Data it’s what makes the tech world go ‘round. And in the case of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), it’s what drives its profits, cash flows and ultimately the value of its stock. Google has made a name for itself delving into people’s lives, running it through an algorithm and selling the output to advertisers. Pretty much everything GOOGL stock does — even controlling your thermostat — has to do with creating this huge base of data for the company to play with.
And its latest, and somewhat secret moves are all about getting its hands another massive pile of people’s lives. Google is buying floundering social media network Twitter Inc (NYSE:TWTR).
Well, not entirely. But GOOGL has started picking off pieces of the Twitter corpse. And by snagging some of TWTR’s items now, Alphabet could be setting itself up for to buy the whole enchilada later on. In the end, that actually might be a great deal for GOOGL stock investors as its all about the data.
GOOGL Snags Developer Tools
Twitter has been a potential buyout candidate basically the second it IPO’d a few years ago. Perhaps even more so now that the social network has struggled to see user growth and profitability. TWTR stock has plunged about 60% since its public offering. But like Google, Twitter is much more than just its namesake service. In this case, it’s about app development.
For an undisclosed sum, Alphabet has agreed to buyout Twitter’s main developer project — Fabric.
Fabric provides a software toolkit for development and design of mobile apps. And even though it’s part of Twitter, it’s not small potatoes. The software is used by more than 580,000 mobile developers including Alibaba Group Holding Ltd (NASDAQ:BABA) and Wal-Mart Stores Inc’s (NYSE:WMT) Jet.com.
Fabric will be folded into Google’s own Firebase mobile developer platform, and its employees will be now part of Alphabet.
So why would the company want this stuff and the talent pool? As I said, it’s all about data.
With the addition of Fabric, GOOGL will own two of the most popular tools for developing mobile apps. Fabric is a favorite stomping ground for app development for Apple Inc.’s (NASDAQ:AAPL) iOS software for iPhones/iPads. By having the two under one umbrella, it gives Alphabet an easy inroad to help developers make formerly exclusive iPhone apps available for the mobile web and Google’s Android software. You know, where GOOGL stock makes a bulk of its advertising dollars.
The second big data kicker comes from the fact that while much of Google’s tools are available for free; many developers will buy computing power and storage from the company’s cloud service. It’s expected that once Fabric is integrated fully, the deal would be the same. Not only does that boost GOOGL’s cloud revenues, but it gives it a chance to comb through all the data being produced and potentially mine it for what it is worth.
Backend as a service (BaaS) platforms like Fabric and Firebase fit perfectly into Google’s “Here, have it for free, we’ll just keep the data” business model.
In the end, the purchase will allow Google to further cement itself as one of the world’s biggest mobile app developers and give it a new source of additional revenue.
Alphabet Still Wants Bluebird
But what about Twitter’s real function — those juicy 140 character tweets and the social network? Even though Google didn’t make an offer to buy the firm, the truth is, Twitter proper still makes for an excellent fit for GOOGL stock. Twitter has a hard time data mining and getting advertisers to embrace all those tweets. But for someone like Google, the social media network — and its 300 million users — is pure gold. Advertisers are starting to prefer social media networks and their ability to drill down to specific users.
The idea behind Twitter selling off this hobby business was so that it could focus on boosting the main product’s user base, remove spam/bots and make it a better product. Buy waiting to buy it later, all the hard clean-up work will be done. And if it is still floundering, it gives Alphabet a chance to buy it on the cheap. And considering that there will be now plenty of former Twitter employees at GOOGL, integrating it later on will be a snap.
Bottom Line on GOOGL Stock
While it continues to be a perpetual rumor, Google’s latest actions suggest that Twitter will very much be an Alphabet business in the future. The moves to strengthen its one developer base in mobile apps and snag key personal from the social media company is just the first step. It gives plenty of time for Twitter to refocus and reorganize. In the meantime, the additional revenue from Fabric and cloud sales will be certainly welcome.
And when Google finally does buy TWTR, it’ll be great news for GOOGL stock. That’s 300 million more users it can mine for data and potential extract useful info for advertisers. Google is just one step closer to putting the rumors to rest and snagging the social media company.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.