- Rumor mills are at it again, with multiple news agencies fueling Twitter buyout rumors.
- The chatter is based on one of the usual suspects, Salesforce.
- As it appears, what's driving rumors this time, is a myth.
There's never a dull moment in the life of San Francisco, California-based Twitter Inc (NYSE:TWTR) these days. Twitter shares have been in an uptrend lately, and nearly went back to $20 a share a few days ago. What's the optimism about? It started with a 2% jump after hedge fund Jana Partners announced its intent to take a stake in the micro-blogging site. Twitter has also been putting in place measures to clamp down on trolls, and to address issues like fake news and cyber-bullying. Not surprisingly, all that optimism combined is taking the shape of buyout rumors, again. However, the rationale at the heart of these rumors appears to be somewhat suspect. Here's why.
But First, What Are The Latest Buyout Rumors?
The announcement that hedge fund Jana Partners is buying a stake in Twitter seems to have sparked off the latest round of buyout speculation. As such, Jana Partners is acquiring a small stake. The hedge fund's stake will be restricted to 2.9 million shares, which is less than 1% of Twitter's outstanding share count. However, the firms reputation as an activist investment firm has seemingly caught the attention of investors who are still pounding the table for a buyout. Quoting from a 14th November dated report on Fortune:
"It’s a small position, but Jana Partners is also known to be activist investment firm, suggesting it could push for either reforms or a sale at the influential, but underperforming, social media company."
Investors seemed to welcome the announcement, pushing the stock 2% higher at market open on the day. Interestingly, just a day later, two media houses carried reports that possibly fanned the flame. On 15th November, TheStreet published a post titled "Twitter to 'Become a Target Again' With a Cleaner Platform", followed closely by Investor's Business Daily, which carried a story titled "Twitter Takes Steps To Tame The Trolls, Will It Help Attract Suitors?". Apart from their uncannily similar titles, the two stories also had one more thing in common, the protagonist, the potential suitor - Salesforce (NYSE:CRM). Though neither explicitly said Salesforce could of would buy Twitter, they both focused on Twitter's efforts to solve the problem of 'trolls', which some believe to be the reason why suitors walked away in the past.
The most interestingly titled story came out two days later on 17th November, with the headline "Why Salesforce.com Might Now Suddenly Acquire Twitter Inc (CRM) (TWTR)". Not only does that make the whole thing sound like a dubious, devious ploy, it also propagates a theory that doesn't make too much sense.
Why Are These Rumors Coming To Life Again?
It's not surprising that Salesforce is at the epicenter of fresh rumors. After all, Salesforce CEO Mark Benioff was the only high profile executive to have reportedly voiced his appreciation for Twitter, calling it an "unpolished jewel". Though not specifically about Twitter, Benioff was also reported to have said:
"Data is the currency in software’s new world order," Further adding, "I’m looking hard at unique data-rich companies and what I can do to make them more powerful and innovative if combined with Salesforce."
What's Wrong With These Rumors Now?
It's understandable that, coming at the time they did, Benioff's statements are open to interpretation. However, there's enough reason to believe that Salesforce may not buy Twitter. For starters, how about explicit disinterest? Here's what Benioff told CNBC:
"Our stockholders heard that we were involved in a process and they made it very clear that they did not want us to buy that company. So, very specifically, we had to walk away," Benioff also said, "I love the CEO. I love the company. I love the brand. I love everything about Twitter but our stockholders don't and I listen to them. They are an important part of our family and how we do business at Salesforce."
That's probably explicit enough. If it isn't, how about a lack of resources? We covered this in detail at the peak of the speculation. Salesforce simply doesn't have the resources to buy Twitter. Even at its now much lower price, Salesforce wouldn't be able to buy Twitter without using a massive amount of stock, which would hurt its shareholders. Yup, the same ones that asked Benioff not to touch Twitter with a barge pole.
Last but not the lease, there's a very simple fact that a lot of people seem to have missed out. Twitter licenses this data, and if you look at the numbers, it doesn't seem to have that many takers. As we pointed out in an earlier post, Year-on-Year (YoY) growth in Twitter's data licensing revenue has slowed over time, and is near its lowest at ~35%. If there isn't a massive interest to license this data, it's hard to see why anybody, let alone Salesforce, would want to pay such a massive price for it. Data suggests that the whole 'Twitter data is gold dust' argument is a myth. And as it appears, this myth is probably what's still driving these repeated rumors. However, as we've said before, Twitter has potential. Twitter doesn't need a buyout to rise again.
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