Twitter is struggling and not showing any signs of getting any better. Last week, its stocks plunged rapidly and massively, ending up losing by at least 15%. This was the result of a very ugly report by leadership on Wall Street discussing the state of the company.
A huge sell off ensued, and billions of dollars in value were shaved off the market capitalization of Twitter. As a result, the stock was worth only about half of what it was worth in October 2014. Shares are being beaten down and since the company is still in between CEOs, adding to an already significant period of turmoil, it is now looking as if financial experts are waiting for the stocks to drop just that little bit further. At that point, all of Twitter will become an acquisition target.
But what is the record low that others are waiting for? How little does Twitter have to be worth before they will start taking over? On Friday, the company’s stock closed at $31.01. Some experts have suggested that they are waiting for it to drop to below $30, at which point acquirers will start circling around Twitter and consider taking it over.
Since Twitter became a public company, its shares have never dropped below $30. Its IP was priced at $26 back in November 2013. However, as soon as shares started trading, they hit $45 instantly. Since then, Twitter has known a lot of ups and downs, both in terms of the operations of the company and in terms of their stock market value, but there has never been a single moment when it dropped to below $30.
As such, dropping below $30 would be a huge milestone to say the very least. However, other experts feel that it would need to drop even more before Twitter could truly become a takeover target. If the share would indeed be $30, the market capitalization for Twitter as a whole would still be around $20 billion. This means some significant amounts of money would need to be available for a true takeover to take place. This is particularly true because an acquisition premium would also need to be paid, meaning that a total of around $30 billion would be needed. This was confirmed by Eric Jackson from Ironfire Capital.
It’s still going to be a pricey acquisition for anyone, even a Google.
Naturally, Google has plenty of money. Its balance sheet includes around $70 billion in cash and they are seriously lacking when it comes to social media. While they have launched Google+, it is not being used as much as they would like. For internet users, it seems to be very low on the list of priorities. This means that making a Twitter acquisition could very well be an answer to Google’s problems.
Other potential acquirers include the usual suspects like Facebook, Microsoft and Apple. However, there is no real reason to believe any of these companies would have an interest in purchasing Twitter. It is believed that, before these companies would become interested, the market cap would need to fall closer to $10 billion first. If the value of Twitter remains above $10 billion, the reality is that only Google would be able to buy it without significantly harming its own operations. These numbers are so large that most would be scared away almost instantly.
At present, Twitter is trading around 12.8 times what its trailing sales are. This doesn’t sound too bad, until you understand that Google is at just 6.2 times its trailing sales, and Amazon is even lower at just 2.6 times. In simpler terms: Twitter most certainly is not cheap.
However, not every financial advisor agrees with Eric Jackson’s claims. One hedge fund investor, for instance, has suggested that investors are waiting for a further 20% drop in the market cap of Twitter. This means shares should drop to $24 before anyone becomes really interested. At that point, the total market cap would be $15 billion. This is still a lot of money, but it is also what Snapchat is worth, and other companies would queue up to acquire that highly popular mobile application. The hedge fund investor stated.
I think it’s a bigger platform than Snapchat today because it can reach more people, and it applies to everybody, and it’s more differentiated.
However, he also wanted to make sure people were cautious. Twitter is experiencing real problems in terms of growing its number of active users. It is also struggling to attract high quality advertisements. This means that a takeover would not automatically be a positive one, and whoever does decide to do it will have to have not just the billions of dollars that Twitter is worth, but also the time to really turn the company around and make it profitable enough to earn back the money used in the acquisition.
It is difficult to trust numbers, particularly when they are as high as what they are now. The value of Twitter, and other social media platforms and internet giants, is based almost solely on how many users are predicted to actually access the platform. Since the number of users is stagnating on Twitter, and not just because there simply aren’t more users to reach – an issue that Facebook is dealing with – the value will struggle at present. However, nobody can predict what will happen online with any real accuracy. Twitter may suddenly see a surge in users, or it may be lost completely.
Clearly, Twitter is in a difficult situation right now. However, most agree that we haven’t seen the end of the social media network yet. While financial experts agree that a key issue the company has to solve is appointing a new CEO, most users have felt that it is not something that they feel will influence their decision whether or not to use Twitter at all. For them, it is about user friendliness, reach and the ability to connect to others.