Twitter Inc (NYSE:TWTR) became relevant to the financial media world once more on Tuesday, with TWTR stock picking up 5% on — wouldn’t you know it? — baseless M&A conjecture.
OK, OK, there’s a little bit more this time.
Twitter stock also was the beneficiary of something with some actual substance this time: operational performance. Or at least, one man’s estimates of Twitter’s operational performance. Canaccord Genuity’s Michael Graham said on Tuesday that he believes TWTR is getting up off the mat as far as user count is concerned.
Still, this and the other piece of news driving TWTR stock higher in Wednesday’s trading need to be taken with a shovelful of salt.
Guess Who’s Buying Twitter THIS Time?
I’m always reminded of European soccer’s “silly season” whenever I hear about the latest company linked with buying Twitter, and it’s no different this time. Japanese telecommunications giant Softbank Corp. (Japan) (OTCMKTS:SFTBY) is being heralded by some as Twitter’s next savior.
The impetus? A meeting between Softbank CEO Masayoshi Son and President-elect Donald Trump at Trump Tower today, after which Trump announced that Softbank will invest $50 billion in the United States. (Trump also mentioned that it would go toward “50,000 new jobs.”)
A report back in October — when Twitter stock soared on reports of being courted by Walt Disney Co (NYSE:DIS), Salesforce.com, Inc. (NYSE:CRM) and any other company you’d like to randomly name here — also had Softbank on the list of the interested.
Naturally, then, Softbank’s name is being flouted about again, as $50 billion would be more than enough to buy Twitter at a healthy premium and still have well more than $30 billion left over.
That’s fine. Just remember that most buyouts come with very little public foreshadowing. Instead, you find yourself reading about these deals after they’re suddenly announced on Sunday night or Monday morning. Disney bailed after weeks of rumors — including someone getting wind that DIS was working with an adviser on getting something done.
There is no hard news here. All guesswork. And when it comes to M&A, Twitter is the social media platform that cried “wolf” about 20 times too many.
Will More MAUs Really Push TWTR Stock?
Going back to Canaccord Genuity’s note, Graham said he expects Twitter to add 4.4 million monthly active users (MAUs) in the current quarter.
While that still only amounts to just 1.4% sequentially, that’s still better than the 4 million MAUs that Twitter added in Q3.
Graham also sees engagement improving from 4% in Q3 to 5.3% in the current quarter, with three-quarters of that coming from already existing users. Says Graham:
“While growth is still sluggish, if our sampling results prove consistent with reported results again this quarter, this should mitigate one risk for the stock in Q4. Management called out several improvements to engagement in Q3 from recent product changes, and we could be seeing some follow-through.”
Sounds pretty bullish, right? Just one problem (emphasis mine).
“However our optimism is tempered by the recent acqui-hire of Twitter’s sixth VP of Product in four and a half years.”
I think at least a little healthy skepticism is warranted when a positive note about better-than-expected operational performance can be tempered by a non-CEO hire. But perhaps more importantly, note that Graham’s note came on a reiteration of Canaccord Genuity’s rating.
Which was a “hold.”
And the analyst also reiterated an $18 price target. Which was about 1% less than where TWTR stock was sitting before the note’s release.
This has been the pattern for Twitter stock for some time now: Trade lower because of poor fundamentals, trade higher because someone heard from someone’s brother that a mega-cap dishwashing manufacturer’s CEO recounted a night terror in which he bought TWTR and polished his nanny’s lavender shoes.
The pattern is exacerbated from the decent short presence in the stock, with more than 8% of the float sold short as of the most recent data. You’d imagine any short might be a little skittish at the hint of a buyout.
If you’re buying into Twitter because you think its Q4 results could pack a positive surprise, you’re at least not living in la-la land. Go for it. It’s entirely possible that Twitter has started to figure a few things out. Again, it doesn’t say much that Graham’s note didn’t come with an upgrade, but that doesn’t mean he’s 100% correct about everything — including being cautious on the stock.
But anyone buying into Twitter stock hoping for that long-awaited buyout premium just spun the roulette wheel one more time.
If you’re looking to make a little something from this, buy puts for when TWTR is smacked back into reality.