, whenever a tech operator loses its momentum, it can be tough to gain it back. Just look at AOL and Yahoo! Inc. (NASDAQ:YHOO).
For advertisers looking for digital opportunities, it seems reasonable that they would rather focus their attention and budgets on large platforms, such as Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and even the fast-growing Snapchat, which is likely to go public in the first half of next year.
So even though M&A has been robust in the tech sector this year, there still remains discipline from buyers. And unfortunately for Twitter stock, it appears that some of the world’s top operators really do not consider the company to be very strategic for them. It’s certainly an ominous judgement – and could be an indication that the worse may be far from over.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services 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.
