“Why Twitter?”, “Who will buy?”, “Why will they buy?” These are the questions that engulfs my thinking mind when I dwell into this deal. So, today, I’m going to present my thoughts on this possible transaction and how the potential acquirers are positioned in relation to this sale transaction. I’ll try to simplify my views under the respective headings and present my opinion to my Readers in an easy-to-comprehend manner. I welcome Reader’s thoughts and views on my article.
What makes Twitter so attractive?
- Twitter has an active user base of over 300 million users and an annual revenue of about $2 billion. Even though it’s losing about US$ 125 million every quarter (although some attribute it to stock-based compensation), the potential acquisition candidate holds about US$ 3 billion in cash and short-term securities in hand, and an accumulated deficit of US$ 2 billion in its Balance Sheet.
- Twitter, which originally started out as a micro-blogging site, evolved into a social platform for discussing opinions, news and live events. Its video ads through data streaming are widely expected to be the primary source of revenue in the future. Recently, the company also inked deals with several companies for live-stream events on its platform, including 120 Sports, Bloomberg TV and the four major sports leagues in the U.S. In other words, it’s an attractive investment because of its data, user base and influence in politics, culture and the media.
- Verto Analytics conducted a survey in the US on 20,000 internet users and found that Twitter is the sixth largest digital publisher in the US from montly active users perspective, that reaches 89% of its audience in the nation.
Who are the potential acquirers? What’s in it for them?
Keeping in mind the merits of this candidate, in my opinion, the following potential acquirers may benefit highly from the Twitter acquisition
On September 30, 2015, Salesforce saw their stock price dip by 6% to US$ 70, indicating investors fear from this transaction. However, let me discuss how this deal can benefit Salesforce.
In 2014, Salesforce estimated an addressable market of US$ 82 billion by 2018, and made their strategy in line with it (i) by launching its Wave Analyitcs Cloud in 2014 (ii) by launching artificial intelligence (AI) cloud named “Salesforce Einstein”, which is geared towards delivering AI capabilities for sales, service and marketing, and (iii) by acquiring companies in the areas of machine learning, business intelligence and deep learning including BeyondCore, PredictionIO, MetaMind and MinHash to support its AI plans.
In a recent panel discussion, Marc Benioff, the Founder, Chairman and CEO of Salesforce, said, “One of the most exciting things that’s going on right now is we’re moving into a world where everything is one-on-one. The ability for a company like General Motors to speak directly to the consumer is more important than ever.”
Benioff added, “The ability to bring that information all the way down to the consumer, with the intelligence built in, is very powerful,” Benioff said. “And you could do that through a lot of different vehicles—you can see it happening through the Snapchats and Facebooks of the world, and even the Twitters.”
Twitter, which caters to social media platform, real-time news platform and live streaming platform, commands 313 million monthly active users and 500 million tweets every day. It also broadcasts millions of minutes of video per day. This proves Twitter to be an invaluable asset for Salesforce, keeping in mind Benioff’s business strategy.
Additionally, Twitter and Salesforce are business partners since 2012, which allows Salesforce to access all public tweets for analytics and machine learning. Salesforce leverages Twitter’s social media data streams to develop predictive models in its AI offerings. So, acquisition of Twitter by a competitive bidder will result in Salesforce losing access to this data, which might prove detrimental to the development of “Salesforce Einstein” in the short run.
In June 2016, Salesforce lost to Microsoft in a competitive bid to acquire Linkedin. Linkedin could have provided Salesforce the access to its large database of professional contacts. So, acquiring Twitter now could help Salesforce with a similar set of data, something that Salesforce was looking for in Linkedin.
Microsoft, which generates most of its revenues from a combination of gaming, enterprise, and cloud initiatives, already acquired Linkedin, thereby integrating LinkedIn’s analytics with Office 365 capabilities. While Satya Nadella created an integration story of Artificial Intelligence when asked about Microsoft-Twitter deal and what I could see their additional interest in Twitter’s data stream, Microsoft realizing synergies from this deal, in my opinion, is remote.
Google might eye Twitter as its acquisition target for the same reason Microsoft eyed Linkedin for. I list the reasons for GOOG-TWTR deal as:
- cost efficiency (GOOG, in my opinion, is the biggest among all the mentioned bidders to realize synergies)
- video data stream (remember GOOG’s not-yet-profitable YouTube?), and
- social media (Orkut and Google+ are failures, so acquiring Twitter may reposition Google+ among the top players in the social media platform), besides tweets, data and 300 million active users.
Verto Analytics survey of 20,000 US internet users over 18 calls Twitter as the sixth biggest digital publisher in the US in terms of montly active users, reaching 89% of that national audience. So, should Disney buy Twitter for this reason? I’m not convinced.
Verizon’s acquisition of AOL and Yahoo! were intended to increasing its advertising portfolio. Twitter, being a big media company by itself, could fit right into Verizon’s video ambitions. After the acquisition, Twitter will also add to its advertising revenue.
Who should buy it – my perspective?
In my opinion, Twitter is a fit for a technology company more than a media company, for Twitter may have conflicts over content with the acquirer. For example, companies like 21st Century Fox Inc., Comcast Corp., Time Warner Inc. and AT&T Inc. are not interested in buying Twitter; the acquirer might face challenges while turning Twitter around, or while molding its strategy to suit new priorities.