Twitter: (TWTR: $19.21)
Shares popped 5% yesterday on comments made directly by the company’s co-founder that a sale of the company should be considered.
Co-founder Ev Williams said in an interview with Bloomberg TV that the company has to weigh all options amid ongoing speculation it’s a takeover target. Williams initially declined to comment when asked by Bloomberg whether Twitter can remain an independent company. He went on to say, "We’re in a strong position now, and as a board member we have to consider the right options."
Board members are obliged to consider credible takeover overtures and often make similar boilerplate pronouncements when asked about deal-making. Even so, the Williams's comments come at a time when Twitter is often mentioned publicly as an acquisition target, as has been mentioned many times here at The Bull Market Report. The stock ran up 9% in early August amid unsubstantiated speculation that former Microsoft Chief Executive Officer Steve Ballmer and Saudi Prince Alwaleed bin Talal Al Saud were teaming up to buy the company. While analysts played down the chatter, Axiom Capital said that if Twitter’s business doesn’t turn around by mid-2017, a case could be made for a sale.
CEO Jack Dorsey, the co-founder who took the top job again officially in October, is trying to reshape the company’s reputation and product mix to draw a more mainstream audience. Investors have lamented Twitter’s recent user-growth slowdown, and the stock has fallen more than 17% this year. Revenue at Twitter is growing slower than expected, even as the company steps up efforts to court advertisers. The company is cutting deals to stream more live events, from sporting matches to political debates, and this year acquired an artificial intelligence startup to make live video look more professional.
BMR Take: The current situation feels eerily similar to LinkedIn, which was eventually acquired by Microsoft at a 50% markup. We see value in Twitter at these levels – that’s why it’s in the Special Opportunities Portfolio. We believe there are two opportunities here. The first is for the company to start the turnaround, growing users and revenues and profits. The second is for a firm with a ton of cash or valuable stock to swoop in and pick up the company. Google? Apple? Facebook? A Saudi Prince? A Steve Ballmer with all that Microsoft money? After all, Twitter started the Arab Spring; Twitter has been able to handle Donald Trump's comments; Jimmy Fallon starts a “trending topic” every Wednesday. Twitter is no Blackberry. It is a company of the future with a huge upside.