Why doesn’t anyone want to buy Twitter? After the company’s board met on Thursday, it told CNBC that there were “no bids on the table” and that instead it was exploring cost cuts – an announcement that drove another sell-off in the stock and pushed it down 6%, as shareholders who had hoped to see a September swoop from a tech or media company were disappointed. On Friday the shares were changing hands at around $18 – 20% down this year and well short of their float price of $26 three years ago.
That doesn’t mean, however, that Twitter is not a target. It can boast 313 million monthly active users, of whom 66 million, or 21%, are in the US. But unlike that other social network Facebook, its growth has stalled (user numbers were up just 1% year-on-year in the quarter to the end of June), and it is far from profit, losing $107m on revenues of $602m – although the latter, at least, were up an encouraging 20%.
In fact, Twitter, for all its impact on news and communication since its foundation in 2006, has never made a profit since going public in November 2013. A month later its shares hit an all-time high of $69, but have steadily declined since, while losses have worsened; shares handed out to existing and acquired staff count against any profit, and the company has been on a minor acquisition spree to try to expand its video offerings.
It’s unlikely to go bust, having a cash pile of $3.6bn. But in financial circles the feeling is that Twitter’s time as an independent entity is running out, because shareholders want to see growth and profit – and co-founder Jack Dorsey, who has been back as chief executive for just over a year, isn’t delivering on the hope his appointment engendered.
After the board meeting, Michael Pachter of Wedbush Securities sounded an optimistic note on CNBC. “Twitter has to figure out who they want to be,” he said. “They should want to be the first source of news. Their addressable market is the two-and-a-half-billion people on the internet who want to know about anything.” In his view, “there’s only one strategic buyer, and it’s Facebook … [Twitter is] instant news, and that’s the one element that Facebook is missing. I think Facebook really wants to be a media company, and that’s the one element of media that they’re really sorely lacking.”
Certainly the row over Facebook’s censorship of a famous Vietnam war photograph suggests Mark Zuckerberg’s company isn’t good at instant news. But the Facebook founder has repeatedly insisted that his is a “tech company, not a media company”.
He might also feel that he could do without the explosive rows Twitter suffers as a result of tweets from misogynists, racist groups and would-be terror recruiters. And $18bn is nearly as much as Facebook paid for communications service WhatsApp, which Facebook is beginning to exploit for advertising.
If not Facebook, what about Google? That idea has been around since 2011. Certainly, owning Twitter would bring Google closer to its mission “to organise the world’s information and make it universally accessible and useful”.
Ben Thompson, an independent technology analyst who writes the Stratechery blog, thinks it makes perfect sense. Google badly needs a compelling product used daily on mobile platforms. (On average, people carry out very few Google searches on mobile compared to desktop; they tend to use apps instead.)
However, as Thompson pointed out last week in a newsletter to his subscribers, Twitter signed up in 2015 to use Google’s DoubleClick advertising platform and give the search engine access to the “firehose” of every tweet as they happen, to roll into search results. “This, effectively, eliminated the top two reasons for Google to buy the company,” he observed. As long as those deals exist, Google gets almost all the benefit of owning Twitter without the downsides.
What about a media company purchase? After all, if Twitter is a news service, a news company might want it. Pachter at Wedbush suggested Rupert Murdoch’s News Corp would be the best fit; Time Warner and Disney don’t want a pure news feed. “Most of the media companies aren’t actually in the news business, except for News Corp,” he said. But Murdoch will remember his $500m purchase of MySpace in 2005: within a few years, Facebook had trounced it.
Microsoft’s purchase of LinkedIn for $26.2bn in June may have heartened Twitter shareholders, but the two companies look very different: LinkedIn makes money, and is comparatively orderly. Twitter, by contrast, is trying to fight longstanding problems with abuse by its users, while also seeking a feature that can’t immediately be copied, and then executed and monetised better, by Facebook – as happened with its livestreaming app Periscope, which Facebook trumped with Facebook Live.
“I see [Twitter’s] model as being slightly broken and in need of a fix,” said Pachter. “Give Dorsey another year and let him fix it. If he doesn’t, get somebody who can.”
Dorsey might not have any offers to buy – but he might soon want some.
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