Over the past month, social media micro-blogging firm Twitter Inc (NYSE:TWTR) shot up 13% after hedge fund Jana Partners announced that it was buying 2.9 million shares of Twitter stock. The news reignited rumors that TWTR may go up for sale and gave investors reason to believe that the firm may be able to turn itself around after a dismal year of sluggish user growth and shaky financials.
If you were able to ride on Twitter’s wave of gains over the past month, now is the time to sell as the stock is unlikely to hold onto this momentum for long.
Twitter stock’s rally will probably be short-lived once the media attention dies down and investors realize that putting money into the little blue bird is akin to dumping quarters into a slot machine, with the slot machine delivering slightly better odds.
A Sale Is Unlikely
Some of the momentum TWTR stock gained this month can be attributed to renewed speculation that the company might go up for sale. A sale would be lucrative to Twitter stock investors, but Jana’s stake in the company is unlikely to push the firm any closer to becoming an acquisition target.
Twitter already went up for sale once and although there was some interest, ultimately no one was biting. Nothing significant has changed since the last time Twitter tried to sell, so the chances that a buyer will emerge the second time around are slim. The company will probably need to carry out more cost cutting measures and bring its price down before there will be any credible takeover interest.
Management Shakeup Won’t Do Enough
Another thing that has pushed Twitter stock higher is the prospect that Jana might push for a shakeup in Twitter Inc’s management team. CEO Jack Dorsey has been unable to steer the firm back into a profitable direction and many are questioning whether he should turn over the reins and give someone else a try. New management and fresh ideas might do TWTR a world of good, but again, this is unlikely.
If Jana does push for new blood, it could be good for Twitter if that individual is planning to carry out drastic cost-cutting measures and make the firm more appealing as a takeover target. But even then, Twitter may not be a sought-after purchase because the company’s stagnant user growth suggests that it doesn’t have a place in the future of social media.
The Unsolvable Problem
The main reason that Twitter Inc is in trouble is that the company has been unable to grow its user base, so it is slowly being phased out of an already cut-throat industry. The only thing that Twitter has going for itself is the fact that tweets have become a well-known part of pop culture. However, this fact alone will do nothing to save the social media firm.
People are more interested in using Twitter competitors like Facebook Inc (NASDAQ:FB), Instagram and Snapchat. Twitter’s reputation is plagued by struggles with negativity and cyber bullying.
What’s more, the company has failed to come up with a reasonable value proposition that gets new users hooked and keeps old users coming back. Without growth in active users, Twitter Inc is dead in the water.
There was a lot of excitement about the firm’s live feeds and Twitter’s role in the Olympics, and while those things certainly helped, they couldn’t revive a brand that is slowly being phased out by other social media options.
As usual, the market was excited to see movement around Twitter stock and hopes for a takeover were high, but a closer look at the stock’s future prospects shows that Twitter has a long way to go before becoming a desirable acquisition target.
TWTR investors who held onto their shares long enough to enjoy it’s most recent bump should take their gains and run, because the little blue bird won’t be flying high for long.
As of this writing, Laura Hoy was long FB.