- Following a slew of recent reports, no bidders seem to be left in the race to buy Twitter.
- The stock is likely to continue falling, possibly even to the sub $16 levels.
- But Twitter doesn't necessarily need a buyout for the stock to rise again.
Investors were left pounding the table for a buyout on 6 October, after reports by various news agencies seemed to rule out nearly every potential suitor. By the end of the day, shares of San Francisco, California-based Twitter (NYSE:TWTR) were down by a massive 20%. While some reports suggest that the micro-blogging site is still looking to get acquired, investors would do well not to bet on a buyout. If no announcement comes through soon, Twitter shares will likely fall much further, possibly even to the sub $16 levels. But Twitter doesn't necessarily need a buyout for the stock to rise again.
Twitter Can Turnaround
What's Bigger Than The 'Big' Advertising Deal
Barring logic, the other thing that got drowned out by the elevated buyout chatter was a 'big' advertising deal for Twitter with The CW and Ford (NYSE:F). On 4 October, Twitter signed what it called the biggest deal so far on its Twitter Amplify program, which allows brands to run their ads on specific content categories. As part of the deal, CW will create video content related to some of its popular shows, to be run on Twitter, and Ford will run pre-roll ads (before the video content) on this content through the coming year. Quoting a CNBC report:
"Starting on Tuesday, CW will create social media videos such as weekly recaps, highlights told through fan tweets and sneak peeks for its five most tweeted shows, "Supergirl," "The Flash," "Arrow," "DC's Legends of Tomorrow" and "Supernatural." Ford advertising will appear on the videos, which will be posted in official CW Twitter accounts. Then Twitter will promote the videos in front of targeted Twitter users based on its data."
While the financial terms of the deal aren't available yet, Twitter claims this is the biggest Amplify deal in the entertainment segment. The report also quoted Twitter's director of content partnerships and the Amplify program, Mike Park, saying:
"The best part about Twitter Amplify in terms of video is we're the only social pre-roll [before the content] product out there."
The deal couldn't have come at a better time for Twitter, given that investors seem to be rather disgruntled with its progress as an advertising platform. What's more, it's another milestone in Twitter's attempt to leverage video content. But what's more important than the 'big' deal itself is the backdrop of Twitter's larger transition.
Live Streaming Is More Than Just An 'also-available' Offering
Live streaming is more than just an offering on the platform. The way it appears, it's not an 'also-available' sort of solution. Live streaming is part of a larger transition, from what Twitter use to be, into a video version of itself. It's about instant updates, news and live content, all in video formats. And given the broader shift to video consumption from the traditional text, the narrative is a powerful one.
Every platform needs to re-invent itself, and while observers have often criticized Twitter for not evolving, this could be Twitter's biggest transition yet. Soon enough, users could start associating Twitter with live video content. And if that happens, this platform could turn around. Even as the cord cutting phenomenon continues to unfold, it seems that Netflix (NSDQ:NFLX), with its 'on-demand' video streaming, and Twitter (if it manages this transition), with its live streaming services, could emerge as some of the big winners.
Does Twitter Have The Means?
There's a host of live content Twitter has lined up, ranging from the NFL, the NHL, the NBA and lots more. Even as this post is being written, a large number of you are probably watching the Presidential debate live on the platform. The opportunity is shaping up nicely, but more importantly, it appears as if Twitter is finding the means to fund it. After consistently reporting negative free cash flows for most of its life as a public company, Twitter finally seems to have worked things out. Twitter has now delivered positive and growing free cash flows for three-quarters on the trot, totaling to ~$300 million. In the content game, Twitter will probably need much more, but that's a start, and a good one at that.
Don't Buy Twitter Shares Yet
Even as investors catch their breath after Thursday's big fall, Twitter shares could very well see another sharp correction. Much of the buyout speculation and rumor fuelled rally began when the stock was at ~$16 per share. Now with most of that chatter fading away, Twitter shares could have further to fall. At $19.85 a share, the stock still trades at a rather expensive (given it's 20% growth) Price to Sales multiple of ~5.6, compared to just under ~4.5 before speculation drove Twitter's stock price through the roof.
In the near term, Twitter shares may have further to fall. But Twitter doesn't necessarily need a buyout to lift the stock again. The platform has potential, and it's an interesting company to watch over the next six months.
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