At the Vanity Fair New Establishment Summit last week, Walt Disney Co (NYSE:DIS) CEO Bob Iger noted that he considered buying Twitter Inc (NYSE:TWTR). But he ultimately decided to make a deal for BAMTech instead, which is a top-notch video streaming platform. Yet, is Iger’s initial interest in Twitter Inc stock a sign that a buyout option is still in play?
Well, interestingly enough, he was positive about the company, saying: “We thought Twitter had global reach, a pretty interesting user interface and a compelling way that we might be able to present and sell the content that our company makes to the consumer.”
Then again, such talk should be taken with a grain of salt. Let’s face it, Iger has no incentive to criticize Twitter or any other company. He also provided no details on the seriousness of making a deal for Twitter Inc stock. The fact is that Iger saw much more strategic value in another asset.
Where Are the Buyers?
However, aren’t there other suitors that could benefit from making an acquisition for Twitter Inc stock — like Alphabet Inc (NASDAQ:GOOGL,GOOG), Facebook Inc (NASDAQ:FB) or even Tencent Holdings Ltd (OTCMKTS:TCEHY)? Perhaps so.
And there are certainly some advantages:
- Twitter is a well-known global brand.
- The user base is fairly large, with 328 million users. There are also many high-profile celebrities on the platform, which allows for high levels of engagement.
- Over the years, TWTR has built a sophisticated ad infrastructure. The company also has a treasure trove of user data, especially regarding interests.
While all these factors are attractive, they may not be enough to justify a buyout of Twitter Inc stock. First of all, the company’s digital platform is eroding. During the latest quarter, the MAUs (Monthly Active Users) posted zero growth on a sequential basis and there was a mere 5% increase on a year-over-year basis. Part of the problem is that TWTR is losing momentum in the US market, where the number of MAUs dropped by 2 million in Q2.
This is not to say that TWTR has not tried to reverse the stagnation in the user base. The company has made the UI easier and has added features like live video. It also looks like the tweet limit will be expanded from 140 to 280 characters.
But for the most part, nothing seems to work. And the big-time problem for Twitter Inc stock is that the financials are already taking a hit. In Q1, revenues dropped by 9%, which was then followed up by a 5% decline. Keep in mind that the subpar performance is likely to continue for the rest of the year, according to guidance from the company.
The scary fact for holders of TWTR stock is that advertisers do not consider the platform a must-have. It just does not have enough scale.
Various analysts are sounding the alarm bells as well. Just look at Aegis Capital analyst Victor Anthony, who believes that things are not getting better — in terms of both the revenues and the user base. He currently has a $13 price target on Twitter Inc stock.
Bottom Line On Twitter Inc Stock
The negative TWTR news really does make it tough to gin up buyout interest. Besides, companies like FB, GOOGL and Tencent have generally focused on acquisitions for high-growth companies, not those that are in the turnaround mode.
Now it’s true that an old-line company like Verizon Communications Inc. (NYSE:VZ) or AT&T Inc. (NYSE:T) might be interested. However, such an operator probably will not be willing to pay much of a premium.
For the most part, rumors of a buyout of TWTR stock will likely continue. But in light of the nagging issues with the company, the gains in the shares will probably not be sustainable.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.